AbstractsEconomics

While climate change is widely considered to be one of the major challenges facing the planet today, the Government of Canada has yet to apply market-based instruments to abate greenhouse gas emissions. Canadian federalism, however, allows subnational governments to take action on climate policy. The purpose of this research is to understand why Canada’s three most populous provinces – British Columbia, Ontario, and Québec – implemented different carbon pricing policies after committing to a unified policy route under the Western Climate Initiative (WCI) in 2008. Since then, BC adopted a carbon tax; Québec followed through with their WCI commitment and now trades emissions permits with California; and, to date, Ontario has yet to price carbon. This study seeks to explain the carbon pricing instrument of choice (dependent variable) as a function of the political systems and economic structures (independent variables). The first hypothesis is that differences in provincial party systems determined different carbon pricing policies. A two-party system, for example, tends to allow right-of-centre parties to implement carbon pricing more easily, as the BC Liberals maintained support from the business community and limited the hemorrhage of disaffected conservative voters while implementing a robust carbon tax. Right-wing parties in three or multi-party systems pose a greater threat to preventing governing parties from implementing aggressive carbon pricing mechanisms, as observed in Ontario and Québec. Québec’s multi-party system permitted less aggressive action, while Ontario’s three-party situation may have played a role in preventing the ability to implement carbon pricing to date. The second hypothesis considers carbon pricing as a function of the differences in the structures of the provincial economies. BC avoided capital outflow by not trading emissions with jurisdictions that have superior potential to reduce emissions. In Ontario, the previously promised coal phase-out and a unique economic structure, including economic dependence on competitive, trade-exposed, and fragile carbon-intensive industries during a recession, and a shifting taxation landscape, prevented carbon pricing to date. In Québec, the recognized risk of capital outflow did not prevent the selection of cap-and-trade. The economic structures of each province interacted with the party systems to help determine instrument choice.