A 22-year study published in Nature Communications has proven that targeted climate policies are successful in reducing carbon, and those with stricter and more targeted policy see the best results. The study, “Climate policy portfolios that accelerate emissions reductions”, was conducted by Theodoros Arvanitopoulos from Cardiff University and the London School of Economics, Simon Bulian from Heidelberg University, and Charlie Wilson from the University of Oxford. It focused on policy at a federal level and spanned from 2000 to 2022, analyzing over 3,900 climate policies across 43 economies including Canada and the United States.
The study analyzed policy density and stringency, regulatory, economic and voluntary mechanisms, and sectoral specialization, meaning whether policies were concentrated on high emitting sectors or broadly across the whole economy. Key findings were that countries which had high density - meaning they implemented a larger number of policies – and high stringencies saw the most decarbonization over time. Focus on specific, high-emitting sectors was found to be more effective than attempting broader, non-sectoral policy coverage. Finally, economic instruments such as carbon pricing and taxes had a much stronger effect on reducing emissions intensity than regulatory or voluntary instruments.
The implications of this study for carbon policy are that for the best emissions reductions results in line with net-zero targets, countries should continue to utilize compliance markets and carbon pricing to mandate emissions. Countries with a policy mix are seen as most effective, meaning the carbon pricing systems should be combined with technological or regulatory mandates to provide mutual reinforcements. Despite the evidence proving high effectiveness of economic instruments in the study, there is not necessarily a one-size-fits-all solution; countries that were consistent and leaned into their own historical policy traditions were ultimately the most successful.
Relevance to Canadian Markets
Environment and Climate Change Canada (ECCC) is currently working to update and improve the benchmark which is used by all carbon pricing systems in Canada. ECCC recently released a discussion paper ‘Driving Effective Carbon Markets in Canada’ including their goals for the interim review and incorporating potential areas of improvement of the federal backstop.
One of the goals of ECCC is to prioritize stringency and update the federal benchmark to ensure provincial carbon markets maintain a strict carbon price signal. This aligns closely with the study’s findings of what is most effective in a carbon pricing system: high stringency and economic instruments. In addition, ECCC is exploring the best ways to target Canada’s high emitters – heavy industry and the oil and gas sectors – which capture 70-80% of Canadian emissions. Lastly, the study identified that a country with dedicated government bodies for climate policy, such as the ECCC, significantly amplifies impact on emission reductions.
The multi-faceted approach being explored by the interim review incorporates multiple methods that are closely aligned with the most effective policy tools identified in the study. ECCC has stated their aim to protect industry competitiveness along with the proposed changes, which further reinforces Canada’s commitment to reducing emissions while supporting industrial manufacturers to ensure economic integrity.
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