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Kyoto Canada Case

Kyoto Canada Case

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C.D.Howe Institute
www.cdhowe.orgISSN 0824-8001
The Kyoto Protocol:
Canada’s Risky Rush to Judgment 
Ross McKitrick Randall M. Wigle
No. 169, October 2002
 In this issue...
Canada's Prime Minister Jean Chretien has pledged to ask Parliament toratify the Kyoto Protocol before the end of 2002. However, little is knownabout how the accord would be implemented or what it would cost. By someestimates, its economic impact would be similar to that of the 1988 FreeTrade Agreement between the United States and Canada. As a result, thegovernment's timetable is precipitous, at best; at worst, it could lead toserious economic damage.
The Study in Brief 
The Kyoto Protocol mandates a set of country-specific reductions of emissions of "greenhouse" gases thatabsorb and re-emit infrared radiation. Canada has agreed to a target of six percent below 1990 levels bythe end of the decade, which will require about a 30 percent absolute emissions cut. Canadian PrimeMinister Jean Chretien recently pledged that his government will ask Parliament to ratify the KyotoProtocol before the end of the year. In light of the sparse information about how Kyoto will beimplemented and how much it will cost, this timetable is, at best, precipitous; at worst, it risks seriouseconomic damage.The federal government released a Discussion Paper last April outlining four hypothetical optionsfor achieving compliance. We discuss some of the economics behind the estimated policy impacts, andconclude, among other things, that the Discussion Paper does not provide an adequate basis for makingan informed decision on Kyoto. Given the scale of the policy commitment and the potentially far-reaching economic effects, without a more thorough understanding of the economic impacts a decision toratify on the basis of what has been presented thus far would be precipitous.
The Authors of This Issue 
Ross McKitrick is Associate Professor, Department of Economics, at the University of Guelph. Randall M.Wigle is a Professor in the Department of Economics, Wilfrid Laurier University.
The Border Papers 
The Border Papers”is a project on Canada’s choices regarding North American integration. It is producedwith financial support from the Donner Canadian Foundation and guidance from an advisory board whosemembers are drawn from business, labour, and research organizations.
* * * * * *
C.D. Howe Institute Commentary
is a periodic analysis of, and commentary on, current public policy issues. The manuscript was copy edited byKevin Doyle and prepared for publication by Marie Hubbs. As with all Institute publications, the views expressed here are those of the authors,and do not necessarily reflect the opinions of the Institute’s members or Board of Directors. Quotation with appropriate credit is permissible.To order this publication, please contact: Renouf Publishing Co. Ltd., 5369 Canotek Rd., Unit 1, Ottawa K1J 9J3 (tel.: 613-745-2665;fax: 613-745-7660; e-mail: order.dept@renoufbooks.com), or the C.D. Howe Institute, 125 Adelaide St. E., Toronto M5C 1L7(tel.: 416-865-1904; fax:416-865-1866; e-mail: cdhowe@cdhowe.org).
$12.00; ISBN 0-88806-574-4ISSN 0824-8001 (print); ISSN 1703-0765 (online)
anadian Prime Minister Jean Chretien recently pledged that hisgovernment will ask Parliament to ratify the Kyoto Protocol before theend of the year. In light of the sparse information about how Kyoto willbe implemented and how much it will cost, this timetable is, at best,precipitous; at worst, it risks causing serious economic damage.This treaty mandates a set of country-specific reductions in emissions of greenhouse”gases that absorb and re-emit infrared radiation. The rationale forthe policy is the belief that increasing concentrations of these gases in the airaffects the global climate in ways that may be harmful to humans and theecosystem.The Kyoto Accord grew out of studies done by the Intergovernmental Panel onClimate Change (IPCC), which was formed in 1988 to help coordinate research inscientific and socio-economic aspects of climate change. The organization’s SecondAssessment Report, released in 1996, concluded that climate change had takenplace and that at least some of it could be attributed to human activity. As a result,governments around the world, including Canada’s, adopted a goal of reducingso-called greenhouse gas emissions. This led to the Kyoto Protocol in 1997. In 2001,the IPCC released its Third Assessment Report (IPCC 2001), restating itsconclusion that there was a human influence on climate.The major gases involved are water vapour, carbon dioxide and methane. TheKyoto Protocol names several other gases as well. For policy purposes, attention isfocused on CO
(carbon dioxide), because it is emitted in large volumesworldwide. Canada’s obligation is to reduce emissions of carbon dioxide sixpercent below 1990 levels. The target must be attained on average over the period2008 to 2012.Prime Minister Chretien has now committed the federal government to ratifythe treaty before years end. This Commentary will outline the reasons why thattimetable is an unrealistic and unsound policy.The government released a Discussion Paper (DP) called “CanadasContribution to Addressing Climate Change.”It outlines four policy packages(called here the Options) that could be used to implement the treaty should itbecome binding on us.The three-fold purpose of the DPis to:
propose four Options for meeting Kyoto obligations
present economic cost estimates of the Options
provide a basis for public consultations on whether Canada should ratifyKyoto.This paper will explain what the four Options are, discuss some of the economicsrelated to estimating policy costs, and evaluate how well the Discussion Paperachieves its goals. Part 1 will provide some information on the Kyoto Protocol.
C.D.Howe Institute Commentary1
We would like to thank the many people who took time to discuss the policy analysis and helpus obtain the information we needed to write this paper. In particular, Neil McIlveen of NRCanand Carl Sonnen of Informetrica gave us a lot of assistance in tracking down details of themodeling and numerical results. Finn Poschmann, Bill Robson and Jack Mintz of the C.D. HoweInstitute provided several rounds of critical feedback as did several anonymous reviewers. Anyremaining errors are our responsibility

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