6.0 International Abatement Opportunities

Climate change is a global issue, and the geographic location of emission reductions is irrelevant. Therefore, a strategy that complements domestic action with real and verifiable reductions from international sources with relatively lower marginal abatement costs will help meet the long-term targets more cost-effectively.

The NRTEE’s research indicates that delivering on the cost-effectiveness goal will require balancing the cost of domestic action with low-cost carbon abatement opportunities available internationally. Figure 14 illustrates domestic marginal abatement costs for emission reductions corresponding to the target levels contemplated by the federal government. At reductions beyond 45% below 2006 levels, the cost of reductions rises at greater rate than the quantity of emissions reduced, and each tonne reduced becomes more expensive.

An important additional design issue is the interaction between a Canadian pricing system and other systems internationally. Three main options could play a role in a Canadian carbon pricing policy: first, linkages with other systems could enable Canadian emitters to purchase credits from other international permit trading systems; second, policy could allow firms to purchase international offsets; and third, the Canadian government could itself purchase emission reduction credits to ensure targets are achieved. Purchasing emission reductions credits on the international market can significantly reduce the required emission price in Canada, thus reducing costs to Canadian firms and consumers of achieving targets. International linkages can also align prices in Canada with emissions prices internationally.