Our 4% 5-year bonds are on sale now!

Does the Three Amigos Summit Signal a Carbon Club is Coming to NAFTA?

Jul 08, 2016

Image courtesy of the CBC 

Climate change was a central issue to the discussion when North American leaders met for the ‘Three Amigos’ Summit in Ottawa last week. Prior to the summit, a report published by the Center for American Progress urged Canada, Mexico, and the United States “to strengthen and expand [carbon-pricing] by supporting the development of national or subnational systems, sharing technical expertise, and making efforts to align pricing instruments where feasible”. While the leaders agreed to a significant expansion of zero-carbon energy in their countries, no formal commitment to expand carbon pricing throughout the continent was made. Given that carbon-pricing exists on some level in each of the three NAFTA countries, a move to consolidate the current pricing systems into a bona fide carbon club might make sense.

Carbon Clubs: What They Are and Why They Are Beneficial

A carbon club is a series of local carbon-pricing regimes that are connected by a multilateral trade agreement. In essence, creating a carbon club simply requires ‘linking up’ or coordinating existing carbon-pricing systems to promote an equal playing field for low-carbon businesses and discourage emissions outsourcing. Currently, there is some coordination among North America’s carbon-pricing jurisdictions: for example, Ontario will soon join Quebec and California’s joint cap and trade market. Furthermore, Canada seems committed to establishing a federal floor-price for carbon, a measure which would have Canada join Mexico with a nation-wide carbon-pricing system. While political gridlock has prevented the United States from implementing a federal carbon-pricing regime, some American jurisdictions, such as California, have implemented carbon-pricing systems on their own. The zero-carbon commitments made by the NAFTA countries at the Three Amigos Summit may provide an incentive for more American jurisdictions to adopt carbon pricing. Clearly, NAFTA leaders would not have to start from scratch on a carbon club; much of the groundwork is already in place.

A continental carbon club would possess all of the perks of local carbon pricing, but with the added benefit of broad, consistent coverage. Essentially, a NAFTA carbon club would ensure that everyone has to ‘play by the same rules’ and that no one will unduly suffer as a result of reducing their emissions. The logic of climate change as a problem is such that solutions require coordinated, collective action. The cooperation shown by North America’s leaders at the Three Amigos Summit demonstrates that they are committed to working together to combat climate change. Since carbon pricing is one of the most efficient ways to reduce greenhouse gas emissions, a trilateral carbon club could follow this recent cooperation on climate.