Impacts of climate policy on the competitiveness of Canadian industry: How big and how to mitigate?

Competitiveness concerns have been at the forefront of climate policy debates in Canada particularly as a result of its high energy intensity and significant exposure to international markets. This paper uses a dynamic computable general equilibrium model to assess the likely impacts on sectoral competitiveness that would accompany efforts to meet greenhouse gas mitigation targets that have been set by the Canadian government. Additionally, it evaluates several design mechanisms that could be used to reduce the negative competiveness impacts associated with adoption of domestic climate policies. The analysis suggests that several sectors would likely face significant competiveness challenges under a reference scenario in which permits are given to emitters in lump sum. However, it finds that competiveness impacts can be minimized by using output-based recycling of permits, or by using border tax adjustments.