Cost-effectiveness of the performance standard system to reduce CO2 emissions in Canada: a general equilibrium analysis

This paper assesses the cost-effectiveness of the performance standard system to reduce CO2 emissions. Simulation results suggest that this instrument could reduce emissions with almost the same productive efficiency as a permit-trading system. As it does not raise the prices of commodities relative to that of labour, it introduces fewer distortions in labour supply decisions. The results also suggest that the performance system standard could be better than a permit-trading system at avoiding carbon leakage. However, as its information and monitoring costs could be large, a restricted application to some industries may be worth considering when the feasibility of a market-based instrument is uncertain.