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In the context of sub-global participation in greenhouse gas mitigation efforts, this paper investigates the effectiveness of a Canada-U.S. emissions bubble under their existing regional trade agreement. It also explores the potential economic impact of carbon tariff harmonization through the implementation of a common Canada-U.S. external border tariff adjustment as a mean to address competitiveness issues. Using a multi-region, multi-sector computable general equilibrium model the paper finds that the creation of an emission bubble between the two countries could improve efficiency. The findings also suggest that a carbon tariff harmonization policy could give rise to distributional issues among Annex I regions and could fail to mitigate the negative competitiveness impacts of carbon abatement policies. [ABSTRACT FROM AUTHOR]

To reduce greenhouse gas emissions from large industries the Canadian government proposed using a tradable emissions performance standard approach, where the intensity of emissions, rather than the absolute level, is regulated. Unlike a cap and trade system, an emissions performance standard does not guarantee a certain overall level of emission reductions, a fact that has led to significant criticism. However, because of the dynamics of performance standards, they may reduce concerns over reductions in international competitiveness in cases where a country has climate policies that are more aggressive than those of some of its trade partners. Likewise, a performance standard may mesh more efficiently with existing taxes and therefore cause less overall economic impact than an absolute cap and trade system. This paper considers the theoretical arguments for and against such a performance standard system and evaluates it in comparison to a cap and trade system using a dynamic general equilibrium model applied to Canada. [ABSTRACT FROM AUTHOR]