The Comparative Analysis of Carbon Pricing Policies on Canadian Northwest Territories’ Economy under Different Climate Change Scenarios

Abstract

Policymakers in the Northwest Territories have introduced carbon pricing as a strategy to reduce fossil fuel consumption and CO2 emissions across various population segments and industries. This indirect approach, chosen for its acceptability, aims to influence behavior rather than directly limit carbon-intensive products. The main purpose of this study was to evaluate the economic and ecological impacts of this policy and its alignment with intended objectives. Using a CGE macroeconomic model incorporating economic structural and behavioral equations, we assessed the policy’s effects on NWT’s economy in general and on a subset of its key sectors. We also incorporated a few observed and simulated climate data for diverse climate change scenarios. The estimated results revealed that climate variables, especially precipitation, significantly influenced sectors like agriculture, construction, and manufacturing. The standardized precipitation evapotranspiration index (SPEI), which encompasses both temperature and precipitation, notably impacted the agriculture, oil, and gas sectors. However, temperature alone showed limited significance, except in the oil and gas sector. The simulation results indicated that, while carbon pricing reduced economic contributions of fossil fuel sector, household rebates could counteract these effects of the economic growth of NWT. Our findings offer valuable insights for shaping NWT’s environmental policies, aligning them with Canada’s goal of net-zero CO2 emissions by 2050.