Implementing the Kyoto accord in Canada: Abatement costs and policy enforcement mechanisms

The anticipated abatement costs to be incurred by Canada and six of its pro vinces from the implementation of the Kyoto agreement (reduction of carbon dioxide (CO2) emissions generated by fossil fuel burning by 6% from 1990 le vels) are estimated using an emissions benefit function. Marginal abatement cost functions are estimated a,ld used for the analysis of alternative pol icy enforcernelzt mechanisims. The efficiency of a policy mechanism depends on the rule used to allocate the burden of the agreement among the provinc es and on whether the provinces or the federal government implement the agr eement at th provincial level. Under the rule of an equal emission reductio n of 6% over 1990 levels in all provinces, Quebec bears no abatement costs while British Columbia and Saskatchewan incur the highest costs. An allocat ion rule based on the equimarginal principle achieves aggregate efficiency; it is, however the rule that contains the risk of noncompliance by provinc es that have already taken action toward emissions reduction.