Comparing costs of the Low Carbon Fuel Standard and Carbon Tax for decarbonizing the Canadian transportation sector

Economists agree that a uniform, economy-wide carbon tax is the lowest cost policy to reduce greenhouse gas emissions. There is less agreement on the comparative cost of the most likely efficient regulatory alternative to the carbon tax, that being the low carbon fuel standard (LCFS). This study used the energy-economy-environment model gTech to compare the economic efficiency of the carbon tax and LCFS to decarbonize the Canadian transportation sector. My results suggest the economic efficiency of a carbon tax is about 25% better than the LCFS and that a carbon tax would need to rise to $198/tonne CO2 eq. by 2050 for Canada to achieve a 65% reduction in transportation emissions from 2005 levels by 2050. Considering the likely political difficulty in implementing a high carbon price, a flexible regulation approach might offer an alternative that is slightly less economically efficient but may have a better chance of being implemented.