Let's set up some markets - TD bank report

Toronto Dominion Bank released a report on March 7 calling for market based solutions for climate change. You tell 'em, my financially-inclined brethren! The 21-page report, "Market-Based Solutions to Protect the Environment" is 80% introduction to climate change policy options and 20% suggestions for Canada, with a focus on carbon taxes and emissions trading systems (ETS). It doesn't take a strong position on Canada's policy, but it does recommend:

• a mix of all policy tools, but a focus on price signals (most effective, least overall cost)
• following the polluter-pays principal (maximize efficiency and fairness)
  
• providing long term continuity so that emitters know what to expect
• setting up a domestic emissions trading system ASAP, with the idea of eventually linking to international carbon markets like the European Union ETS
  

The paper covers the classic tools and their advantages and disadvantages, going over

• command and control (can be effective but expensive if too interventionist)
• moral suasion (politically easy but ineffective)
• carbon taxes (the stuff of environmental economists' dreams and politicians' nightmares, but tax shifting will solve the problem if only the political will can be found)
• subsidies (politically popular, sometimes effective but huge free rider problems)
• cap and trade/ETS (an international inevitability; effective but easily diluted by politics (free allocation of permits, overly generous targets)

TD press release
TD report
Toronto Star coverage: "Carbon Taxes Are Coming"

My comments:
carbon taxes: I keep thinking that the idea of carbon taxes are forever marginalized in Canada, but then these reports pop up. Nice to see TD come out with this, even if it is, naturally enough, understated. It looks like the idea is dead at the federal level for now, but maybe if enough mainstream institutions start recommending revenue-neutral emissions taxation we will see provincial initiatives or a return to the idea in future federal debates. Or maybe the policy fairy will simply sprinkle all of our heads with externality-powder and we will wake up and smelllll the coffee...
emissions trading: I'm happy with their general recommendations (starting soon, auctioning permits, starting with a domestic system until international kinks worked out), but I'd like to see an opinion on intensity targets versus absolute targets.