EnviroEconomics.ca

Ok, so I am back …. not sure why I left….

Below is a unedited version of a Letter to the Globe I submitted (see Here).

Standing in Wal-Mart, looking around at the Halloween mayhem, I realized just how bad it is. No, it is not consumer confidence, because the lineups were 15 deep, with all manner of folk clamoring to spend. And no it is not the brinks and mortar economy, because the shelves and isles were positively chocked full.

No, I realized that our expectations are all wrong. We expect mounds of cheap stuff to be available and ready to take home in a moments notice. And yes, we expect someone to cart it away once it crumbles shortly thereafter. And herein lies the real root problem with our Wal-Mart expectations — disposal.

All this junk has to be made, shipped, stored, bought, taken home and then dumped. All of it except for the soft bits that hit the sewage facility and then the river. And all of this activity emits carbon and other nastiness, loads of it. But no matter, the greatest trash heap of them all, our atmosphere, is handling that for free.

So, standing there in the Wal-Mart mayhem, it became clear to me that at the root of the Globe’s editorial response to the so-called “landmark climate change study” is Wal-Mart expectations. Labeling the report’s economic conclusions as “devastating” fits well with our collective expectation that we expect more for less. Or even better, we expect a free lunch.

But are we worse off with action to manage carbon and other environmental nastiness? Based on the report, I think not. Even with aggressive action on climate change as outlined in the report, and no linked permit trade with the United States to reduce our domestic costs, Canada’s economy will still be much larger than today. All economic sectors will increase in size and wealth, including that great Canadian cash cow, oil and gas. Under aggressive climate action, even Alberta’s economy is still a third larger than today.

In this “devastated” economic future, Canada will all be richer, Wal-Mart will be bigger and we can all buy more stuff.

So are we better off with action on climate change? Economically we may be marginally worse off, but our wellbeing is so much more than just economics. For starters, the growing trash heap in which we all live in may be a little smaller. And that, my friends, may just make us all better off.

I have been saying lately that first we were too rich to take action on climate policy since we couldn’t kill the Golden Goose that is the oil and gas sector and the booming economy. Now, just months later we are too poor. In both cases, inaction was the watchword.

And then along comes an email from Carl Sonnen of Informetrica with the following end quote:

Due to the present economic climate…the light at the end of the tunnel has been switched off

Well said.

There is a good article (here) on CCS. It is essentaially a rebuttal to the CBC article blogged below. What I like about this article is the observation that the climate debate is now one that wrongly equates climate change to oil sands. Clearly, other emissions are important and other emission reduction opportunities are likely cheaper than CCS. The graph below provides a forecast of three large sources of emissions in Canada: oil and gas, buildings and transport. As can be seen, transport emissions are much larger than all oil and gas emissions. So, the observation holds: yes oil and gas emissions are large, but transport emissions are larger. And don’t forget all our buildings.

This article comes as no surprise to anyone looking at the CCS issue:

Secret advice to politicians: oilsands emissions hard to scrub

…Little of the oilsands’ carbon dioxide can be captured because most emissions aren’t concentrated enough, the notes say. For efficient capture, there must be a high concentration of CO2 coming out of a smoke stack.

The article is correct to state that the streams of CO2 coming off the power units is not concentrated. Most In-Situ Steam Assisted Gravity Drainage (SAG-D) units are running on natural gas (gas produces steam which is injected in the ground to loosen oil in the sand, which is then pumped to the surface). In these plants, natural gas powers a couple of co-generators and upwards of eight power boilers. Given the high efficiency of the co-generators and the low carbon content of the natural gas, emission rates are low and so CO2 is less concentrated. Total emission rates of CO2 from SAG-D facilities are in the order of 60 kg/bbl, but these units produce 100,000 plus barrels per day, so total emissions can approach 2 to 5 MT. This is a big number, and so it seems appropriate to target these facilities. But, what reductions do we get for what cost?

The article implies that capturing CO2 is not feasible from SAG-D units. But this is not right: CCS is technically feasible for SAG-D units, it just costs lots. Federal regulations, for example, require emission performance from new SAG-D units to match that of CCS. Cost estimates for these units could then be upwards of $200/tonne removed CO2 to achieve the 90% removal efficiency. Feasible yes, cost-effective, perhaps not.

And here is the problem. While most of Canada’s emissions remain unpriced, these units will be facing costs of upwards of $200/tonne. Equity aside, this leads to high cost abatement strategies. That is, we are requiring high cost reductions from these units while other emissions remained unpriced and lower cost abatement opportunities ignored. And oh yes, the embodied carbon emissions in a barrel of oil is roughly 340 kg, or 6 times that of SAG-D extraction. So, we can assume the moral high ground about oil sands needing to reduce emissions right up to the point when we turn the ignition. The real story implied in the article is the misaligned carbon prices across Canadian emissions. This needs to be fixed. This is the challenge for Canadian carbon policy.

The third largest user of transportation fuels is California, behind the rest of the US and China. And apparently noises of a Low Carbon Fuel Standard in California, similar to the US defense fuel standard banning oil sands oil in federal vehicles, have the Alberta oilmen scared. See here:

the Low Carbon Fuel Standard, a new regulation that could fast-forward Canada’s carbon-intensive deposits into extinction before they reach their potential….

… The Alberta oilmen are there for damage control. Canadian producers are investing billions of dollars on new oil sands projects aimed at supplying oil primarily to the U.S. market, but which generate more greenhouse gases than other sources.

Scary stuff if you are sitting on billions invested…or is it? The article goes on to say that currently no Canadian oil is being exported to California. If this is the case, one has to wonder why this is a big deal? The way current Alberta and CND federal policy is going, new oil sands facilities will be required to significantly reduce their emission intensity through carbon capture, or some other lower carbon energy (nukes). So you have to wonder why get uptight over a potential export constraint that may actually be an export opportunity for new facilities who have lower emission intensities. phew.

And herein lays the myth. If California is such a goldmine for selling low carbon fuel, then why worry? With CCS coming, is there not unlimited opportunity to sell low intensity oil to California? Is this not a benefit of cleaning up our emissions and the current regulations? It seems that a more balanced view is US low carbon US fuel standards present an opportunity. But no, I guess that would not sell newspapers. And yes, you have to also believe in the credibility of the CCS regulations and the California policy.

Perhaps the only clear observation from this is that oil sands project planners must down Tylenol by the handful.

A neat little piece of climate policy work was just released, albeit quietly, during the federal election. Nic Rivers and Mark Jaccard have been taking analytical jabs at various climate policies for a very long time. Their central theme has been to compare, from an analytical perspective, what government’s say they will achieve and what their policies will most likely deliver. Their latest contribution, with Jotham Peters, can be found here and provides this nice conclusion:

We conclude that, as currently designed, it is highly unlikely that the policies of the government of Canada will achieve the target of reducing national emissions 20% below 2006 levels by 2020. The lack of an economy-wide emissions price and the allowance for 100% offsets for industrial emitters make it highly likely that emissions will be significantly higher than target levels in 2020 and indeed might even be close to today’s levels. Since the government claims that it is intent on achieving its 2020 emissions reduction target, it is difficult to understand why it does not immediately convert the intensity cap to an absolute cap and eliminate or severely reduce the offset provision. It also needs to extend its cap to cover all emissions in the economy.

The bottom line is that politicians have been promising to save the world for a very very long time but have instead been burning our cash while getting very little done (see Nic and Marks other paper here: Burning Our Money to Warm the Planet).

All climate policy by addressing energy use and production can have wide-ranging and long-term effects in the economy, touching virtually everyone as costs get passed through prices. This is why the election climate policy “debate” , and I use this term loosely, deserves more serious attention. But then again in politics, and especially in this campaign, thoughtfulness is in short supply — “Says who… and your Mom wears Army Boots”. Too bad, cause their political gain is our economic and environmental loss.

The big climate policy news this week is the emergence of a new US climate policy from President GWB. This is the man who brought us in 2002 that oh so stringent 18% reduction in GHG intensity by 2012 — which just so happened to be the forecast baseline. And now we get this,

In reading the description of what is to come and comparing it to the President’s history on climate policy (See DOT Earth Post and Text here), one can’t help but chuckle at the above photo. It pretty much sums up the policy announcement.

But here is my take: stabilization of emissions by 2025, re-announce old stuff like vehicle and renewable fuel standards (ethanol and biodiesel), make vague gestures towards the power sector, reaffirm the love for nukes and coal, hate for regulations (and how they managed to weave in the link to Species at Risk legislation I will never know), and of course how technology is the key and should be subsidized. And oh yes the economy should be left harmless.

For Canada and competitiveness this stance is somewhat better than before, but still shows an implementation risk, where a majour trading partner’s climate policy stringency is not aligned with ours. But, with the US election to come, and all that is going on in Congress, it is too early to talk of implementation risk. But still, this shows movement, and in time other competitiveness challenges, notably the non-party risk (i.e. China without binding targets) could also become less of a concern.

But for now we can still chuckle over the image and perhaps the policy…”My reduction is this big”

Well I have been a one armed economist for some time now, courtesy of a skiing accident, but am now on the mend and ready to get back at posting. And what got my thoughts flowing this morning is a number of articles in response to this piece from Nature (here):

The article is co-authored by Chris Green, a Canadian economist from McGill who has some quirky thoughts on climate policy that just so happen to be insightful (see my post here on an earlier response to Chris’s article in the Globe “that wacky economist”).

What I really like about the article is it’s focus on technology deployment and what is really required to get the job done. Yes we need broad-based carbon pricing and yes we need technology standards, but those are just the start. The sheer scale of the technology roll-out to hit deep and medium-term targets is truly astounding and will need a whole host of policies and programmes to enable the transition. The article quotes:

Enormous advances in energy technology will be needed to stabilize atmospheric carbon-dioxide concentrations at acceptable levels. If much of these advances occur spontaneously, as suggested by the scenarios used by the IPCC, then the challenge of stabilization might be less complicated and costly. However, if most decarbonization does not occur automatically, then the challenge to stabilization could in fact be much larger than presented by the IPCC.

Now some folks see demons in this sort of analysis, and some provide rather visceral responses (see here).

I am not so cynical to think that the authors of “Dangerous Assumptions” are climate skeptics using the techno-boondoggle argument to delay action. Quit the contrary, they are advocating a real wake-up call for policy to respond to the challenge. So the conclusions of the Nature piece seem to make sense:

There is no question about whether technological innovation is necessary — it is. The question is, to what degree should policy focus directly on motivating such innovation? The IPCC plays a risky game in assuming that spontaneous advances in technological innovation will carry most of the burden of achieving future emissions reductions, rather than focusing on creating the conditions for such innovations to occur.

In looking Canadian climate policy, what is the value of this sort of article? Well, a lot actually. It reminds us of the sheer scale of the challenge ahead. A recent CCS Taskforce called for $2 billion in federal funding and the same from the private sector to gain about 5 MT of CCS (see article here). But, modelling suggests that under Turning the Corner (-20% below 2006 in 2020) CCS deployment will need to be upwards of 75MT and under the Bali targets 150 MT (-25% below 1990). And this investment and deployment will need to occur in the Alberta capital projects world characterized by labour and materials shortages with rising costs. Yikes.

So, once again a little more climate policy reality is revealed. I know, the truth hurts.

What I now see as a primary goal of climate policy researchers is to address one by one the important climate policy questions that are oft cited as reasons for inaction. Competitiveness of course tops this list. Simply, folks argue that with domestic climate policy our exporters and other domestic producers will be unfairly disadvantaged given the lack of a carbon signal in most of the world’s economies. And one does not hear questions of competitiveness mentioned without the requisite decry of China and leakage. Leakage involves transferring production to China, either in the form of increased market share, or by putting our manufacturing base on a slow boat to China.

And then along comes a reporter who pulled one of the few nuggets out of a recent conference in Ottawa. I know because I was at the Conference, A Way Forward, hosted by IISD. The main reasons there were so few nuggets may seem surprising but the conference focused on a post-2012 climate policy world and well, the Bali Roadmap really raises more questions than answers and thus it was hard to sort our all the conjecture.

So, when Peter Gorrie published this in the Toronto Star I was truly amazed. This is a good piece of reporting and really addresses a fundamental question and roadblock to domestic action—namely China is doing nothing so why should we? Here is the gist of the article,

No gasoline-powered car assembled in North America would meet China’s current fuel-efficiency standard.
Even vehicles produced under California’s proposed, and much praised, efficiency law – being fought tooth and nail by the U.S. and Canadian governments and the auto industry – wouldn’t come close to the Chinese mileage limits.
If that’s a shock, take a deep breath. There’s more…

To be sure, China faces massive environmental problems…Still, it is doing far more than Canada, the U.S. or just about any other place to clean up its act. It has begun to impose regulations and targets for car emissions, renewable fuels, carbon storage, forest renewal, energy efficiency and industrial pollution. It’s investing heavily in new technologies, including “clean” coal and alternative power sources. In many ways it’s putting us to shame.

So, next time someone brings up the China competitiveness refrain quietly remind them that China may not have a binding cap under Kyoto, but they don’t need one. They see value in burning less fuel. And quietly, China is doing more than Canada.

The federal Minister of Finance again needs to be commended for his statements that Canada needs some sort of climate policy consistency at the federal and provincial levels (here),

“It’s probably inevitable we have some different approaches now that don’t fit together,” Mr. Flaherty told reporters at a news conference, after a speech to the Vancouver Board of Trade…But he said it will be in Canada’s interest to eventually reconcile the various approaches. “We need to do that for our economy,”

The problem is that Canada does not have leadership on this issue,

Mr. Flaherty did not speak to the question of who would lead this convergence.

But perhaps even more troubling is the shots at Ontario, the praise for BC, and the incongruence between economic policy and climate policy in the federal government’s mind

“It’s not helpful for Ontario to be the jurisdiction in Canada with the highest business taxes and I am going to continue to say to the government of Ontario that, ‘You’re discouraging business investment,’ ” he said, calling those policies “unhealthy” for Ontario’s economy and the Canadian economy as a whole.
He praised B.C. for its move to cut the corporate income tax rate from 12 per cent to 11 en route to 10 per cent by 2011.
“Congratulations to the government of the province of British Columbia for doing that. It will help brand Canada. It will help attract investment to Canada, but the province of Ontario has shown no indication of going in that direction to reduce their business tax.”

The current federal plan provides no mechanism to raise revenue and therefore there is no chance for further drops in federal corporate income tax. Add to this the observation of many that the federal cupboard is bar due to unproductive tax relief such as the GST cut and unchecked federal spending and well, there is no room for the Ministers prized policy – that of further reducing corporate taxes.

So, not only is the current federal plan likely to be high cost, due to its focus on regulatory approaches, subsides and offsets, but there is no opportunity to further reduce unproductive taxes on corporations and personal income. Simply, climate policy is not being integrated with economic policy, a shortcoming that will necessarily lead to higher costs.

Perhaps when the minister asks “ Mirror, mirror on the wall, who has the lowest climate policy cost of all” the minister will be surprised to find that he has the urge to send poison apples to more folks than just Premier McGuinty.