…environmental economics and the implications of environmental policy

Archive for December, 2009

Hopenhagen or Copenhagen? Either way, Canada is going to suffer the consequence of its past inaction.

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Post from Seton Stiebert in Copenhagen….

I’ve just arrived with a train load of protesters to bear witness to the crazy zoo that will be COP15. My journey comes via Germany where I’ve spent the last week travelling around and thinking about what COP15 means for Canada. Not surprisingly, Canada is already in the lead for the number of fossil awards and I’ve been heckled by Europeans trying to understand why we’ve gone rogue. They just don’t get it, how does a country with all our pristine wilderness, natural beauty, wealth and resources thumb our noses to the international community and completely disregard the threat of climate change?

I was worried that the truth was insidious. That collectively Canadians were climate deniers and we just don’t believe that our activities release large quantities of GHG emissions that will have catastrophic consequences. While, there may be some truth to this reflected by the fact that our emissions have increased by 26% since 1990 rather than decreased by 6%, I don’t think it’s the main reason. Neither do I give more than passing credence to the view that we have special or arduous circumstances as an energy exporter.

I’m wondering if it comes down to the way we do business and our inability in Canada to consider anything but short term investments and paybacks? First our political system seems to have descended into a hopeless divisive politic that is concerned only with short-term interests. There doesn’t seem to be any ability for parties to work constructively together on long-term solutions for climate change, as demonstrated by six failed climate change policies. From my perspective, our federal parties would rather put a hole in our life raft then agree on rowing together to save our skins. Unfortunately the provinces, cities and citizens of Canada aren’t the ones who are best equipped to deal with climate change, so Canadians are going to have to demand that our federal government start to take a long term and multi-party perspective on climate change. But it is not just politics it’s also economics. Comparing Canada to Europe, you realize that Canadian businesses and citizens only accept very short paybacks when we build infrastructure. Perhaps, it is because Europe has many more centuries of experience with development, but you can’t help but get the feeling that they are willing to spend more for something that will pay off in the long-term. So they build houses that last longer, and they put solar panels on the roof and windmills in the fields even though it might take 20 years to make back the investment.

What Canada will discover in Copenhagen is that a lot of nations have tired of our short-term perspective. While Obama brings hope for a new direction and has started to hire the right crew to turn around the giant supertanker America, Harper will have a hard time pretending that we’re also ready for a transformation and an even harder time hanging on to Obama’s coat tails. This is because his feet are stuck in the oil sands, without a workable plan to reduce emission and little support from other political corners. While our government may match American commitments we can be assured that like in the past there is no functional plan to deliver on these promises. Because what they surely know and what Canadians ought to know is that no one is interested in rewarding us for doing nothing and that we are far enough behind in climate action that catching up won’t be easy or cheap.

While thumbing our noses at Kyoto was reprehensible, thumbing our noses at future commitments will have consequences. Other parties to the conference will surely favor penalties, tariffs and taxes to ensure a global level playing field where Canada is already far behind.

Written by Dave Sawyer

December 14th, 2009 at 8:38 am

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Mr Harper Goes to Copenhagen

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Written by Dave Sawyer

December 10th, 2009 at 11:13 am

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Act Locally, realize local benefits. Municipal Report on Abatement Potentials and Costs

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FCM released a report completed by myself and Seton Stiebert today on opportunities and costs for reductions from municipalities. See the report here and coverage here.

Below are some summary points from the report.

There are important reasons that suggest there are strong rationales to focus our climate policy efforts at the municipal level.

1. Canadian municipalities have a large influence on Canada’s emissions. In the past, and moving to the future, emissions originating from Canadian municipal operations and within their borders are significant, totaling in the order of 40% of Canada’s national inventory. This is about equivalent to the emissions of all of Canada’s large industrial emitters.

2. Municipalities have started down the road of reducing emissions and realizing local benefits. Canadian municipalities, representing 41% of Canada’s population have set emission reduction targets, with local action implemented in municipalities covering 12% of Canada’s population. This has resulted in small and verifiable reductions to date in the order of 1.3 Mt. Small yet positive.

3. But there is significant potential still on the table that is very low cost. Our analysis indicates that municipalities could deliver, in the short-term significant low cost reductions. The stock of potential is significant, in the order of 50Mt, and low cost, with about two thirds of this at prices below $25/tonne. This stock of potential is about half of the required reductions from the large industrial emitters under Canada’s Turning the Corner climate plan, at costs that are much lower than competing technologies such as carbon capture and storage.

These three points lead to the conclusion that there are strong rationales to jump-start emission reductions in municipalities.

1. Significant reductions are ready to go. Canada could demonstrate progress in the short-term with abatement opportunities that can be implemented now, with proven technologies. The stock of this potential is significant and could do much to contribute to Canada’s carbon aspirations.

2. These reductions are low cost, which is key to the carbon solution. Carbon policy requires significant shifts in how we use energy and deploy technology. If we are to achieve our carbon objectives, low cost solutions are necessary. In looking at the costs for reductions from municipalities, it is clear that they are a key to early and low cost reductions.

3. Importantly, benefits are local. With investments in low carbon technology and the associated reduced energy use and emissions, we can expect important economic, social and health benefits. These include lowering our costs making us more competitive, improving living conditions and thereby raising our collective welfare, and finally improving health outcomes through improved air quality. These are not diffuse benefits accruing in remote parts of the globe, but rather real and tangible benefits where we live.

But, there are barriers,

1. First the lack of a unified carbon price across Canada has not signaled that carbon is valuable and should be managed. This missing ingredient then lowers expectations and does not send the signal that action should be taken. We then have lower localized benefits that we should which speaks top a need to get going and set expectations.

2. Second, municipalities lack capital to get going. Most projects require upfront investments that can pay off in the longer term. But that initial capital is scare. Taking a longer term view results in cost savings, which ultimately pay off. Mindsets have to change to take a longer view that balances increased capital costs with long-term energy savings.

Municipal contributions to carbon reductions in Canada seem an essential element of cost-effective climate policy. A sharper focus on the role of municipalities in Canadian climate policy would help by shifting the climate policy debate in Canada to that of thinking about local actions and local benefits.

Written by Dave Sawyer

December 8th, 2009 at 1:04 pm

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Forget the hockey stick, the bloomer theory rules

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Lots of traffic on climategate, but the New York times has some good stuff,

The Copenhagen conference itself reflects increasing acceptance of the scientific arguments: the negotiations leading to the talks were conducted by high-ranking officials of the world’s governments rather than the scientists and environment ministers who largely shaped the 1997 Kyoto Protocol. Late last week, President Obama changed the date of his visit to Copenhagen to Dec. 18, the last day of the talks.

For many, a 2007 report by the Intergovernmental Panel on Climate Change was a marker of a shift in the global warming debate. In it, the panel — a volunteer network of hundreds of scientists from many disciplines who meet periodically to review climate studies and translate the results into language useful to policy makers — concluded that no doubt remained that human-caused warming was under way and that, if unabated, it would pose rising risks.

Over the last several decades, other reviews, by the National Academy of Sciences and other institutions, have largely echoed the panel’s findings and said the remaining uncertainties should not be an excuse for inaction.

The panel’s report was built on two decades of intensive scientific study of climate patterns.

Greenhouse gases warm the planet by letting in sunlight and blocking the escape of some of the resulting heat. “The physics of the greenhouse effect is so basic that instead of asking whether it would happen, it makes more sense to ask what on earth could make it not happen,” said Spencer Weart, a physicist and historian. “So far, nobody has been able to come up with anything plausible in that line.”

Good questions, but perhaps a more base line of inquiry is better,


How can one refute this?

Written by Dave Sawyer

December 7th, 2009 at 8:37 am

Technology Trickery — there is no free lunch

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McKinsey curves pop-up all the time, as in here today. And I am often asked to produce similar ones (see picture).

But the McKinsey curves have some important flaws, and drive me nuts for a couple of reasons.

Iron and Steel Curve
First, they assume no baseline. In time technologies will be deployed in response to rising energy prices and straight technology innovation, where energy efficiency occurs absent policy. This then lowers the emission intensity of the economy. So, absent policy we get a certain level of this stuff, and with this technology deployment we then have less of the potential to go after later. The McKinsey curves then overstate reductions, because they ignore what we are doing anyway. This then understates costs cause we have already deployed the stuff and moved up the curve regardless of what policy is in place.

And then there are costs. The costs are not what it would take to get folks to move into these technologies. Instead, they are a mix of social costs, and include all kinds of benefits, such as avoided tipping fees for waste management. This is good, but folks think of the curves as marginal abatement curves, which is not really right.

Simpson falls into this trap,

One of the very best attempts at measuring effectiveness and cost comes from McKinsey & Co., an international consulting firm that has produced a cost-abatement curve comparing different technologies used today or likely to be ready in the next two decades.

Mixing cost and effectiveness, and choosing approaches that won’t materially affect consumers’ lifestyles, McKinsey offers a rough guide to how the world might hold the rise in global mean temperatures to below 2 degrees Celsius. Obviously, different measures will be more appropriate for some countries than for others.

Finally, the costs don’t reflect behavioural choice. That is they are mostly engineering costs assuming long-paybacks and low discount rates. But this is not how folks make decisions. Take public transit. While it is cheaper than operating your own car, there is a reason many if not most don’t ride the bus. Simply, there are other determinants of costs that affect technology choices. And if you want to move folks out of their warm car pods and get them to exchange germs on transit, you have to whack them hard with prices. This means abatement costs are significantly underrepresented in the McKinsey curves.

The curves have done much to highlight potentials, which is good. But they can’t really be used in policy development because they overstate potentials and understate costs. And if we could really get all those free reductions, would we still be locked in inaction?

Written by Dave Sawyer

December 4th, 2009 at 11:41 am

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BC’s Take on Tax Interaction – Hit em again

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Tax interaction is where taxes add distortions to the economy (economist raises hands to checks, gasps “inefficiency!” and moans “ooooohhhhh”), and either reinforce each other as bads, or can be used to offset existing bads. The double dividend theory instructs that the hit from abatement costs and payments on emissions (tax on remaining emissions or permits auctioned) can be offset by reducing existing distortionary taxes on capital and labour. (see paper here). A strong double dividend means the economy is better off since the inefficiencies introduced by the carbon costs are smaller than the existing tax distortions that have been removed. A weak dividend means the carbon cost inefficiencies are larger than the existing distorions that were offset with carbon revenue. Most of the literature on this falls into the weak double dividend camp.

So what to make of BC (here):

I have just carefully read my Terasen Gas bill and became aware that I am paying GST on the carbon tax that was implemented recently. I contacted the provincial government tax department and was told “that is just the way it has been set up … the only exemption from GST is PST.” So when the harmonized sales tax (HST) is implemented, will we pay both on the carbon tax if part of the HST is PST? Just one of those questions one asks when considering the next government.

BC has been under fiscal pressure given the economic downturn, no question, which has been exacerbated by offsetting existing taxes with carbon tax revenue. But, has the incentive function of the tax given way to a fiscal function? Not sure, but certainly a tax on a tax on a tax can’t be good.

Written by Dave Sawyer

December 3rd, 2009 at 9:26 am

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Canada, trampled by a band of Neanderthals

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This is a must read leading up to Copenhagen. Not a lot to disagree with. Essentially, economic obesity and Mr Harper have turned Canada into the North Korea of the climate world.

Canada’s image lies in tatters. It is now to climate what Japan is to whaling

The tar barons have held the nation to ransom. This thuggish petro-state is today the greatest obstacle to a deal in Copenhagen

When you think of Canada, which qualities come to mind? The world’s peacekeeper, the friendly nation, a liberal counterweight to the harsher pieties of its southern neighbour, decent, civilised, fair, well-governed? Think again. This country’s government is now behaving with all the sophistication of a chimpanzee’s tea party. So amazingly destructive has Canada become, and so insistent have my Canadian friends been that I weigh into this fight, that I’ve broken my self-imposed ban on flying and come to Toronto.

So here I am, watching the astonishing spectacle of a beautiful, cultured nation turning itself into a corrupt petro-state. Canada is slipping down the development ladder, retreating from a complex, diverse economy towards dependence on a single primary resource, which happens to be the dirtiest commodity known to man. The price of this transition is the brutalisation of the country, and a government campaign against multilateralism as savage as any waged by George Bush.

Until now I believed that the nation that has done most to sabotage a new climate change agreement was the United States. I was wrong. The real villain is Canada. Unless we can stop it, the harm done by Canada in December 2009 will outweigh a century of good works.

Shame on us.

Written by Dave Sawyer

December 1st, 2009 at 11:57 am

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