EnviroEconomics.ca

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.

Like him or not, former Prime Minister Chrétien was a competent manager, and he is right on the current state of climate policy in Canada (see here):

“I signed Kyoto and I knew it was going to be tough to meet the goals of 2012. When I left, we were close to having a deal with the oil industry, but it was not implemented,” he said at a gathering of Liberal heavyweights in Toronto.
Mr. Chretien’s government agreed to cut greenhouse gas emissions by 6% below 1990 levels by 2012. By 2004, however, emissions had risen 27% over the 1990 level.
Mr. Chretien acknowledged the gap, but said “it would be better to be at 95%” than to have done nothing.

With a wholesale scrapping of the previous governments attempts (albeit weak) to move forward, Canada ended up further behind. As emissions grew primarily from oil sands and will continue to grow (see thumb below), this delay has been and will be costly. The post below discusses why delay has risks, but in a nutshell, emissions are higher, high emitting technology becomes locked-in, future reductions become more costly, and technology, innovation and learning by doing aren’t incented to lower costs in time.

A simple carbon tax phased-in a number of years ago would have gone virtually unnoticed from an economic perspective, but of course was DOA politically. And now, looking out to the future we will have carbon constants, and these constraints will be more costly because of political delay. While political blustering seems to be the centre piece of Canada’s climate policy, sometimes I long for a good old fashioned manager who gets things done….even at half measures.

When the Trade Ministers meet to talk climate change and trade, there is promise. These are the folks that generally get things done in government. Toby Heaps has a great account of a first, and very important meeting of international finance ministers on climate change and trade in Bali. One nugget from this account is a World Bank assertion that trade barriers could be removed that could improve the flow of “climate friendly goods” between countries by something like 7 to 13%. These are big numbers and underscore an area that needs more attention: the removal of non-price barriers to lower carbon emissions.

Despite the focus on emission pricing, there is also a need to systematically crawl through the way we regulate and control behavior and see what is distorting movement to a low emissions profile. In many cases, removing these barriers opens up a suite of low cost options.

One notable example that recently stuck me as significant are barriers in the cement sector to burning waste fuels and adding supplemental cementing materials (SCM’s are a cement “filler” that is waste fly-ash from burnt coal). In Canada, we regulate the industry’s ability to burn waste materials and add SCM’s, but in Europe things are different. With proper air pollutant controls, the European cement sector has become a waste burning powerhouse, while reducing emissions a tonne (ok many tonnes). Similarly, the industry is allowed to add waste materials to their cement products up to something like 30% while maintaining quality, which lessens total emissions (1/3 from energy and 2/3 process) on a ratio in the order of 1:1.

In Canada, our SCM standard is 1% and we burn about 5% waste fuels nationally. Changing these standards would mean we could reduce energy and process emissions from this GHG-intensive sector by a much larger number at a much lower cost than options such as fuel switching (more Nox) or upgrading the kilns (more cost). And banning the burning of tires in Ontario, but allowing them to be shipped to Michigan and burnt in Cement kilns owned by the same folks in the same airshed is absurd (yes we do this).

It is always puzzling to an economist to see something that makes economic sense but is undersupplied. But when we do, we generally know there is some sort of distortion at play. In Canada, finding and removing these distortions should be a priority for climate policy. So, while Canada’s climate change delegation drags our good name through the volcanic sand in Bali, take comfort. Some smart people are at least thinking about this stuff on our behalf, and when they are trade ministers, we may just be better off.