EnviroEconomics.ca

Chris Green, that quirky economist, has a good article in the Globe today on why the focus on targets is bad, and a focus on action is needed. His basic premise is that targets, especially long-term ones, are set in a political arena, which operates in the absence of clear information on the doable. Targets are then set beyond what is technically or economically achievable, and thus set to fail. The setting of targets also detracts considerably from the focus on action, and the inevitable failure influences implementation. Both of these observations are borne out in Canada’s Kyoto experience.

Chris makes some good sense, but I also think the long-term targets provide a focus for action. A well balanced climate policy would have one track that looks forward to vision where we need to go and how we need to organize and transform ourselves to transition to a lower carbon future. Another parallel tract would focus on short-term action and on setting the stage for longer term strategies to move towards the targets.

So Chris is bang on when he states:

Someone has to lead. Another round of climate target-setting would be a prescription for another decade wasted. While it may be politically difficult to chart a new course, there is no alternative if we wish to cope with climate change. Canada could at least get out in front with projects and policies — putting a price on carbon, strengthening energy efficiency standards, and increasing carbon capture and storage — that have a strong probability of encouraging development of the green technologies that will be essential to reducing greenhouse-gas emissions, even if the timing and magnitude of these reductions is inherently uncertain

I just think part of that leadership also involves rallying around a vision of the future. And that vision has to be anchored in where we need to be. So, we are stuck with targets. But as Chris points out, if we channel some of that energy used to argue over targets into action, we would be one our way.

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.

Watching Canada’s international position unfold in the lead up to Bali I had to admit that getting the other large emitters to come on side makes perfect sense. Saying that China, India and others can pollute at increasingly higher rates unhindered now because the industrialized industrialized world did more in the past is absurd. Carbon emissions from newly industrialized countries will trigger future costs and all tonnes are created equally. And competitiveness impacts in some industries are important. So, emission reductions are justified and the world needs to bring China and India into the fold.

And then there is us. Yes you and me. Jeffrey Simpson has a column correctly pointing the finger at us consumers. If one takes the emissions embodied in China’s exports and allocates them to the industrialized world, we apparently account for a full third. Not surprising to anyone who uses a credit card in North America. So, we are also a big part of the problem outside of our borders.

So moving forward post-2012, the big challenge will be the newly industrialized world, as Simpson correctly points out:

An international climate-change treaty that somehow doesn’t include China (and India and the U.S.) agreeing to emissions reductions will be a failed treaty. When the real negotiations begin in 18 months or so — Bali not being serious talks — getting those countries to sign on will be the hardest part of all.

This is why leadership through action by the industrialized world is so important. One can’t occupy the international moral high ground when one is wallowing in domestic carbon. But so long as Canada and Canadians continue to point fingers at others, our international position will sound as shrill as a carbon policy debate in the House of Commons.

Canada’s real climate policy challenge, therefore, is to stop pointing fingers and do a little hard work for a change.

While we in Canada dig out from three cross-county storms and our GHG emissions peak as all those two stroke snowblowers and plows make life more mobile, one can only think wistfully of Bali and those lucky few climate intelligentsia. Of course there is serious work to be done, and those tasked with working through the current political minefield will be working 24/7. While visions of post-2012 allocation schemes dance in their heads, there is a new and perhaps interesting twist — a call for a global carbon tax that will emerge from Bali.

Given a past political bias towards emission taxes, the emissions price that will continue to dominate the international GHG mitigation regime is of course emission trading. But this bias is not universal, and has ameliorated over time, and thus we now see a range of national and sub-national polices that implement emission taxes. This means that we are moving into a climate policy world where emission pricing is conducted by a mix of carbon trading and carbon taxes, with instances of both implemented concurrently (BC for example). It is not just the economists who are advocating for global carbon tax as part of the post-2012 international regime, but politicians as well. But the question is, can these two emission price options — taxes and trading — be reconciled in a post-2012 global regime? In this post we argue there are a number of reason why the answer is yes.

From an economist’s perspective, the options are reconcilable since both can be designed to mimic each other to ensure similar economic and abatement outcomes are achieved. An oft cited example of this “mixing and matching” of design elements is where a “safety valve” can remove the price uncertainty associated with trading so that total abatement costs are limited. Similarly, an emission tax can be updated up or down so that observed emission outcomes align with desired reduction targets. The advice from economists, therefore, is that the decision to move forward with emission pricing is not an “either/or” decision, but instead how to mix and match these inherently complementary price signals.

This assertion has important implications for the feasibility of a global carbon tax, for if emission taxes and trading are complements, there is scope for a carbon tax in the international regime. But why would it would be appropriate to implement the emission price policies as complements in the post-2012 regime. There are a number of reasons:

• Post-2012 allocations will remain contentious and will take time to sort out, and hence there is an opportunity for a global carbon tax to speed the transition to broader and deeper carbon reductions.

• A global carbon tax could transition newly industrialized countries to the post-2012 regime with binding caps.

• Institutional feasibility in the developing world more closely aligns with taxes rather than trading.

• Competitiveness issues can be lessened if a global carbon tax can be implemented in advance of global emission constraints.

Of course, some political support for a global carbon tax may do little to address “carbon tax” as a four letter word in politics.