Inkless Wells

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Ottawa's new carbon policy, written in Washington

by Paul Wells on Tuesday, March 17, 2009 6:40pm - 36 Comments

Our colleagues at l’Actualité are chuffed about their new interview with Jim Prentice (conducted by Alec Castonguay, who is generally spotted in the pages of Le Devoir). In it, the environment minister says, in regard to the Americans, “We cannot have incompatible plans.” And he says he’s “not interested in getting lost in numbers:” if the Americans can come up with a carbon-reduction strategy, which he sounds like he very much doubts, he’s in the business of making sure Canada follows along.

I don’t want to be excessively apocalyptic with the headline I chose; as ace l’Actualité blogger Chantal Hébert points out, after the mixed (read: negligible) results achieved by the last half-dozen Liberal and Conservative environment ministers, a little outsourcing couldn’t hurt. My translation of highlights from the Prentice interview:

“We weren’t that close to the [Bush White House's] American position. Our challenge was to define a Canadian policy for fighting against climate change with a neighbour who had no plan!… We would have rapidly lost jobs, because businesses would have moved their activity south of the border.

“[A new Copenhagen Accord] should include the major greenhouse-gas emitters, such as the United States, China, India and Brazil… A consensus is emerging that the next treaty shouldn’t resemble Kyoto, which didn’t work.

“Reducing our ecological footprint is the most important challenge of our age…

“We don’t yet know the official American position. We’ll see it in Copenhagen. Canada wants to reduce its emissions, by 2020, by 20% from their 2006 level, the year we were elected. Barack Obama wants to reduce them, by 2020, by about 14%, which is the amount they increased between 1990 and 2005. But I’m not interested in getting lost in numbers.

“…we need to harmonize our plans. We share the same continent, therefore the same economic market, the same air, the same water. Geography is forcing us to get along. It will be difficult to do so long as the United States doesn’t know precisely where they’re going. That does’t mean the policies must be identical, but they must be harmonized. They can’t be totally disconnected.

“If Washington shows up with a law that puts in place a system of ceilings for business emissions, with absolute targets for greenhouse-gas reductions, we’ll have to decide whether our intensity-reduction approach is compatible. The most important thing is not to have two different policies.”

The rest is here, in that Other Official Language.

Tags: Jim Prentice, Kyoto's not just a dog in Quebec, l'Actualité

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Critical Reasoning

The l’Actualité interview is quite informative. Prentice is clearly on top of the file, and he does a very good job explaining why it is important that our approach be harmonized with the US. He wants the eventual carbon trading market to be fully integrated with the US, which makes sense for liquidity purposes. He seems optimistic about the potential of Canadian CCS technology, comparing it to the Canadian innovations in hydroelectric development many years ago.

“Dans certains secteurs, il y aura toujours des émissions de GES. Pour ces secteurs, il faut mettre au point une technologie canadienne — comme on l’a fait avec l’hydroélectricité à une autre époque — qui nous permettra d’être un leader. Les scientifiques disent que ça va fonctionner.”
Dot

More spin from the Minister of the Environment. If, as Jim Prentice suggests “Our challenge was to define a Canadian policy for fighting against climate change with a neighbour who had no plan!… We would have rapidly lost jobs, because businesses would have moved their activity south of the border” then why didn’t we see a mass exodus of jobs south when the Canadian dollar rapidly appreciated from the low 60s to well past par just recently?

Smoke and mirrors. The Harper gov’t has demonstrated very strong followership on this file, both in the Bush years as well as in recent Obama days. They are scrambling because they don’t want to slow down the pace of exploitation of the oil sands (this generates huge tax revenues for the feds lets not forget) – its just now wanting to broaden the tent so that the oil sands “problem” becomes a part of the North American “problem”. Good strategy, notwithstanding the revisionism.

Critical Reasoning

why didn’t we see a mass exodus of jobs south when the Canadian dollar rapidly appreciated from the low 60s to well past par just recently?

Apples and oranges. First, most Canadian exporters saw the dollar at par as a serious but temporary problem. Meanwhile, the competitive disadvantages caused by Canada “going it alone” would last as long as the US failed to catch up on the planet-saving file – which could be never. This would cause significant southward movement of capital and jobs.

Second, the Made-In-America economic crisis that caused the $USD to plummet also caused the US demand for Canadian jobs to plummet! That’s why didn’t we see a mass exodus of jobs due to exchange rates.

Dot

OK, CR. Then give me some oranges and oranges. What specific industries would move to the US simply due to a carbon tax/cap etc. ? Specific examples please.

Critical Reasoning

What specific industries would move to the US simply due to a carbon tax/cap etc. ?
Bitumen and crude upgraders.
Petrochemical refineries.
Steelmaking.
Coking plants.
Most non-electrochemical metal refining and processing.
Power generation in the non-hydro provinces.
Cement production would shift from BC to the state of Washington, and from Quebec to the New England states.

madeyoulook

Petrochemical refineries.
The USA is woooooefully under capacity there, CR, and NIMBYism will see that it stays that way. I blow the whistle on that one. Tweet.
Critical Reasoning

myl, fair enough, in that specific example production would probably shift overseas rather than to the US which is close to full capacity. For steelmaking, other metal refining, coking plants, and cement production the US has plenty of excess capacity which would easily absorb all losses in Canadian production.
Dot

So, why aren’t all the US industries in all of your same categories not NOW in Mexico where there is cheap labour, lax environmental laws, and NAFTA, Mr Perot? Or can’t you hear the giant sucking sound from where you sit?
madeyoulook

TWEET!
I now blow the whistle on Dot, for failing to acknowledge that Mexico is at present a criminal-infested sewer hurtling at warp speed toward failed state.
http://macleans.ca kc

As long as it’s a failed state with low taxes…
Dot

Yeah, but one might ask why. I wonder if it had anything to do with the fact that businesses did not relocate en masse down there – and all the low skilled jobs vanmoosed to China/India.

So, you will agree with me that there are other factors that companies take into consideration when making investment decisions other than carbon taxes – my point exactly.
Critical Reasoning

Dot, all of the industries I mentioned are mass volume industries that have been highly automated. Therefore, when you look at the variable costs, the costs of carbon and transportation are far more significant than the cost of labour.

So cheap labour is not sufficient to justify a move to Mexico, especially given the increased costs to transport goods to market. Also, any move to Mexico would include the huge capital costs of building greenfield facilities, because Mexico simply does not have enough capacity to absorb production lost by Canada. Finally, Mexico is getting much tougher on pollution, according to El Presidente Calderon.
Dot

Well CR – the next time you do a financial forecast where you look at MOVING an existing plant to the US, run a sensitivity analysis, with all the assumptions of exchange rates, labour costs, corporate taxes, transportation costs, access to resources and energy etc etc etc, and you determine that the DECIDING variable is the level of a Canadian carbon tax (and you assume that the US will NOT eventually move in a similar direction – despite what has/is happening at the fed, state and municipal levels) then e-mail me the spreadsheet.

I’d sure like to see it.
Critical Reasoning

Dot, in my first job after university, I spent several years working as an analyst for a leading private equity firm doing plenty of industry analysis. I’ve worked on hundreds of forecasts and DCF models. Give me your email address if you want to discuss the matter further.
Dot

Similar, but different. Agree to disagree.
Critical Reasoning

OK, agree to disagree.
http://macleans.ca kc

How about if the CT had been implemented staight up, no money siphoned off for poverty alleviation – maybe lower business costs ie., payroll taxes? There is an argument that a change to pollution tax while lowering income, capital gains etc would eventually have eroded any US short term advantage. Seems to me one of Dion’s major mistakes was to play into SH’s narrative by diluting down the positive effects of a carbon tax. Totally clueless!

Sisyphus

Oh, things are working out exactly as we planned.
Ask John Baird.
He’s been operating under deep cover for years.
Al Heck Brakes

“We would have rapidly lost jobs, because businesses would have moved their activity south of the border”

When in danger of losing business because the grass is greener on the other side of the fence, then make sure you kill the grass on both sides.

This has nothing to do with the environment, or the planet, or new technology, or anything like that. It’s out of sheer desperation to keep the money rolling in. More and more welfare dependents means you need more and more tax slaves to run on the treadmill for you. If the birthrate is too low and you can’t import enough new tax slaves soon enough then you have to find a way to squeeze more out of the tax slaves you already own. Ladies and Gentlemen, drum roll please, ta-dahhhh, your new carbon tax!

A stupid strategy in the long run but in the short term – the only timeframe that any politician cares about – it’s a fine and trusted way to keep the rackets going just long enough to qualify for one’s pension, get both feet into the trough and then scoot.

The bureaucracy of course is thinking longer term, but they’re such deluded idiots that when they help to implement intergovernmental suicide pacts such the Harmonized Carbon Tax they have no clue how they’ll end up eating dog food and swilling bathtub vodka like their former counterparts in the USSR.
Jarrid

Barack Obama has bitten off more than he can chew. I predict he’ll get cold feet on addressing the so-called global warming issue.

Then the Conservatives will “re-harmonize”, i.e. do SFA on this pseudo-file, which is as it should be.

http://macleans.ca kc

Gett’n lonely out there on yr asteroid Jarrid?
JMD

Right on, Jarrid. Why should be we do anything? Global warming is a phantom menace. The right response to climate change is to adapt since we can do nothing to prevent or alter whatever is coming our way. The earth’s climate always gets warmer or cooler and species that adapt survive.

Mulletaur

Policy harmonization is otherwise known as ‘cap and trade’, but does not sound much like ‘carbon sequestration’. That’s why Ontario and Quebec have already promised to move in this direction.

Critical Reasoning

Carbon sequestration is one of many parts of the US climate change policy. Therefore CCS cooperation is very much linked to policy harmonization, even though it is only one piece of a big puzzle.

The biggest issue for Canada is the nature of the emissions caps that the US decides to adopt: fixed vs. intensity-based. Since Obama will probably go with fixed, it will be a constraint on future oilsands expansion unless Canada is able to shrewdly negotiate some kind of oilsands exemption, which is the real driving force behind some of our recent initiatives on this file.

Mulletaur

Carbon sequestration is a policy ‘lure’ to get the right wingers on side for the cap and trade solution. It is not a real policy alternative, it’s too crazy expensive.

It will be a fixed cap for sure. Bad news for Stelmach, Harper et al. But this time the policy initiative which interferes with their supposedly God given right to extract resources from the ground and reap the benefits won’t be the fault of the perfidious East.

Critical Reasoning

It is not a real policy alternative, it’s too crazy expensive.

The verdict is still out on that, given that the technology is nascent, there are plenty of opportunities to reduce costs through economies of scale, and there are incentives and subsidies coming down the pipe.

But this time the policy initiative which interferes with their supposedly God given right to extract resources from the ground and reap the benefits won’t be the fault of the perfidious East.

You’re really missing the big picture here, with all your smarm. The oilsands are Canada’s single largest economic asset and our best geopolitical negotiating tool. Both Harper and Ignatieff have a crystal clear understanding of this reality. As soon as the global economy starts pulling out of the slump crude will be flirting with $100 again, to the enormous benefit of oilsands producers and Canada as a whole.

Chris S.

I’d wager a lot more than $100/bbl.

Just visiting

Sorry, I’m a bit confused about the Harper government being unable to act on climate change because of a lack of a plan from the U.S.

Wasn’t the Bush administration the major global obstacle to acknowledging and addressing climate change, and didn’t Harper support Bush on this? And didn’t t Canada attend a climate change conference in Bali just a few years back to stand up for Bush, and be howled off the stage and shamed by everyone else?

Did I just imagine all that? Or are we witnessing one of the most blatant attempts ever at dishonestly rewriting history?
madeyoulook

You say mixed / negligible results. I suggest the goal all along has been to tread water, talk a good game, and do nothing. With that in mind, the results have been nothing short of spectacular. Now, the objective of talking a good game and doing nothing has been blended into harmonize a continental policy with the USA. Splendid. The original objective remains intact, and the likelihood of realizing this objective by the new strategy is also high.
http://www.jackmitchell.ca Jack Mitchell

My favourite line:

“Wij zijn bereid na te denken over een koolstof-markt in Noord-Amerika volledig geïntegreerd. Maar we moeten allereerst dat de Verenigde Staten kiezen voor een plan.”

At this rate, it would be simpler just to send the USA a yearly tribute of gold.

BTW, Paul, since when is Dutch an official language in Canada?
http://macleans.ca kc

“… we’ll have to decide whether our intensity-reduction approach is compatible. The most important thing is not to have two different policies.”
Hard caps, or intensity! No prizes for guessing which one our fearless leaders are lobbying for.
Dot

Vehicle fuel emissions targets (CAFE standards) are intensity based (mpg or litres/100 km). So are a whole host of things (higher efficiency of furnaces, appliances, insulation of houses). I wouldn’t get too caught up in the labels.
DR

What happened to Made-in-Canada policy?
http://macleans.ca kc

Well i guess not, but wasn’t there some talk of Obama adopting a hard cap on emissions?
Dot

The devil’s in the details.
http://macleans.ca kc

I’m sure they are. If SH has anything to do with it they’ll get posted down in parkade level 7, down behind the maintenance room lockers.