Oil and gas rules last chance to meet greenhouse reduction targets: report

By The Canadian Press - Tuesday, April 2, 2013 at 1:45 PM - 0 Comments

OTTAWA – The oil and gas sector will need to lower greenhouse gas emissions by 42 per cent if Canada has any hope of meeting overall reductions targets by the end of the decade, says a new report from an environmental think-tank.

The Pembina Institute report also says the only way that’s going to happen is if upcoming federal regulations on the sector go much farther than those already in place in Alberta.

The Conservative government has been promising new rules for the oil and gas sector since 2008 and has suggested they will finally be unveiled this year.

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‘A market-based solution’

By Aaron Wherry - Wednesday, February 13, 2013 at 8:00 AM - 0 Comments

About midway through his State of the Union Address last night, Barack Obama turned to climate change and put the following to Congress.

I urge this Congress to pursue a bipartisan, market-based solution to climate change, like the one John McCain and Joe Lieberman worked on together a few years ago. But if Congress won’t act soon to protect future generations, I will. I will direct my Cabinet to come up with executive actions we can take, now and in the future, to reduce pollution, prepare our communities for the consequences of climate change, and speed the transition to more sustainable sources of energy.

What did John McCain and Joe Lieberman propose? Cap-and-trade.

So the President’s preferred policy for reducing greenhouse gas emissions would seem to be cap-and-trade. (Note: this would also seem to mean he differentiates between cap-and-trade and a carbon tax, which his office dismissed in November. And so dies a talking point.) If Congress fails to act in that regard, he will presumably move forward with regulations.

That’s basically the opposite of the Harper government’s position. Having proposed and pursued a market-based solution (cap-and-trade), the Harper government now advocates government regulation as its preferred policy while loudly and repeatedly claiming that cap-and-trade would be ruinous for the country.

Why environmentalists should be open-minded about the oil sands

By Stephen Gordon - Friday, November 9, 2012 at 3:33 PM - 0 Comments

Pop quiz: What is the socially optimal level of pollution? (Hint: the correct answer is not ‘zero’.)

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The cost of reducing GHGs

By Aaron Wherry - Tuesday, October 23, 2012 at 4:35 PM - 0 Comments

The Conservatives sent up four MPs during members’ statements this afternoon to lament for the NDP’s cap-and-trade proposal. Among them was Jeff Watson, who took a moment from discussing the auto industry, to offer this.

What our government will not do is risk auto jobs by implementing the NDP’s $21 billion carbon tax that would make minivans and the gas they run on more expensive.

For the record, though the government projects that the costs will be offset by savings on gas from fuel-efficient vehicles, the passenger automobile and light truck regulations that the Harper government is pursuing will increase the purchase price of vehicles. The Conservatives have yet to announce regulations for the oil and gas sector.

Mr. Watson was first elected as a Conservative in 2004, when the Conservative party platform included a promise to investigate a cap-and-trade system. He was a Conservative MP when the 2008 party policy declaration expressed support for a domestic cap-and-trade system and, through 2008 and 2009, when Stephen Harper, Jim Flaherty, John Baird and Jim Prentice expressed support for establishing a price on carbon. Mr. Watson was re-elected in 2008 when the party platform included plans for a continental cap-and-trade system. And he remains an MP in a government that won’t definitively rule out the possibility of pursuing cap-and-trade if the United States is prepared to do likewise. (All citations here.)

Meanwhile, Stephen Gordon again makes the case that the Harper government’s regulatory approach will ultimately be more costly than a carbon-pricing system.

‘The suggestion that the regulations have been softened or weakened is a misperception’

By Aaron Wherry - Thursday, September 6, 2012 at 9:09 AM - 0 Comments

As the Canadian Press previewed earlier this week, Peter Kent has announced regulations for the coal-fired electricity sector that are weaker than what the Harper government proposed a year ago.

The federal government is proposing new coal plants only be allowed if they can emit less than 375 tonnes of carbon dioxide per gigawatt hour of electricity generated. In the final version, that standard is 420 tonnes. The draft regulations proposed that old coal-fired units would have to meet the targets at 45 years old, which has been moved to 50. The final regulations have been criticized by environmental groups as a major weakening of the initial proposal.

Kent defended the changes, saying the government heard more than 5,000 responses during the consultation, which persuaded him that changes were necessary. ”I think the suggestion that the regulations have been softened or weakened is a misperception,” Kent said. “(The regulations) both significantly reduce greenhouse gas emissions and meet 2020 targets and at the same time … make sure we find the balance between responsible regulations and maintaining our still recovering economy.”

More here and here.

So what was the 2008 election about then?

By Aaron Wherry - Monday, June 18, 2012 at 12:52 PM - 0 Comments

Talking to the House this weekend, Peter Kent discussed the National Roundtable on the Environment and the Economy and carbon pricing (emphasis mine).

Peter Kent: … One major point of disagreement with the National Roundtable report was, it again recommended carbon pricing. And I’ve got to say again, our government is not going to impose a carbon tax on Canadians…

Evan Solomon: But they’re not saying carbon tax. To be fair, they said it could be a price on carbon, which could be a cap-and-trade. They have not said or recommended, quite specifically, a carbon tax at all.

Peter Kent: Carbon pricing in any form is a carbon tax, because to be a realistic dollar figure, it would get Canadians at the gas pump for example, and right across the economy, but at the gas pump, it would get us to where Europeans are.

Evan Solomon: But you know they have one in Alberta, provincially. They have a $15 a tonne, it goes to a fund, nonetheless it’s a price on carbon.

Peter Kent: But that will do nothing to get GHG actual emissions down. The carbon market in Europe is under $10 a tonne, half of what it was when they began that market. The EU is no longer issuing. It’s a volatile market, which is probably the most unstable market in the world … we believe that the emitters who are regulated are the ones who will actually get emissions down.

During the 2008 campaign, the Conservatives loudly opposed a carbon tax, while promising to pursue a continental cap-and-trade system. But, according to the Environment Minister, a carbon tax and cap-and-trade are the same thing.

Continental cap-and-trade wasn’t merely a campaign promise either. The Harper government repeated the promise in its 2008 Throne Speech. Jim Prentice identified continental cap-and-trade as an exciting opportunity in November 2008. Mr. Prentice then referenced it in his December 2008 speech to the United Nations Climate Change Conference in Poland. In September 2009, Mr. Prentice lobbied the Alberta government on the virtues of cap-and-trade. And, in December 2009, the Harper government claimed to be “working in collaboration with the provinces and territories to develop a cap and trade system that will ultimately be aligned with the emerging cap and trade program in the United States.”

Peter Kent ran, unsuccessfully, as a Conservative candidate in 2008. Presumably, he endorsed the party’s platform. Even if he didn’t, as recently as last May, the Environment Minister allowed that cap-and-trade “can always be something to consider in the future.”

Aim at the oil sands, and you hit Quebec

By Andrew Coyne - Tuesday, February 16, 2010 at 3:00 PM - 24 Comments

One guess what lesson Pauline Marois drew from Jim Prentice’s recent criticism of Quebec’s environmental policies. Why, yes: it just clinches the case for sovereignty. “Quebec is a leader [on the environment]…and Canada is dragging us down,” the Parti Québécois leader declaimed. “If we were independent tomorrow, we could speak with our own voice…We could have signed the Kyoto agreement ourselves.” Etc., etc. “Federalism does not suit the Quebec reality…The real solution for Quebec is sovereignty…” zzzzzzzzz.

But if Marois’s response was predictable—in a sovereign Quebec, the very air would be purer—so was that of the rest of the province’s political class. In La Presse, Alain Dubuc found it “surreal” that a federal environment minister would “harshly attack” the province for “doing too much” for the environment. My sometime colleague Chantal Hébert agreed in her Toronto Star column that the minister’s “attack” was “unprecedented,” even suggesting on our CBC panel that it verged on “Quebec-bashing.” Le Soleil’s Raymond Giroux diagnosed the minister as suffering from “Quebecophobia.”

All this, over one paragraph in a half-hour speech! Prentice’s harsh and unprecedented attack on Quebec was to suggest it is “folly” for provinces to pursue their own individual strategies for reducing greenhouse gas emissions rather than the continental approach the feds prefer, citing as an example “the new and unique vehicle regulations in the province of Quebec.” That’s it. That’s the Quebec-bashing that set off this firestorm: a brief critique of a particular policy of the government of Quebec, delivered half a continent away in a speech at the University of Calgary.

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Thinking through Canada's climate change position

By John Geddes - Wednesday, December 9, 2009 at 12:32 PM - 112 Comments

Yesterday I posted remarks from Environment Minister Jim Prentice at a news conference, in which I thought he framed the Canadian government’s position on climate change with admirable clarity. Prentice made three key points:

1)    Canada’s population and economy have grown too much since 1990, the benchmark year for the Kyoto climate change treaty, to expect steep emissions reductions in this country from that starting point;
2)    Compared to the European countries that are leading the push for tough emissions-reduction targets this week in Copenhagen, Canada is bigger, colder, and faster-growing—and therefore EU aims don’t make sense here;
3)     Canada’s government is not willing to sign on to any target that could only be achieved with “inordinate economic costs.”

Having let Prentice’s explanation, which sounded reasonable enough, stand for a day or so, here are some observations about his argument.
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In other news

By Aaron Wherry - Friday, November 27, 2009 at 1:37 PM - 8 Comments

Michael Ignatieff gave a speech about the environment yesterday, the prepared text of which is here. The Gargoyle points to Stephen Gordon’s analysis here.

Why Barack Obama is bad for Canada

By Luiza Ch. Savage - Wednesday, June 24, 2009 at 4:25 PM - 960 Comments

When Barack Obama met with Stephen Harper in Ottawa on Feb. 19, his message on the oil sands sounded like it could have been written in Calgary. He talked about the need for government investment in new technologies to cut greenhouse gas emissions, and he wanted to work together to achieve it. “I love this country and think that we could not have a better friend and ally,” Obama said. “And so I’m going to do everything that I can to make sure that our relationship is strengthened.” He added: “We are very grateful for the relationship that we have with Canada, Canada being our largest energy supplier.” Tom Corcoran, a former Republican congressman from Illinois and head of a Washington lobbying outfit for the oil sands and other “unconventional” fuels, remembers the day: “It was encouraging and made us feel good.”

But it turns out that Obama has a knack for making people feel good when perhaps they ought to be watching their back. “Then the realities begin to take root when you look at what is taking place here in Washington,” says Corcoran. The reality is that Obama is leading an aggressive effort to remake American energy policy with potentially severe consequences for the oil sands, and by extension, the Canadian economy.

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Green? Who, me?

By Andrew Coyne - Thursday, October 2, 2008 at 12:00 AM - 1 Comment

Toward the end of last year, the Prime Minister embarked on his usual round of exclusive interviews. The news was not good. He told the Globe and Mail exclusively that Canadians should brace themselves for the impact of pending federal regulations on greenhouse gas emissions, warning that “mandatory reductions impose costs. Those costs are real in the short term. There is no way to avoid them. None.” He told the Toronto Star exclusively that the implementation of the regulations in the new year would bring home “the reality that you cannot reduce greenhouse gas—you cannot mandate it—without there being some economic cost in the short term.” Similarly bleak advisories were issued in exclusive interviews with the CBC (“very real costs”), and the Canwest News Service (“there is no way to do this without imposing costs on our economy in the short term”).

Well, now it’s October, in the middle of an election campaign, and Stephen Harper no longer wants to talk about the costs of his environmental plan. Indeed, he never even mentions his plan. Rather, he wants to talk about the other guy’s plan: the Green Shift that Stéphane Dion has made the centrepiece of his platform. Or, as Harper prefers to call it, the carbon tax, ignoring the offsetting cuts in personal and corporate income taxes in the Liberal plan. At every stop along the campaign trail, he assails the plan as a “risky scheme,” a “permanent tax on everything” that would plunge the Canadian economy into a recession. At the very least, he suggests, we cannot take the chance, in a time of “global economic uncertainty.”

The message appears to have hit home. The Liberals have been steadily losing altitude throughout the campaign, and while Dion’s personal unpopularity is undoubtedly a factor, the Green Shift/carbon tax has by all accounts been a major contributor. More significantly—and remarkably—no one has thought to ask the Prime Minister about the costs, and the risks, of his own plan. It has become a cliché of political commentary that “no one understands” the Liberal plan. But is anyone even aware of the Conservative plan?

It wasn’t that way in 2007, when the Conservatives released, to much fanfare, “Turning the Corner”—a “regulatory framework” for industrial greenhouse gas emissions, updated in a “final” regulatory framework last spring. Then, the Conservatives were anxious that everyone should know about their deep commitment to the fight against global warming, previous efforts having failed to impress this adequately on the public mind. The plan would require a select group of heavy industries—electricity, oil and gas, mining, metals, pulp and paper, and the like—to reduce their emissions “intensity,” that is emissions per unit of output, by 18 per cent within two years, with further reductions of two per cent annually required after that. The goal: an absolute reduction of 20 per cent in Canada’s emissions by 2020, 65 per cent by 2050.

The plan has many parts, but at its heart is the notion of tradeable emissions credits. Or in shorthand, cap-and-trade: firms that reduced emissions by more than they were required would earn credits on the surplus, which they could sell to other firms on the open market. Firms that found it too expensive to meet their targets could make up the shortfall out of these credits. Or they could buy them overseas, through the Kyoto Protocol’s Clean Development Mechanism. Or they could pay “contributions” into a green technology fund, starting at $15 for every tonne of carbon dioxide (or its equivalents) they were over their limit: a carbon tax, by another name.

But whatever the “compliance mechanism” industry adopts, have no doubt: you will pay. As the document puts it, “a portion of the costs associated with these investments and changes in operations will be passed on… in the form of higher prices”—just as the PM had warned. “Canadians can therefore expect to bear costs under the regulatory framework that are not trivial.” An accompanying press release notes this could mean “noticeable price increases for consumer products such as vehicles, natural gas, electricity, and household appliances,” adding “there will be a period of adjustment for all Canadians.”

How noticeable? How much adjustment? No one seems to know. To be fair, there’s no way anyone could. The final final regulations haven’t been released yet, let alone implemented. But even if they were, it is in the very nature of cap-and-trade that the costs are indeterminate. The price of the credits will be set by the market, in the usual way—by the intersection of supply and demand. A carbon tax is the reverse. The price of carbon is known in advance: $10 a tonne to start, rising to $40 by year four. How much emissions will fall as a result can only be guessed at—a point the Conservatives are quick to make.

But if the question is which plan is economically “riskier”—in the sense of uncertainty about its cost—the answer is clear: the Conservatives’. We know how much the Liberal plan will cost. We’ve no idea what the price of the Conservative plan will be. Well, we can guess: the government forecasts the market price of emissions credits in 2010 at about $25 a tonne, rising to $65 a tonne by 2018— not far off the cost of the Liberal carbon tax.

That’s not entirely coincidental. Remember that supply-and-demand graph from Economics 101? You can fix the price, as the Liberals propose, and let supply and demand adjust. Or you can fix the supply, as in the Conservative plan, and let the price rise. It amounts to the same thing. So you would expect them to cost about the same, for the same amount of reductions. The only way the Conservative plan could cost less than the Liberal plan is if it reduced emissions less. As indeed is the plan: while the Liberals also target 20 per cent reductions in emissions by 2020, that’s from 1990 levels, the original Kyoto reference point. The Tory reductions are measured against 2006 levels—22 per cent higher than the 1990 benchmark.

Moreover, there is virtually no chance of meeting even the more relaxed Tory timetable. The government itself concedes that, of the required 150 megatonnes (Mt) of reductions in emissions, just 60 Mt would come from the industries participating in the cap-and-trade scheme: not surprisingly, since they account for only a little over half of Canada’s emissions. The rest would be made up out of a grab bag of regulatory and subsidy schemes of a kind that have been tried—and have failed—before. Simulations by Simon Fraser University’s Mark Jaccard, considered Canada’s leading expert on the economics of climate change, suggest current government policy would result in reductions of about 120 Mt by 2020 from projected levels, i.e. from the levels to which they would otherwise have risen. But in absolute terms, emissions “are unlikely to fall below current levels,” meaning we’re on track to overshoot our target by something like 200 Mt.

In sum, the Conservative plan is just as costly (per tonne of emissions reduced) as the Liberals’, twice as complicated (emissions trading markets are, as Europe has learned, fiendishly difficult to design: just the task of ensuring credits are based on “real, incremental, verifiable” reductions would take several pages to explain), and probably half as effective. (Not that there’s anything wrong with cap-and-trade. But to get anywhere near our targets, we’re probably going to need both a carbon tax and cap-and-trade, as indeed the Liberals propose.) The Tory plan has, however, proved unassailably superior in political terms. The very thing that makes the Liberal plan less risky economically—the costs are known up front—makes it more risky politically. The Conservatives have succeeded in implying, without quite saying, that the choice is between a costly scheme and no costs at all. They’ve hit the political sweet spot: enough of a plan to say they have a plan, but not so much as to get in anyone’s face.

The Liberals have achieved the exact opposite (the sour spot?): a plan that is not radical enough to be the game-changer they had hoped, but costly enough to annoy just about everybody. True, Dion’s failings as a salesman haven’t helped. And yes, their timing could have been better, pitching a plan to raise fuel taxes just as oil and gas prices were setting all-time records—to say nothing of the turmoil now convulsing the world financial system. But the plan’s design was flawed from the start. The Liberals never have told us how a federal carbon tax would apply in provinces that already have one, while flirting, foolishly, with imposing tariffs on countries that have none. Most disastrously, they did not cut income tax rates by anything near enough to make a difference, economically or politically—certainly not enough to support claims of revenue neutrality. The tax cuts, such as they were, have long since been forgotten.

It should be mentioned that the Conservatives have had helpers: the New Democrats, whose environmental policy is a similar mix of cap-and-trade and subsidies, and who, like the Tories, have successfully demonized the carbon tax, while pretending their own plan will cost no one but a handful of “big polluters.” As Laval University economist Stephen Gordon has written, it is an alliance between those with “a visceral hatred of taxes” and those with a “visceral hatred of corporations.”

But it is the Conservatives who have been the demagogues-in-chief in this affair. Among the long-term costs will be Conservative credibility. The same Conservatives who have told us for years that prices, in a market economy, are to be preferred to regulation as a means of changing economic behaviour, suddenly forget their economics when it comes to pricing carbon. The same Conservatives who have long insisted that tax rates are critical to incentives seemingly cannot comprehend the logic of shifting taxes from income to carbon. And the same Conservatives who have long lectured us that “corporations don’t pay taxes, people do”—that any costs imposed on business will inevitably be passed on, usually to consumers—would rather we forgot they ever mentioned it.