Questerre Energy

Mike's Blog

Apr
19

Common Sense Climate Policy

The potential impact of climate change is a highly concerning international issue for most Canadians.  The world has always been able to count on Canada to punch above its weight on issues of global concern.  Canadians can and should be proud of this.

However, doing the right things depends on doing things right.  We need to recognize that good climate policy shouldn’t increase carbon leaks nor poverty.   Carbon leaks are when our policies to reduce carbon in Canada instead shift production and emissions to foreign jurisdictions.

Unfortunately, Canadian climate policy makers are currently not seriously taking in to account the impacts of their policies on emissions in the rest of the world. If we agree that Canada should be a global leader and do more than its share on climate change then we need to think globally. A common sense approach to climate policy is needed to achieve this.

Canadians are the best in the world in many areas and many of our industries enjoy comparative advantages in carbon that can help the planet.  Jean Chretien said as much in 2002 when Canada originally adopted the Kyoto Accord.

 

Here are three key issues for our policy makers to address in a global impacts approach to climate.

What are 70 and 14?

What are dozens and zero?

What are 2, 11 and 14?

 

‘70’ is the percentage of the Canadian economy that depends on trade verses under 30% for the United States.  While ‘14’ is the number of megajoules of energy that Canada uses to produce US$1 of GDP verses only 9.3MJ for the United States.  This means economically, Canada is more than twice as vulnerable on trade and almost twice as vulnerable on energy compared to our main trading partner, who does not currently price carbon.

It would be logical that given Canada’s unique economic vulnerabilities that we carefully study carbon leakage and energy poverty.  Yet while ‘dozens’ is the number of studies in Europe, ‘zero’ is the number of Canadian economic studies of carbon leakage by industrial sector. Canada which is over four times as vulnerable might logically invest in four times as much study, instead of basing its choices more or less on conceptual theory.  The problem is that:  in theory, practice and theory are the same, but in practice they are not.

Our lack of serious economic research on carbon leakage and energy poverty has led us to the illogical conclusion, based on conceptual theory, that we can reduce global emissions by taxing the best. Incredibly there is no comprehensive environmental study of the new environmental policies on carbon pricing.  It seems it is just assumed, since it is an environmental policy with good intentions, it must ergo be good for the environment.

Canada is already the best environmentally in many places.  For example, ‘2’ is the number of tonnes of CO2 it takes to produce one tonne of Canadian aluminum (according to Quebec Aluminum Association).  ‘11’ is the tonnes of CO2 for a tonne of American aluminum and ‘14’ plus is the amount for a tonne of Chinese aluminum.  There are many more examples in manufacturing, processing and resources where Canada is the best in the world environmentally.  We can say for these industries that Canada enjoys a comparative advantage in carbon.  If we had only invested in the study in advance, like Europe did, we would all know this. 

Canadian policy makers want to tax Canadian production because economic theory says it will reduce Canadian emissions.  This is self-evident and far too simplistic an approach.  What their economic theory gets wrong is we should be producing more Canadian aluminum not less if we care about global, not just Canadian emissions.  Each tonne of Canadian aluminum increases Canadian emissions by 2 tonnes but reduces global emissions by more than 11 tonnes of CO2 equivalent. This equates to carbon leakage rate of more than 500%.

What is worse is while our policy approach unintentionally increased global emissions, we knowingly increase energy poverty at home and abroad. All so political leaders can claim Canada is doing its share because Canadian production and emissions went down (albeit by less than global emissions went up). This is called the ‘green paradox’.

When you think about it, if there is a global problem, how could less Canada be the solution?  It just doesn’t make common sense. We should also realize that Canada has not been a global leader by going it alone. We have been the international honest broker bringing countries together.  Sweden going it alone in their regional trading area in 1990 helped to precipitate their banking crisis.  Lessons from Europe warns us to work as an honest broker internationally and in concert with our major trading partners.

 

A Common Sense Canadian Climate Policy:

  • Make a common climate policy the number one issue for the NAFTA renegotiations.  This was the approach the Mulroney government took on acid rain with the Reagan government and it resulted in an incredible environmental accomplishment. 
  • Invest in the independent peer reviewed economic study with public consultation on carbon leakage to establish where Canada has comparative advantages in carbon.  This is a pre-requisite to good policy.
  • For our industries like aluminum that are already carbon competitive we need to make them more economically competitive so they can displace higher carbon intensity competitors.
  • Introduce targeted deregulation for carbon competitive industries.
  • Provide low carbon intensity income tax credits along the lines of the manufacturing and processing credit.
  • Look at targeted, evidenced based regulation where Canada is not highly trade exposed and does not currently have comparative advantages in carbon.
  • Consider repurposing the federal and provincial fuel excise taxes as a more effective and comprehensive tax on greenhouse gas emissions.

 

A common sense climate policy will see Canada punching above its weight with a global outlook.  The planet really does need more Canada.  Let’s give the planet what it needs.

Comments (1)

  1. Ernest Wehrle:
    Apr 21, 2017 at 08:06 AM

    Makes a great deal of sense.




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