A few comments to Mr. Flaherty on the green economy

The federal budget was released on January 27. Will this drive economic growth? Not clear. Stimulus? Not really, although it will just keep existing jobs in place. The Finance Minister forgot to mention how this will make Canada the most competitive country in the world. Or was that not an objective?

A bigger issue is that fewer than half of Canadians who are unemployed do not even meet the Unemployment Insurance criteria and therefore are not eligible for the new extending benefits to the program. Why hasn’t the government addressed this barrier to the UI program? But this is not what I wanted to talk about.

I will direct my comments to the environment component of the budget and, for starters, it is surprising that only $1 billion has been set aside (compared to spending in other areas, such as the tar sands subsidy for R&D in carbon capture and storage technology). Many are saying that it is a start but compared to Obama’s position where, as reported in The Globe and Mail on 1/27, page 1, the President “has launched a revolutionary reversal of America’s environmental and energy policy, demanding cleaner cars and committing tens of billions of dollars to encourage energy sovereignty for the United States”.  Energy and environment are at the core of Obama’s domestic agenda. Given that the President will be visiting Canada on February 19, what do the Conservatives have to offer in light of the US government’s agenda and talk of a North American emissions agreement?

Transformation to a Green Economy?

A quick read through the Budget 2009 has picked-up the following environment issues. As these issues may not be exhaustive, further comments/additions are welcome:

– Canada has committed to a 20 percent reduction of greenhouse gases by 2020. This is particularly the case for technologies that capture carbon dioxide at the point of production in industrial facilities and safely store it underground.  Budget 2009 will provide $1 billion over five years to support clean energy technologies.

Is this the same 20 percent reduction compared to the 2006 baseline where pollution was at its highest? Did Harper forget that Kyoto calls for a 1990 baseline? As well, are these absolute or intensity-based reduction targets? Let me guess… Furthermore, it appears that the Government is extending, once again, a helping hand to the oil and gas sector as regards developing CCS technology. The Canadian tar sands remains one of the most contentious environmental issue on a global scale and instead of addressing the problem, the Government has chosen to increase subsidizing the sector. Given Obama’s energy policy, the fact that the U.S. is currently our biggest market (which may change in the future), and that the oil sands project is widely unpopular both in Canada and the U.S. (see New York Times article),  the Government should have demonstrated other initiatives in the budget, such as increasing R&D in renewable energies and technologies (i.e.: wind), or establishing national targets for the recycling and recovery of metals (and thus creating a viable recycling industry in Canada which would mean less mining and saving more energy).

Are these measures sufficient to achieve a 20 percent reduction?

– Budget 2009 will provide $10 million in 2009-10 to sustain the Government’s annual reporting on environmental indicators.

As mentioned in a previous blog regarding sustainability indicators (see blog on January 12), it is a positive move to start reporting but targets need to be attached to the indicators, i.e.: targets to improve the state of the environment. Otherwise what’s the point of reporting for reporting sake?

– Nuclear technology is a proven and reliable source of clean energy. In Canada and around the world, energy authorities are investing in nuclear power to meet energy security and climate change goals. Budget 2009 provides $351 million on a cash basis to Atomic Energy of Canada Limited (AECL) in 2009-10 for its operations, including the development of the Advanced CANDU Reactor, and to maintain safe and reliable operations at the Chalk River Laboratories.

This is a divided issue and it is a pity that the Harper government believes that nuclear technology is a proven and reliable source of clean energy. A simple life-cycle assessment would demonstrate otherwise due to the immense radioactive waste produced by the nuclear industry (Blinky the three-eyed fish from The Simpsons comes to mind). Where and how is this waste currently being handled? USTs?  And is the investigation over the spill contamination of Chalk River, as was debated in the House of Commons in December 2008, over? Why is more money being pumped in these contentious industrial installations?

– Budget 2009 provides $37.6 million in 2009-10 to departments and agencies in support of environmental assessments, regulatory coordination, science, and Aboriginal consultations related to the Mackenzie Gas Project.

“Those who do not remeber the past are condemned to repeat it”.  See the Berger Inquiry for more details.

– Budget 2009 will provide up to $7.8 billion of funding through tax credits, grants, and loans as well as funding to provinces and territories to help stimulate the housing sector. Budget 2009 provides an additional $300 million over two years to the ecoENERGY Retrofit program to support an estimated 200,000 additional home retrofits.

How will this be monitored? How about giving tax credits to LEED certified new buildings?

There are many questions and, overall, the green component of the budget could have been stronger. Is this a missed opportunity for Canada? That remains to be seen…

Throne Speech and Federal Budget: stepping closer towards action on climate change?

The Speech from the Throne will occur in less than 30 minutes. No red-carpet ceremony, just a low-key speech which will essentially hint at what we Canadians should expect in tomorrow’s federal budget. Many skeptics believe that environment policy, and in particular climate change issues, should be at the back burner as we are going through tough economic times. This is an opportunity for the government to make some significant progress which will enhance economic activity. An interesting article which I came across spells this out as follows:

Eliminating international competitiveness concerns in climate policy*

Countries introducing emissions trading or carbon tax policies typically ‘carve out’ large areas of economic activity, and provide ‘compensation’ particularly to trade-exposed and energy-intensive industries. This is based on concerns about international competitiveness being eroded, and the resulting assumption that there’s a ‘trade-off’ between cutting greenhouse gases and cutting jobs.

Job losses imply activity shifting to other countries not applying carbon policies. Jobs and emissions shift overseas, leading to clear economic costs and job losses for those countries applying such policies, but little or no global reduction in emissions. This is no ‘trade-off’. It’s just a really bad deal.

This so-called ‘trade-off’ arises because such policies target national production of emissions. This production model only works when all countries act together. They haven’t, and they won’t. In fact the Kyoto Protocol itself said that they won’t. History attests to this reality.

Even if the supporters of the UNFCCC and Kyoto did not see it then, we can see it clearly now. The production model has failed, both within Europe and Australia (because of major policy ‘carve-outs’ and exemptions), and more generally (because countries like the USA, China, India, etc, have not adopted similar climate policies).

This is basic economics. When nations act at different times or to different degrees, production models undermine trade competitiveness of early movers compared with others. Late movers don’t follow suit so they can milk trade gains out of early movers. This ruins chances for a global deal.

But we can do better. This ‘trade-off’ is completely avoidable. Countries can reduce greenhouse gases without any carbon or jobs leakage by targeting their consumption of embedded emissions rather than production.

By definition, global emissions production equals global emissions consumption. So we have two roads to get to the same goal: reduction in global emissions. The production road only works when all countries act together. In contrast, the consumption road works even if countries act unilaterally. Why? Because it is designed to eliminate international competitiveness concerns.

So why pursue a production-based model given its now-long history of failure? It’s even less likely to work as the world economy slides into recession. Countries won’t want to suffer more job losses.

The emissions consumption model is practical. It starts with the production information required under current policies. It can use existing value-added tax (or similar) systems to pass carbon cost signals transparently down the supply chain to consumers; exports are zero-rated; and it imposes a trade competitiveness-neutral border tax adjustment on competing imports. This system is already applied in countries with VAT or similar taxes. Like such systems, it is trade competitiveness neutral.

A consumption model gets us to the same global end-point as a production model. But basic economics tells us that it’s much more likely to get us there. Isn’t it high time for the UNFCCC to move to ‘Plan B’ – a consumption model? ‘Plan A’ isn’t working.

* This is a modified and shortened version of an article published in The Australian Financial Review on 15 January 2009.

Let’s see what will happen tomorrow.