Stop pretending

Stop pretending: Taxes and charges -- not more paper policies -- are needed

Mark Jaccard
Special to the Sun
Vancouver Sun
Tuesday, April 11, 2006

Canada's approach to the 1997 Kyoto protocol on greenhouse gas emissions reminds me of a Russian's description of the Soviet economic system, with its unproductive workers and worthless currency: "We pretend to work and they pretend to pay us."

In the case of Kyoto, Canada pretends to reduce greenhouse gas emissions -- GHGs -- and the international community pretends that failure will obligate us to pay billions for internationally traded emission credits. Everyone is pretending.

For those of us who produced 1999 estimates of the technologies, costs and policies required to dramatically reduce GHGs by the 2010 Kyoto deadline, the past eight years have been profoundly frustrating.

Our demonstrations of the substantial costs and forceful policies necessary for such a fundamental technological change in just one decade were either ignored or labeled incompetent.

No one wanted to hear that in a market economy there are bound to be business advantages and personal lifestyle benefits to burning fossil fuels as long as you can use the atmosphere as a free waste receptacle, and that these opportunities would overwhelm any modest reductions from energy efficiency and fuel switching.

Instead, and in spite of mounting evidence to the contrary, government kept listening to environmentalists who told it that GHG reduction is profitable and easy, implying that moral suasion, information about profits from energy efficiency, and the odd modest subsidy should be enough.

It listened to industry leaders, who told it that firms would voluntarily reduce emissions so there was no need for charges or regulations. It listened to the media, which warned against any increase in business and consumer costs, even if a GHG tax were offset by desired tax reductions elsewhere.

For 15 years Canadian governments have layered one GHG policy over another -- the 1990 Green Plan, the 1995 National Action Program on Climate Change, Action Plan 2000 on Climate Change, the 2002 Climate Change Plan for Canada and Project Green in 2005. The names changed, but not the approach -- information and subsidies to encourage emission reductions, but no restrictions or charges for using the atmosphere as a free waste receptacle.

We lauded a slight improvement in furnace efficiencies but ignored the explosion of air conditioners, backyard patio heaters, jacuzzis and roof de-icers. We applauded improved vehicle efficiencies but ignored their increasing size and use. We advertised industrial efficiency gains but ignored the rapidly rising emissions from oil sands expansion.

Emissions are actually rising faster than in the 1980s when government did nothing.

If you want to see Canada's GHGs decline substantially over the next few decades, you should welcome the Conservative government's review of our GHG policy approach. A sincere review will conclude the obvious -- GHG emissions will not decline if atmosphere dumping is not constrained by regulations or fees.

The best policy is a gradually rising tax on GHG emissions. Decades of experiments with all sorts of environmental taxes -- including a decade of carbon dioxide taxes in several jurisdictions -- have shown that a properly designed tax can meet everyone's concerns.

Government reduces other taxes, so there is no net tax increase. Industries whose exports are threatened are given some tax-exemption and emission reduction assistance, as occurs in other countries with GHG taxes. Tax payments are returned to regional governments, like Alberta.

A modest tax initially is scheduled to rise gradually, so it affects new investment decisions but not the profitability of old equipment.

If the tax approach is politically unpalatable, government could apply market-oriented regulations that motivate the development and adoption of non-GHG-emitting technologies by energy producers and consumers.

An example for consumer technologies is the California vehicle emission standard, which requires vehicle manufacturers to achieve a growing market share for vehicles with zero and near-zero GHG emissions.

Manufacturers can trade among themselves in achieving their market obligations and the long time frame allows for development and market testing of options like battery-electric, plug-in hybrid, hydrogen fuel cell, and biofuel. To avoid penalties, manufacturers are motivated to refocus their R&D and marketing efforts toward greener cars.

With production technologies, Canada's nascent emission cap and trade regulation for large industrial emitters must have an absolute cap if it is to reduce emissions or even stop their growth. With its current industry-specific obligations, the rapid growth of a high emissions sector like oil sands will cause emissions to keep climbing, as they are.

More effective would be to shift the burden for emission management back to the source. Thus, the fossil fuel industry should be regulated to take responsibility for the fate of all carbon it handles, just as industries must do with other potentially dangerous substances.

This carbon management standard would require anyone extracting carbon from the earth's crust to ensure that the carbon will not end up in the atmosphere. While the initial obligation would be a small percentage of carbon extracted, a schedule would indicate how the percentage rises over time. Canada's fossil fuel industry could be required to capture and store say one per cent of the carbon it extracts in 2015, five per cent in 2025, and 40 per cent in 2050. We start slowly to gain experience, but accelerate as costs fall and the processes become the international norm.

To minimize costs, the policy would allow all industries engaged in carbon extraction and processing (oil sands, oil refineries, coal mines, electricity generators, pipelines, gas processors) to trade among themselves and form consortia to achieve the aggregate requirement as cheaply as possible. Over time, some adjustment to the schedule could be allowed in response to new information about compliance costs and the seriousness of the climate change risk.

If the Conservatives use this policy review as an excuse to kill any GHG reduction effort, Canadians will have been betrayed.

If, however, they quickly implement policies that ensure long-term reductions by prohibiting the free use of the atmosphere they will have done an enormous service.

Anything less is just pretending.

Mark Jaccard is professor of resource and environmental management at Simon Fraser University. This article is based on his latest book, Sustainable Fossil Fuels: The Unusual Suspect in the Quest for Clean and Enduring Energy (Cambridge University Press.)