We've all seen the news of Dion's new National Energy Programme equivalent; The ducks that died after landing in a Syncrude tailings pond, which made global headlines; the next U.S. president who will be 'tough' on climate change. All of this prompted an aggressive PR campaign by the Canadian Association of Petroleum Producers (CAPP), and supported by Premier Ed Stelmach. Included in this campaign was a website, http://canadasoilsands.ca, used to help raise awareness and improve the image of the oilsands. Not surprisingly, greenpeace countered with a satirical version of this website, http://www.travellingalberta.com.
Albertans need not be overly concerned about all this negative talk about the oilsands. It should and will not damage the Alberta economy. I will attempt to explain why in this post. At the same time, I am very supportive of the idea of improving the image of the oilsands producers. In one of my last posts, I quoted John Fanci as saying that creating long-term stakeholder value is dependent on recognizing that "corporations are dependent on licenses provided by society to do business."
Infrastructure
The transport infrastructure of the United States and pretty much every industrialized nation is currently centered around fossil fuels. There are many reasons for this of course, but as I mentioned in one of my previous posts, the most basic reason is that the fossil fuels from prolific sources have such high energy densities and very high returns on energy invested.
Transport Technology
In order to transport energy, deciding on a suitable fuel for any vehicle (car, truck, airplane, train, etc.) needs to have several consideration factors:
storage capability--
energy density--this is the amount of energy produced per unit volume. In terms of common fluid fuels, diesel is amongst the highest, biofuels (ethanol and other alcohols) are on the lower end, followed by hydrogen and natural gas. Natural gas powered cars do exist but because of the low energy density, they require very large cumbersome gas tanks that usually take up most of the trunk. Hydrogen is not even feasible for use in airplanes unless it is liquified first because of insufficient energy densities.
weight/mass-I know weight and mass are not technically the same thing but on Earth the distinction is subtle. The
power--power is the amount of energy delivered per unit time. It is closely related to both explosiveness and energy density, although they are not the same thing. Again, diesel and airplane fuels are pretty much king in the transport industry. Lack of power is why electric cars have relatively low maximum speeds and hybrids use the engine rather than the battery on the highway.
waste products--very pure hydrocarbons and ethanol produce carbon dioxide (CO2 and gaseous hydrogen oxide (water vapour) and trace amounts of carbon monoxide (CO) when burned properly in air. Common fossil fuels are usually very pure. Hydrogen fuel cells only produce the water part. Electric batteries do not have any waste products until the battery recharge cycle is exhausted and the battery must be disposed or recycled. Coal and other heavy refined crude oil products contain solid matter that leaves significant amounts of residue that must be disposed of. Most other chemical formulations are not even considered for the tramsport sector because either they produce solid waste products or they produce toxic gases (such as sulphites which produce sulphur dioxide).
EROI - I have already defined this term in a previous post. Early sources of fossil fuels had great EROI's. A rigorous calculation of EROI also includes the amount of energy required for transport to the market. It is widely believed that the highest EROI sources of oil have been largely depleted, especially in geopolitically stable regions of the World. What remains are lower EROI sources. Those who believe this consider it to be part of the reason oil prices are high and will remain relatively high for the forseeable future. EROI's for transport fuels are summarized in this table.
Alternative fuels have many hurdles to overcome, including the consideration factors I mentioned above. If oil prices do remain high and climate change concerns cause governments to phase out carbon, than they will obviously take over much of the market share that fossil fuels currently have a stranglehold on.
The Hydrogen Economy
As for the Dion Carbon Tax?
I don't think it would cause an economic disaster but I also think it's neither a good plan nor a necessary one. In particular I'd be concerned about it causing serious inflation, among many other things with it being completely untried and untested. In any case, as I've said I don't think it will get Dion elected. I wouldn't hire Dion as my sales rep. and even if he were able to sell the plan to Canadians, he probably still can't sell himself as a good Prime Minister. Failing that (getting elected), Dion will make a timely exit from the Liberal Party of Canada.
Definitions:
Transport Fuel - The energy carrier that is capable of delivering both energy and power. Although electric battery used to power a car is not generally considered a fuel, I will place them under the umbrella of "transport fuels" for the purposes of this post.
Fossil fuel - a combustible organic material derived from the buried remains of former life. I will refer to coal and other solid fossil fuels independently from this definition because they often do not meet suitability requirements for todays transport fuels.
Friday, June 27, 2008
Tuesday, June 24, 2008
The Presumptive President
Image courtesy of Charis Tsevis
I know it's early, but I'm ready to project a winner for the U.S. Presidential Election long before CNN does. I am projecting that Barack Obama will be the forty-fourth president of the United States.
They say success is 90% effort and 10% luck (or 10% effort, 90% luck depending on who you talk to)--Either way, Obama definitely has the pocket aces at this point. When Obama was first elected to the senate, he and his advisers devised a plan to make a bid for the White House in 2012. His camp realized that George W. Bush left a really big window open; actually, I'm not sure if it was an open window or if they forgot to erect walls altogether.
Bush's approval rating was 28% in April according to a USA TODAY/Gallop Poll. His disapproval rating is the highest for any president since Franklin Roosevelt. This is quite a sharp fall after his approval rating spiked to 90% in the days following September 11th, 2001.
Obviously, polls like any other indicator have their limitations. Another indicator is consumer confidence, which hit 16-year lows in June. The last low was in 1992, right before Bush (Sr.) lost his lease on the White House to the democrats.
That doesn't mean the U.S. economic woes are fully to blame on Republican policy, or even President Bush for that matter. In fact, many political scientists agree that the framework of U.S. politics imposes very strict constraints on the President's power, even though he (or she) is sometimes termed the most powerful person in the World. Additionally, the U.S. Congress is currently controlled by the Democrats. In reality, policy failures are some combination of circumstance (i.e. luck) and failed policy by all parties involved. I don't pretend to know the ratios of those two factors.
Iraq Example
Any sufficiently balanced policy will maintain America's prosperity so long as it recognizes and adapts to the challenges current times rather than simply using the strategies that worked in the past. With hindsight, it is now hard to find many people who still strongly believe the 'Operation Iraqi Freedom' was a good policy decision. The war appears to have been justified on the basis that brute force military action was sufficient for victory. That worked quite well for the invasion phase following which President Bush stepped out on an aircraft carrier declaring "Mission Accomplished!". Post-invasion though, brute-force military tactics have proven mostly unsuccessful against the guerrilla tactics used by insurgents that include suicide bombers, IED's and sabotage of oil infrastructure. I'm no historian but I was told France started digging trenches on the eve of WWII. The Germans rolled over them with tanks--this is what I mean by relying on strategies that worked well in the past. Lawrence Lindsey, Bush's former chief economic advisor, speaks to his assessment of the cost of the war when he says, "I misjudged an important factor: how long we would be involved [in Iraq]." Current estimates are now between 5 to 10 times higher than what was circulating in Washington before the war ($30 billion up to $200 billion). The casualty count for U.S. soldiers is currently confirmed at 4,102 deaths*.
The Candidates
Clearly, the name George W. Bush is not going to be on the U.S. election ballot. John McCain could certainly be a worthy candidate, yet he probably won't be able to distance himself enough from Bush to win. He does has some significant policy differences, but the single biggest election issue is and will remain the economy. His economic policy is considered 'status quo' with the Bush administration. McCain has the additional challenge of backtracking on numerous past admissions that he is "not an expert on some of this stuff.." ('this stuff' referring to economics). How much this should matter is debatable given that there is no shortage of qualified economists in Washington, but in the eyes of most voters it will matter. It also won't help that there is no shortage of videos on YouTube depicting his shortfalls when it comes to understanding the economy.
There is definitely no guarantee that Obama will be able to fix the economy of course. Some even argue that he will be worse for the economy. His social values and principles are very liberal. On the other hand, his social and economic policies appear to encompass a more pragmatic compromise than his ideals. Whichever the case, if the economy continues to struggle through November, the Republicans will be blamed, leaving the door open for the Democrats.
While Shelby Steele makes some compelling arguments (in his book A Bound Man) as to why Obama can't win the election, I must disagree. Steele's arguments center around race and character, while the focus of the election will be the economy. When Bill Clinton first took office in 1992, voters leaving the polls said the economy was the biggest issue for them, with character being a trailing issue. The Reverend Wright issue appears to be spent while U.S. economic concerns gain momentum. The mortgage crisis fallout continues; house-equity is dramatically falling as are housing starts, the U.S. dollar and equity markets; sovereign and domestic U.S. debt continues to rise; the bulls on commodities...
Economic Outlook
I won't deny that it's possible that the economy could look more positive toward the November election, but the signs don't seem to show that at the moment. The U.S. Federal Reserve continues to resist calls to raise interest rates to bring back the value of the USD (and help stop the rise of oil prices). Some have blamed Fed Chairman Ben Bernake, but unlike John McCain who "wish[es] interest rates were zero", Bernake has some very impressive academic credentials in economics. Hence there are only two logical reasons to delay raising interest rates until late 2008 or in 2009--that more write downs are expected from sub prime mortgages going bad, or that they believe raising interest rates now would result in a catastrophic market collapse. It seems like the Fed's hands are tied with the stagflation dilemma.
All Senator Obama needs to do now is follow the advice President Bush gave him when the two first met at the White House:
"When you get a lot of attention like you've been getting, people start gunnin' for ya. And it won't necessarily be coming from my side, you understand. From yours, too. Everybody'll be waiting for you to slip, you know what I mean? So watch yourself."It will be smooth sailing for Barack H. Obama from now until November. And he has George W. Bush to thank for rolling out the red Carpet. It will still be a close race, but if I had to bet, I'd put my money on Obama.[excerpt from The Audacity of Hope]
Complimentary Reading:
- Luck - A president's best jobs plan (by Chris Isidore, CNNMoney.com senior writer)
- The 44th President's $4 Trillion Headache
(by Jeanne Sahadi, CNNMoney.com senior writer) - Broad Says Economy in Worst Slump Since World War II (Anthony Massucci and Erik Holm, Bloomberg.com)
Please feel free to comment on my prediction, but hold back on your comments regarding Obama's suitability for U.S. President--I will get to his flaws, strengths, etc. in an upcoming post. But first, I will examine why Alberta is very well-positioned relative to the global economy despite "growing concerns" around the globe about climate change.
Friday, June 20, 2008
Green Shift or Red Shaft?
You've all heard the basic principles of the plan. Here are some Q and A's about the Liberals new climate change policy and election platform..
Is the policy it tried and tested?
No. There is no example of a similar and successful policy for a country analogous to Canada. It's neither tried nor tested and the complexities will ensure many challenges will be encountered if it even manages to proceed. The flaws of the Kyoto policy was a good example of serious issues that will be encountered in trying to implement untested climate change policies.
What complexities?
Let's say for example that you are renting your residence and your landlord pays the heating and electricity bills (they are included in the rent). If and when a "carbon shift" is applied, then you will get income tax refunds and your landlord will get the higher bill. This doesn't make any sense, so obviously complicated provisions will need to be made for for these scenarios, including for people who are currently under a rental contract. This is but one example of the many complexities that will arise with an untested plan of this scale.
Will it reduce greenhouse gases?
Most likely. But even the liberals admit they don't know exactly how much. On a global scale, Canadians produce an estimated 2-3% of the world's greenhouse gases. That means even a significant reduction in CO2 emissions for Canada would be fairly modest on a global scale. At best, it represents a symbolic 'first step' more than anything else.
Will it be bad for the economy?
The jury is still out--but it would certainly result in a shift of the economy. Ultimately though, there will be no net flow of Canadian dollars outside the Canadian economy unlike some of the international Cap and Trade policies. It is certain that some industries could be put at a competitive disadvantage while others will flourish under the plan. Economists are split on whether or not it would be good, bad or neutral for the Canadian economy overall.
Can it pass with the Conservatives in power?
No. Even if the liberals garnered the support of all the other opposition parties, the government is not required to follow any policy that includes significant budgetary spending measures. Dion's release of the plan marks an unofficial but irreversible start of an election campaign.
Is it really revenue-neutral?
Sort of. There will be significant administrative costs, particularly with the complexities of this plan. Ultimately though, all of the revenues should be returned to Canadians. That's a bit of a moot point though, because all government revenues are always returned if not at least owned by Canadians--It's really a question of how revenues are distributed and to whom. It's unrealistic to think that everyone will get back exactly what they paid. Some will get more, others less. For example, farmers that require the use diesel will be hit much harder than someone living in a small condo with electric heating (energy sourced from hydroelectricity or nuclear). To compensate, they have added a provision to give more revenues to rural area residents and northern residents. Very complex systems are needed to help even out the imbalances and even then it will still create some winners and losers.
Who are the biggest winners?
Most likely Canadians living below the poverty line. While Dion claims revenue-neutrality, he doesn't claim revenue-equality.
Who are the biggest losers?
Probably Albertans and Saskatchewanians. Alberta's electricity grid relies on coal for nearly 50% of its power and natural gas for almost 40%. Saskatchewan is similar but with more hydroelectric and less natural gas generators. Ontario is basically the next closest electricity carbon-emitter with 20% of its electricity generated from coal. Electricity costs would go up in those provinces--by a lot. It would add over $600 million to Alberta's total electricity cost in year one, and over $2 billion by year four. I'm not sure how much would be returned to Albertans in personal and corporate income taxes but I doubt the figure is proportional to what Quebecers receive. Quebec uses over 97% hydroelectric power. The plan was "adopted wholesale" from Jack Mintz, a tax-policy specialist and chair of Policy Studies at the University of Calgary. Ironically, Mintz hails from Alberta, and received his first degree in economics at the University of Alberta.
Will it harm oil sands development?
Possibly, but not as much as one might think. The taxes are point-of-sale, which means oil sands producers can continue to release CO2 and as long as the oil is sold to the United States (as most already is), the massive carbon emissions produced will bypass the plan. This is another strange irony because the oil sands are Canada's largest industrial CO2 emitter. But no plan that destroys Canada's economic towboat would be supported by any economists. However, industry lobbyists will exercise their right to complain because it sets a pretty bad precedent for the future. Still, a precedent has already been set by the United States which banned the purchase of 'dirty' fuels by the Feds. Some say Alberta's oilsands are exempt under the U.S. bill. Either way, I don't believe precedent is a concern in the face of such high prices of an essential commodity.
What about Airlines?
Aviation fuel is not taxed in year one of the plan but 6.2 cents per litre would be tacked on by year four of the plan. Flight prices are already up 30-40% since last year and are likely to continue rising. High oil prices have hit this industry hardest. Airplanes are among the biggest CO2 emitters, and there are some indications that CO2 released at higher altitudes could have more impact on the environment compared to ground-level emissions. All this is to say that the aviation fuel tax is very unlikely to be removed from the plan. Truckers will have a similar grievance. Admittedly though, to put it in perspective, the cost of diesel and aviation fuel is on the order of $2 per litre, so it would add somewhere from 1-3% to the cost of flying/trucking.
And other Industries?
Because it is point-of-sale, it is a tax on consumers on the basis of estimated carbon emissions from fuel sources rather than on carbon dioxide emitters directly. Of course, industries can be large consumers as well as individuals. The steel industry, for example, might be hit hard because they use lots of coke (which is essentially coal) in the refining process. As I've said, coal-fired power plants will also be hit hard and ultimately coal miners that sell domestically.
Do all liberal MP's support it?
No. If it comes down to a vote they will all stand up of course. However, there are certainly many liberals that are concerned about their constituents kicking them out of office in the next election. Saskatchewan MP Ralph Goodale's place in the House of Commons could be collateral damage for example. On the other hand, this is the first issue Stephane Dion has actually taken a stance on. Some within the Liberal ranks will support it on the basis that the plan would either succeed (and get the liberals elected) or fail and have Dion exit the Liberal Party. Either way it's a resolution.
Will The Plan Succeed?
It's too early to tell but here are some interesting notes:
On a side note, while I'm not crazy about poetic symbolism, tulips (pictured above) actually have some very interesting economic history in 17th century Holland (see Tulip mania). Furthermore, no one really knows for sure whether or not the "Green Shift" will put the economy "in the red". Lastly, it seems the Liberal party has (temporarily?) added green, in addition to red, as it's second colour.
Is the policy it tried and tested?No. There is no example of a similar and successful policy for a country analogous to Canada. It's neither tried nor tested and the complexities will ensure many challenges will be encountered if it even manages to proceed. The flaws of the Kyoto policy was a good example of serious issues that will be encountered in trying to implement untested climate change policies.
What complexities?
Let's say for example that you are renting your residence and your landlord pays the heating and electricity bills (they are included in the rent). If and when a "carbon shift" is applied, then you will get income tax refunds and your landlord will get the higher bill. This doesn't make any sense, so obviously complicated provisions will need to be made for for these scenarios, including for people who are currently under a rental contract. This is but one example of the many complexities that will arise with an untested plan of this scale.
Will it reduce greenhouse gases?
Most likely. But even the liberals admit they don't know exactly how much. On a global scale, Canadians produce an estimated 2-3% of the world's greenhouse gases. That means even a significant reduction in CO2 emissions for Canada would be fairly modest on a global scale. At best, it represents a symbolic 'first step' more than anything else.
Will it be bad for the economy?
The jury is still out--but it would certainly result in a shift of the economy. Ultimately though, there will be no net flow of Canadian dollars outside the Canadian economy unlike some of the international Cap and Trade policies. It is certain that some industries could be put at a competitive disadvantage while others will flourish under the plan. Economists are split on whether or not it would be good, bad or neutral for the Canadian economy overall.
Can it pass with the Conservatives in power?
No. Even if the liberals garnered the support of all the other opposition parties, the government is not required to follow any policy that includes significant budgetary spending measures. Dion's release of the plan marks an unofficial but irreversible start of an election campaign.
Is it really revenue-neutral?
Sort of. There will be significant administrative costs, particularly with the complexities of this plan. Ultimately though, all of the revenues should be returned to Canadians. That's a bit of a moot point though, because all government revenues are always returned if not at least owned by Canadians--It's really a question of how revenues are distributed and to whom. It's unrealistic to think that everyone will get back exactly what they paid. Some will get more, others less. For example, farmers that require the use diesel will be hit much harder than someone living in a small condo with electric heating (energy sourced from hydroelectricity or nuclear). To compensate, they have added a provision to give more revenues to rural area residents and northern residents. Very complex systems are needed to help even out the imbalances and even then it will still create some winners and losers.
Who are the biggest winners?
Most likely Canadians living below the poverty line. While Dion claims revenue-neutrality, he doesn't claim revenue-equality.
"The Green Shift will be especially targeted to decrease poverty with further emphasis on helping children in poverty."Clearly the Conservatives claim that it is a masked tax has some legitimacy.-Dion at the 'Green Shift' kickoff speech
Who are the biggest losers?
Probably Albertans and Saskatchewanians. Alberta's electricity grid relies on coal for nearly 50% of its power and natural gas for almost 40%. Saskatchewan is similar but with more hydroelectric and less natural gas generators. Ontario is basically the next closest electricity carbon-emitter with 20% of its electricity generated from coal. Electricity costs would go up in those provinces--by a lot. It would add over $600 million to Alberta's total electricity cost in year one, and over $2 billion by year four. I'm not sure how much would be returned to Albertans in personal and corporate income taxes but I doubt the figure is proportional to what Quebecers receive. Quebec uses over 97% hydroelectric power. The plan was "adopted wholesale" from Jack Mintz, a tax-policy specialist and chair of Policy Studies at the University of Calgary. Ironically, Mintz hails from Alberta, and received his first degree in economics at the University of Alberta.
Will it harm oil sands development?
Possibly, but not as much as one might think. The taxes are point-of-sale, which means oil sands producers can continue to release CO2 and as long as the oil is sold to the United States (as most already is), the massive carbon emissions produced will bypass the plan. This is another strange irony because the oil sands are Canada's largest industrial CO2 emitter. But no plan that destroys Canada's economic towboat would be supported by any economists. However, industry lobbyists will exercise their right to complain because it sets a pretty bad precedent for the future. Still, a precedent has already been set by the United States which banned the purchase of 'dirty' fuels by the Feds. Some say Alberta's oilsands are exempt under the U.S. bill. Either way, I don't believe precedent is a concern in the face of such high prices of an essential commodity.
What about Airlines?
Aviation fuel is not taxed in year one of the plan but 6.2 cents per litre would be tacked on by year four of the plan. Flight prices are already up 30-40% since last year and are likely to continue rising. High oil prices have hit this industry hardest. Airplanes are among the biggest CO2 emitters, and there are some indications that CO2 released at higher altitudes could have more impact on the environment compared to ground-level emissions. All this is to say that the aviation fuel tax is very unlikely to be removed from the plan. Truckers will have a similar grievance. Admittedly though, to put it in perspective, the cost of diesel and aviation fuel is on the order of $2 per litre, so it would add somewhere from 1-3% to the cost of flying/trucking.
And other Industries?
Because it is point-of-sale, it is a tax on consumers on the basis of estimated carbon emissions from fuel sources rather than on carbon dioxide emitters directly. Of course, industries can be large consumers as well as individuals. The steel industry, for example, might be hit hard because they use lots of coke (which is essentially coal) in the refining process. As I've said, coal-fired power plants will also be hit hard and ultimately coal miners that sell domestically.
Do all liberal MP's support it?
No. If it comes down to a vote they will all stand up of course. However, there are certainly many liberals that are concerned about their constituents kicking them out of office in the next election. Saskatchewan MP Ralph Goodale's place in the House of Commons could be collateral damage for example. On the other hand, this is the first issue Stephane Dion has actually taken a stance on. Some within the Liberal ranks will support it on the basis that the plan would either succeed (and get the liberals elected) or fail and have Dion exit the Liberal Party. Either way it's a resolution.
Will The Plan Succeed?
It's too early to tell but here are some interesting notes:
- The liberals have obviously scrutinized the plan extensively with political analysts and economists. Early response to the plan indicates economists are split on the economic sensibility of the plan.
- Gasoline taxes were excluded simply because it would be too unpopular and not because it is already taxed (diesel is already taxed but did not escape the carbon tax).
- The NDP has shunned the plan and said they will not support it.
- The Conservatives seem to be taking potential for public acceptance of the plan quite seriously. Stephen Harper seemed to indicate his intent to have a fall election the day after the plan was officially released.
- It will likely garner support from Quebec and result in a shutout of the liberals in Alberta (again) and quite possibly Saskatchewan. BC has already committed to implementing a carbon tax that includes an additional gasoline tax--BC residents may not like being squeezed by both the provincial and federal governments at the same time.
- Senators McCain and Obama both have more accepting perspectives on anthropogenic climate change predictions compared to their predecessor. This could furter influence public opinion on climate change.
- If oil and energy prices fall in the coming months, then more people will soften to the plan. Demand destruction is happening as we continue to see economic growth casualties from the continued high prices. At the same time, a serious disruption to supply (devastating hurricane or a terrorist attack of epic proportions) would undoubtedly cause oil and gas prices to rise.
- At first pass I'd guess the plan will ultimately fail to get the liberals elected (and be enacted) because of the complexities, uncertainties and divisiveness of the plan--and also because of the general perception that Dion is not a good leader.
On a side note, while I'm not crazy about poetic symbolism, tulips (pictured above) actually have some very interesting economic history in 17th century Holland (see Tulip mania). Furthermore, no one really knows for sure whether or not the "Green Shift" will put the economy "in the red". Lastly, it seems the Liberal party has (temporarily?) added green, in addition to red, as it's second colour.
Thursday, June 19, 2008
A Changing Climate or a Hurricane of Hoaxes?
There is no irrefutable evidence of climate change. Most of the speculation about anthropogenic climate change (caused by humans) are based on computer models, which are improving but still rather difficult to validate. That's because even if we can approximate a history match of past climate conditions, we are now trying to extrapolate these models for carbon dioxide levels that have not existed for several millennia on the Earth, if ever. Computer modelling is sometimes considered as much of an art as it is a science because it requires so many assumptions. Good engineering assumptions produce good approximations but bad assumptions produce erroneous results. The only way to have confidence in a solution is consistency. The model must be consistent with historical data as well as with current data. The more data we have that turns out to be consistent with what the model forecasted, the higher confidence we will have that the model is valid. Click here for a recent article on climate change consistency. But some judgement is required to assess how much consistency is required to constitute irrefutable evidence. I don't think we've reached that point yet.
Any sound political and free market policy will be one that considers the economy, society and the environment as an inseparable whole rather than as independent entities. Ignoring the environment in favour of the economy allows the economy to flourish in the short term, but could be detrimental to the longer-term economy. On the other hand, undue and overly-aggressive environmental policy would be crippling to the near-term economy. A sound policy would strike the correct balance between the economy and the environment such that strong but sustained economic growth can be achieved. I don't propose to know where that balance lies, but it certainly won't be reached without international cooperation and commitment. There is no broader a public interest than billions of molecules of air pollution that refuse to adhere to any regional, national or geographical boarders.
It is this mobility of global pollution that makes it such a challenging issue. For example, the U.S. and Australia refused to commit to the Kyoto protocol because it would put them at an economic disadvantage to developing nations like China, who were given a more liberal license to pollute--they had a valid complaint. At the same time, China and other nations still only produce a tiny fraction of pollution per capita compared to developed nations--this view is also valid.
While there is no consensus on the magnitude and scale of anthropogenic climate change, there is a growing belief that regardless of the extent, climate change beliefs will dictate both public and corporate policy.
John R. Fanchi, a petroleum engineering professor, writes:
The Cost-Benefit analysis of climate change
Given the massive uncertainties of climate change, it makes sense to do a cost-benefit analysis to assess risk. It could well be that climate change reports have been prompted by alarmist environmental extremists and sensationalistic news reporting, or they could be genuine. The probable scenario is somewhere in between. There are essentially three scenarios that would come out of such an analysis:
And finally, a primer to the next post--Stephane Dion's proposed environmental policy..
What is the logic behind a carbon pricing?
The logic is that because world economies are driven by free-market capital, we should try to estimate and apply a price of an intangible cost (the adverse effect of GHG emissions on our environment). As I've said, nobody has any clue what the environmental and ultimately financial cost of 1 tonne of CO2 is. If indeed severe weather events can be induced by climate change, then ideally those who created the greenhouse gases would be charged proportionally for the damages it caused. Now, it's unrealistic to think that we will ever know for sure if climate change causes sever-weather damages, let alone how much and get the polluters to pay proportionally. Re-Insurance companies have taken note of the issue some time ago. Re-Insurers are those who insure the insurers--often in the case of natural disasters. For example, in the months following the Mississippi river flooding, a local insurance company might go bankrupt without the reinsurance provided by a company like Swiss-Re. Swiss-Re is the worlds largest reinsurance company, and it has taken note of the climate change issue. They also realize that there is no way to deny insurance claims to large CO2 emitters on the basis of negligence (they would need irrefutable proof that doesn't exist).
What is the logic for a Carbon Tax?
The basis for a carbon tax is that the environmental cost of greenhouse gases should be priced in monetary terms (again, no one has any idea what that cost is). Then this cost can be added to the price of emission sources via a tax to create artificial disincentives. This is the opposite of fuel subsidies to artificially encourage economic growth (but can also have adverse consequences). It's similar to the logic for taxing cigarettes. Especially since Canada has a public health care system, smoking adds to the financial burden of hospitals with the health issues it causes. By taxing cigarettes, these revenues can be recycled back into the health care system. No one really knows what that incremental financial burden is, even in the comparatively simple case of cigarettes. Add in all the complexities of a global phenomenon like climate change and you have yourself an analogous carbon tax shift.
Next post: Green Shift or Red Shaft? Some Q&A on Stephane Dion's climate change proposal.
Any sound political and free market policy will be one that considers the economy, society and the environment as an inseparable whole rather than as independent entities. Ignoring the environment in favour of the economy allows the economy to flourish in the short term, but could be detrimental to the longer-term economy. On the other hand, undue and overly-aggressive environmental policy would be crippling to the near-term economy. A sound policy would strike the correct balance between the economy and the environment such that strong but sustained economic growth can be achieved. I don't propose to know where that balance lies, but it certainly won't be reached without international cooperation and commitment. There is no broader a public interest than billions of molecules of air pollution that refuse to adhere to any regional, national or geographical boarders.
It is this mobility of global pollution that makes it such a challenging issue. For example, the U.S. and Australia refused to commit to the Kyoto protocol because it would put them at an economic disadvantage to developing nations like China, who were given a more liberal license to pollute--they had a valid complaint. At the same time, China and other nations still only produce a tiny fraction of pollution per capita compared to developed nations--this view is also valid.
While there is no consensus on the magnitude and scale of anthropogenic climate change, there is a growing belief that regardless of the extent, climate change beliefs will dictate both public and corporate policy.
John R. Fanchi, a petroleum engineering professor, writes:
One [oil and gas] industry response to environmental and social concerns in the context of sustainable development is the triple bottom line (TBL). According to this view, sustainable development must integrate social and environmental concerns into a development plan that optimizes economic profitability and value creation. The three components of sustainable development, and the three goals of the TBL, are economic prosperity, social equity, and environmental protection. The focus of TBL is the creation of long-term shareholder value by recognizing that corporations are dependent on licenses provided by society to do business.He also states that (Royal Dutch) Shell has taken strongly to this approach. Many other large corporations are advertising themselves as 'green' including all six oil & gas 'supermajors' (ExxonMobil, Royal Dutch Shell, BP, Chevron Corporation, Conoco Phillips and Total S.A.), as well as the two largest North American automakers (GM and Ford) to name a few.
The Cost-Benefit analysis of climate change
Given the massive uncertainties of climate change, it makes sense to do a cost-benefit analysis to assess risk. It could well be that climate change reports have been prompted by alarmist environmental extremists and sensationalistic news reporting, or they could be genuine. The probable scenario is somewhere in between. There are essentially three scenarios that would come out of such an analysis:
Scenario 1: (best case scenario) Climate change predictions turn out to be totally wrong. There is no consequence to inaction and any mitigation steps taken would do nothing but harm global economies.An economic/environmental success story was the phasing out of CFC's. It was found in the seventies that the ozone layer was being depleted. The culprit was found to be CFC's, were are used as refrigerants and aerosol propellants among other uses. Global agreements were made to phase out the chemical and it is now estimated that the ozone layer will approach natural levels by the year 2050. Suitable alternative chemicals were found with few negative consequences, if any, to global economies. Unfortunately, the climate change issue is much more complicated and far-reaching than the ozone layer was...
Scenario 2: (worst case scenario) Dire climate change predictions are mostly right. The consequence to inaction would ultimately devastate global economies and strong mitigation action plans would be the only way to keep long-term economies afloat.
Scenario 3: (best guess scenario) Climate change predictions are partially right. A balanced approach should be taken to mitigate emissions in such a way that economies are able to achieve long-term continual growth.
And finally, a primer to the next post--Stephane Dion's proposed environmental policy..
What is the logic behind a carbon pricing?
The logic is that because world economies are driven by free-market capital, we should try to estimate and apply a price of an intangible cost (the adverse effect of GHG emissions on our environment). As I've said, nobody has any clue what the environmental and ultimately financial cost of 1 tonne of CO2 is. If indeed severe weather events can be induced by climate change, then ideally those who created the greenhouse gases would be charged proportionally for the damages it caused. Now, it's unrealistic to think that we will ever know for sure if climate change causes sever-weather damages, let alone how much and get the polluters to pay proportionally. Re-Insurance companies have taken note of the issue some time ago. Re-Insurers are those who insure the insurers--often in the case of natural disasters. For example, in the months following the Mississippi river flooding, a local insurance company might go bankrupt without the reinsurance provided by a company like Swiss-Re. Swiss-Re is the worlds largest reinsurance company, and it has taken note of the climate change issue. They also realize that there is no way to deny insurance claims to large CO2 emitters on the basis of negligence (they would need irrefutable proof that doesn't exist).
What is the logic for a Carbon Tax?
The basis for a carbon tax is that the environmental cost of greenhouse gases should be priced in monetary terms (again, no one has any idea what that cost is). Then this cost can be added to the price of emission sources via a tax to create artificial disincentives. This is the opposite of fuel subsidies to artificially encourage economic growth (but can also have adverse consequences). It's similar to the logic for taxing cigarettes. Especially since Canada has a public health care system, smoking adds to the financial burden of hospitals with the health issues it causes. By taxing cigarettes, these revenues can be recycled back into the health care system. No one really knows what that incremental financial burden is, even in the comparatively simple case of cigarettes. Add in all the complexities of a global phenomenon like climate change and you have yourself an analogous carbon tax shift.
Next post: Green Shift or Red Shaft? Some Q&A on Stephane Dion's climate change proposal.
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