by Barry Cooper
August 31, 2016
Finance Minister Joe Ceci was more glum than usual when he delivered his recent economic update.
A report by Kevin Birn of IHS Energy, called The State of Canadian and U.S. Climate Policy, helps explain why. It was mentioned by Claudia Cattaneo in the Financial Post last week and is of interest to all Albertans.
The report takes as given that governments around the world, and most importantly for us, the American and Canadian governments, are crafting public policies to deal with climate change. These policies target greenhouse gas emissions, especially CO2, so that climate change really means anthropogenic climate warming. At the intersection of climate change and public policy are the oilsands.
Contrary to what many NDP supporters, and many of my colleagues believe, businesses are more likely to respond to government policies than to set them. One of the responses to egregiously irresponsible policies is to invest elsewhere.
The Birn report did not discuss the scientific premises of anthropogenic climate warming, nor the prudence of attempting to regulate GHG emissions. What matters are the consequences of policy choices by Canadian and U.S. governments for Alberta and Saskatchewan.
Here are some pertinent facts.
The interdependence of North American economies and the familiar 10-to-one ratio between the two countries means that Canada must always adjust its policies to American realities. That ratio applies to global CO2 emissions (16 per cent for the U.S.; 1.7 per cent for Canada, of which the oilsands’ contribution is minuscule) as well as to GDP and much else. Canadian CO2 emissions are comparable to those of Texas. The big difference is how that CO2 is generated.
Coal is the largest source of American CO2, mostly from electricity generation, followed by transportation and industry. In Canada, industry — from fertilizer manufacturing to mining, smelting and pulp production — is the largest emitter, followed by transportation and then electricity generation. The main reason for this difference is that in B.C. and Laurentian Canada, hydroelectricity is the chief source of power. Prairie rivers furnish great fishing opportunities, but few electrons.
Since CO2 from American coal plants alone are double those from the entire Canadian economy, they have been the focus of U.S. policies. Replacing coal-generation with natural gas has been made easier by low natural gas prices, partly the result of innovative shale-gas exploitation.
In Canada, things are different. Because more than 80 per cent of Canadian electricity is generated by non-emitting sources, other sectors must be targeted to achieve levels of emission reductions comparable to the Americans’. The cost, however, is bound to be higher: here, cheap gas hardly matters.
This is what makes carbon taxes so attractive to Canadian governments. They can’t go after coal plants, because there are so few left, so they go after the entire economy. Alberta’s carbon tax and Ontario’s cap-and-trade policy mean that over two-thirds of Canadian emissions will be covered by next year.
Big-government Liberals, socialists and members of the green cult will rejoice that we are saving the planet. However, the costs of the new NEP — the national emissions policy — achieved by carbon-tax harmonization, will introduce more incentives for investment in places where anthropogenic climate change is not an unquestioned public policy dogma.
Because the Prairie petroleum industry competes globally for both capital and markets, parochial Canadian climate policies add to costs and induce investors abroad. And they make no difference at all to global GHG emissions.
That is one reason why energy investment in Alberta is half 2014 levels. No wonder Joe Ceci is sad. The consequences of his own policies are bearing their inevitably poisoned fruit.
Barry Cooper is a professor of political science at the University of Calgary.