Category: Economics

Matters of money

Alternative to a carbon tax: carbon deposit

It just occurred to me that there might be a way to both (a) spur the development of effective carbon capture and storage (CCS) technology and (b) circumvent the apparent political impossibility of creating a carbon price. It involves treating tonnes of greenhouse gas pollution like soda cans.

Instead of charging people a fee based on their tonnes of emissions, as an incentive to use less, you could require everyone to pay a disposal fee for the carbon up front when they buy oil, gas, or coal. It’s possible to separate carbon dioxide (CO2) from air and to bury it underground. The cost of doing so could be built into the disposal fee. For instance, if it cost $600 to bury a tonne of carbon, there could be a $600 deposit required on that quantity of fossil fuel. If you burn it, capture the carbon, and sequester it then the deposit gets returned to you. If you just vent the CO2 into the air, then you lose the deposit. The effect is similar to a carbon tax, with an exemption for firms that demonstrably nullify their emissions. (Of course all the issues with safety and verification and CCS remain.)

A $600 carbon price would have a large and immediate effect on an economy like Canada’s, so this probably isn’t politically possible either. (Of course, it would be possible to start lower and scale up, giving people more time to adjust.) There may well be all sorts of other problems with it also, but I thought it was an idea worth contemplating.

We usually count climate pollution badly

As far as the atmosphere is concerned, it doesn’t matter if an extra molecule of carbon dioxide (CO2) comes from a recently-felled tree, from a molecule of methane in burned natural gas, from oil burned in an airplane, or from a coal-fired power plant. Regardless of the source, it adds to the already-dangerously-large stock of CO2 in the atmosphere.

This is one reason why commenters miss the point when they say things like: “the oilsands were responsible for seven per cent of Canada’s annual greenhouse gas emissions in 2010, while the entire oil and gas sector produced 22 per cent of Canada’s greenhouse gases in the same year”. While these figures may be accurate, they convey the false notion that these are the only sources of CO2 we need to worry about and that reducing these numbers is adequate for solving the climate problem.

What matter is how much fossil fuel we burn in total across history

These figures only take into consideration the emissions that arise from the process of producing oil and gas. For instance, there is the natural gas that gets burned to make bitumen liquid enough to be processed and transported. The figured do not include the emissions that result when these fuels are burned. This is where most of the pollution actually happens and it is inevitable. Even if carbon capture and storage (CCS) was completely free and available today, it wouldn’t be possible to capture the pollution from vehicles, and that is where most of the oil from the oil sands ends up.

The key factor that will determine how much climate change the planet experiences is how much CO2 gets added to the atmosphere. Burning coal, oil, and gas inescapably contributes to that stock, which is already dangerously large. As such, Canada cannot ignore exports when it considers how to bring its economic activity in line with what the planet can withstand. The entire coal, gas, and oil industries need to be phased out in a rapid way. At the same time, we need to develop whichever carbon-neutral energy sources will sustain us in the future: some mixture of renewable forms of energy like wind and solar, biomass, and nuclear power.

Warming begets further warming

It is important to remember that the indifference of the climate to the source of CO2 molecules extends beyond direct human activities. If we warm the planet so much that the Amazon dries out and becomes grassland, the huge volume of CO2 currently stored in the rainforest will be added to the atmosphere. Similarly, if we warm the permafrost to the point where it melts and releases its gargantuan content of methane (a more powerful greenhouse gas than CO2, though shorter-lived), we will have another large dollop of warming to deal with, and an increased chance of catastrophic outcomes like the disintegration of the ice sheets in Greenland and West Antarctica.

Based on the evidence we have from millions of years of climate data, we know that the climate can be prone to violent swings when provoked. Push it a little bit and perhaps it will naturally return to about where it was before (‘pushing’ here means releasing greenhouse gas pollution). Push it enough, however, and it can tip over into a very different state, like a Coke machine tilted to the point where it falls over. All of human civilization has taken place during times of relative climatic stability. If we radically destabilize the climate, the consequences for human beings everywhere will be dire.

Our choice

To a very large degree, Canadians are missing the point about climate change. It isn’t a matter of deciding whether growth in the oil sands is pushing up the Canadian dollar in a way that hurts manufacturers. It also isn’t a matter of deciding what sort of small carbon tax would make Canada’s emissions acceptable. If we are to preserve a habitable planet for the people who will follow us, all signs indicate that we must get serious about the process of phasing out fossil fuels. Either humanity has a future or the global fossil fuel industry does – not both. That is very unwelcome news in a country that stands to make billions of dollars from fossil fuel exports, but it is the situation in which we now find ourselves.

We can choose to ignore the fact that what we are doing threatens the future habitability of the planet. We can also choose to bet that some future technology will allow us to solve or counteract the climate problem. If we make such choices, we should be entirely clear about what we are doing. If we accept the reality of climate change but choose to plow on heedlessly anyway, we should accept that we are entering into a suicide pact with countries like China and the United States that are doing the same thing. Neither has shown itself to be at all capable of moderating its demand for fossil fuels, and Canada is providing an increasing share of the oil, gas, and coal that fuels their frightening emissions.

If we choose to bet on technological salvation, we should similarly recognize that we are placing bets with lives that are not our own. We are saying that whether people in future generations inherit a planet that permits human prosperity or a planet in which civilization struggles to endure depends on whether some magic new technology appears in time to correct our mistakes – mistakes we now fully understand, but which we have so far refused to stop making.

Every barrel of oil we dig up and burn is another dangerous dart we are hurling at random at the people of the future – people who are already going to suffer substantially from the damage we have already done. We don’t need to choose that kind of irresponsible and selfish behaviour. We can turn our energy instead to building a zero-carbon energy system and an efficient society. Such a society will have a shot at long-term prosperity, which is something that cannot be said for societies that depend on fossil fuels that are ever-more scarce and which are destroying the planet.

Canada’s climate targets in 2012

Today’s report from Canada’s Commissioner of the Environment and Sustainable Development (CESD) has attracted a fair bit of media attention. On climate change, the report argues that Canada lacks a credible plan for meeting our 2020 target of cutting greenhouse gas pollution to 17% below 2005 levels by 2020. This target replaced Canada’s much more ambitious but now abandoned Kyoto Protocol target of cutting to 6% below 1990 pollution levels by 2012.

A few points in response:

1) None of Canada’s climate targets have ever been tough enough to be compatible with a fair global pathway that avoids more than 2°C of warming. In order to stay below the level at which climate change is generally considered ‘dangerous’, Canada and other countries must do much more than has been proposed so far.

2) As the CESD points out, Canada’s existing targets are more notional than realistic. In order to meet them, much more on-the-ground action needs to occur.

3) All of these pollution figures ignore Canada’s huge hydrocarbon exports. The question of how to assign responsibility for a litre of oil or a tonne of coal mined in Canada and sold overseas isn’t straightforward. At the same time, the planet doesn’t care whether the fuel is burned in Canada or in China. Either way, it contributes the same amount of warming to the climate system. If we are to address climate change, exports also need to be phased out.

Once we take into consideration the amount of fossil fuel we are exporting, Canada’s climate change record looks even worse then we only look at our failure to reach our past targets. It can be argued that fuel burnt in China or the United States isn’t our responsibility. This argument isn’t entirely convincing. For one thing, Canada regularly uses the inaction of China and the United States as an excuse to do less about climate change. That position doesn’t seem very credible if we are simultaneously supplying them with large quantities of fossil fuel.

Dealing with climate change requires transitioning the world away from fossil fuel dependence. Continued fossil fuel production is very costly, and delays those efforts. People are going to continue to make excessive use of coal, oil, and gas for as long as they are cheap and their use is unrestricted. At this stage in human history, it makes an enormous amount of sense to simply leave these fuels in the ground. In so doing, we sacrifice the short-term economic value that selling the fuels could provide. At the same time, we gain the opportunity to re-orient our economy and energy system in a way that is compatible with the coming post-carbon world.

Critically, leaving the fuels underground also lessens the harm we are imposing on other people around the world and on future generations. Because of the serious impacts of climate change, fossil fuel production is a fair bit like stealing copper wiring from the houses of other people. It seems profitable to the people doing the stealing, since they didn’t pay to have the wires installed in the first place and they won’t pay to have them replaced. From the perspective of society as a whole, however, copper wire thieves are causing harm while producing no net benefit. Rather than exploiting the economic opportunities that exist because the world hasn’t yet become serious about climate change mitigation, Canada should be investing its efforts and resources into making an effective and efficient transition to a zero-carbon economy with no fossil fuel exports. Firms like Suncor and Syncrude are much like those copper wire thieves. They are profiting handsomely today, but only doing so by imposing frightening costs on all members of future generations. Unfortunately, today’s oil companies are rich and politically influential, whereas future generations are defenceless and silent.

The targets that really matter are global: how much the planet will warm; how much sea ice will melt; how affected global agriculture will be; and how many more people will suffer from extreme weather or shortages of food and water. Canada’s current approach is short-sighted and selfish, to a degree that isn’t entirely obvious if you only look at our domestic pollution reduction targets and our (inadequate) efforts to reach them.

Canada is choosing a future for the world that is characterized by extreme climate instability, with all the human suffering that goes along with that. If we want to choose a different future, we need to accept that the era of fossil fuels is coming to an end, and it is time for us to make a devoted effort to rapidly phasing them out of our energy system.

Jaccard and others blocking coal trains

Simon Fraser University environmental economist Mark Jaccard and others were arrested in White Rock, British Columbia today while blockading coal trains owned by Warren Buffett.

As reported by the CBC, Jaccard considers Canada’s actions on climate change so far “entirely inadequate” and goes on to say:

I now ask myself how our children, when they look back decades from now, will have expected us to have acted today… When I think about that, I conclude that every sensible and sincere person, who cares about this planet and can see through lies and delusion motivated by money, should be doing what I and others are now prepared to do.

Coal exports from North America result in millions of tonnes of greenhouse gas pollution annually. Just the Westshore Terminal, at Roberts Bank, ships over 20 million tonnes of coal per year.

Maria van der Hoeven on climate change risks

Maria van der Hoeven, executive director of the International Energy Agency (IEA), has issued a stark warning about the world’s inaction on climate change and the consequences that may have. The Guardian quotes her as saying that the world is “on track for warming of 6°C by the end of the century” and that this level of warming “would create catastrophe, wiping out agriculture in many areas and rendering swathes of the globe uninhabitable, as well as raising sea levels and causing mass migration, according to scientists”.

It’s a shocking thing to read from the director of a relatively conservative organization. It certainly suggests that the policy-makers of the world have their priorities badly misaligned with the welfare of their own citizens and of humanity as a whole.

For years now, the IEA has been calling for global carbon pricing.

Building options and resilience

It seems to me that one fairly central human aspiration is to have a broadening set of options; it’s encouraging to see new options becoming possible, and worrisome to see options that existed before being closed off forever. In addition to satisfying human preferences, broadening options may also serve the purpose of building resilience in the face of massive change. If we don’t know what the future is going to be like, we have all the more reason to avoid committing ourselves to choices that may end up being poorly matched with the circumstances in which we find ourselves.

Previously, I have written about the idea of a steady-state economy. In particular, I stressed the distinction between an economy that is stable in terms of the total biophysical impact of humanity and an economy in which everything stays the same. One critical difference between the ‘constant impact’ and the ‘set in stone’ options is technological development. With a set amount of copper and electricity and silicon we can now make a much better computer than we could ten or twenty years ago. Because we can make better use of resources – as well as avoiding waste, and handling the waste we do produce better – we can still aspire to an improving quality of life, even if we keep the amount of raw material we take from the planet constant and keep the amount of waste we release into the environment constant.

That’s not the only way of keeping our options open, along with those of future generations, but it is a relatively optimistic scenario. I don’t think what matters from a moral perspective is the total number of people on the planet, the size of their homes, or the amount of energy they use. What matters is the richness of their lives. Since the richness of the lives of future generations matters as much as the richness of our lives, we have an obligation to interact with the planet in a way that doesn’t close off too many options for the people who come after us. To me, that implies minimizing serious and irreversible changes in the functioning of the planet system, which in turn requires us to replace the global energy system with a sustainable one, while working to increase the sustainability of other activities. From this perspective, one of the most morally dubious things we can do is continue to invest in a fossil-fuel based economy. Not only will it be increasingly dysfunctional as fossil fuel reserves are exhausted, but our reliance on fossil fuels is the primary cause of climate change.

Life inevitably involves the narrowing as well as the broadening of choices. We can’t hope to keep everything that is possible today possible forever. That being acknowledged, I think a strong case can be made that there is both a practical and moral importance to keeping options open, including across an intergenerational timespan. Similarly, we should pay more attention to irrevocable choices (like “burn all the world’s coal”) than to reversible ones. When it comes to these irreversible choices, we should also be especially on guard for people who simply make the choice that works best for them personally. There is a huge risk of moral corruption wherever the possibility of a big up-front payout with a big long-term cost exists, given that you can take the payout and fob off the cost on others (a favourite strategy of tax-cutting conservatives everywhere). Perhaps adjusting our thinking to pay more attention to keeping options open could be one way of reducing the seriousness of such problems.

The political importance of jobs in the oil sands

Economists sometimes defend inflation by saying that it is a useful means for allowing the real income of some people to fall, without actually reducing the nominal amount. This is connected to human psychology. For some reason, it is more upsetting to have your salary cut by 2% at a time when prices are stable than it is to experience an amount of inflation that generates the same reduction in what you can consume. People like having an income that seems to grow or stay the same, even if it is an illusion, and they hate having an income that seems to shrink.

A related asymmetry arguably exists in terms of entire industries. Once an industry exists, it will fight for survival no matter how irrelevant or damaging it has become. People in the industry will lobby their political representatives for assistance and – especially if the number of people employed is large – they will often succeed.

This is why Canada still has an asbestos industry, even though the material is too dangerous to be used domestically and most people agree that it is unethical to sell abroad.

One reason why I worry about the rapid pace of oilsands expansion is because of the ever-larger constituency of people whose livelihood and financial security now depends on the continued operation of the oil patch. In the future, it may become completely obvious that the oil sands are bad for Canada and bad for the world. Even so, the more people employed by the industry, the harder it will be to wind down. It will also require scrapping more multi-billion-dollar hardware.

Growing the oil sands is politically easy; shrinking them is almost impossible. That’s another argument for slowing the pace of growth. It means there will be less inertia to overcome when we make the transition from digging up ever-more oil to phasing out our fossil fuel industries.

Oil sands similes

  • Exploiting the oil sands is like drinking seawater, when you are already dangerously dehydrated.
  • It’s like starting up a smoky old kerosene lantern aboard a space station that is rapidly running out of air.
  • It’s like giving more whiskey to the already-drunk guide who is paddling our canoe over Niagara Falls.

And yet, huge expansion plans are being implemented. The fact that is is profitable has led us to ignore the fact that it is incredibly reckless, as well as an act of violence directed against vulnerable people and future generations.

Climate change and the categorical imperative

In many situations – especially those that can be characterized as a ‘tragedy of the commons’ or ‘free rider’ problem – taking the ethics of the situation seriously often involves ignoring the game theoretical aspects and applying a maxim of moral reasoning like the categorical imperative. If each actor behaves in such a way that their behaviour would be a good model for everyone to follow, then the problem of collective action goes away.

In terms of climate change, this sort of behaviour is important in areas like determining the appropriate policy for fossil fuel extraction. Every individual company and country has more to gain (at least in the short term) from digging up and selling fossil fuels then from restraining themselves. And yet every major fossil fuel producer will need to show restraint if we are to address the problem successfully. Not even Russia, Canada, and Saudi Arabia will benefit if we allow abrupt or runaway climate change to occur. The outcome is best for everyone when individuals ignore the reality that their actions alone will not determine the outcome of collective action, or when they are forced to behave as though they are ignoring that fact.

For those who don’t want the planet to be subjected to the risk of catastrophic climate change (say, warming of over 4˚C, which is where we’re heading now) the practical question is how to get individuals, companies, and states to behave as though they are taking the categorical imperative seriously.

Alternatively, perhaps we should abandon the idea that people will ever voluntarily restrain their pollution for the sake of others. In that case, we need a legal and institutional structure that makes behaving in an antisocial way personally costly (carbon taxes, restrictions on particularly harmful activities, etc).