Monday, November 30, 2009

Business as usual is not an option

Temperatures - or at least tempers - are quickly rising in the run-up to the UN Climate conference which begins in Copenhagen on Dec. 7. As the Kyoto treaty winds down, there is hope that Copenhagen might be the place where a more inclusive and binding treaty will bring all nations together in an attempt to decrease CO2 emissions. As hope and potential for change increases, so does the fear, anger and resentment from the more conservative elements of our society. Organized opposition groups, like the Friends of Science, are using their considerable funding (mostly provided by the oil and coal industries) to broadcast advertisements that mock the scientific consensus of the climate modeling community (see ).

In contrast to these well-funded groups, we recently learned that world-class climate researchers, like Nobel prize-winning Professor Andrew Weaver at UVIC, are victims of a systematic removal of government funding.

In an effort to further confuse the process, a series of emails, software and working documents were stolen - or leaked - and distributed across the internet in an attempt to discredit the climate research community (see and for 2 interesting prospectives.) Finally, it certainly doesn’t improve public confidence when it appears that the climate modelling community were repressing publications that questioned the conventional wisdom about global warming in an attempt to strengthen the political case for action.

On the other side of the argument, politicians like Alberta’s Premier Ed Stelmach argue that any attempt to curb CO2 emissions will cause an economic catastrophe - especially for Western Canada. However, I just finished reading the TD bank’s economist's report on the potential economic impacts related to Green House Gas regulation. Some of the conclusions are amazing:
  1. In a “business-as-usual” or a “do-nothing” scenario, Canada’s economy would experience a 27% growth in GDP from 2010 to 2020. During the same period, Alberta’s economy would experience 57% GDP growth.
  2. If severe cuts in CO2 emissions were implemented (25% below 1990 levels by 2020 in accordance with the Kyoto protocol), Canada’s economy would grow by 23% over the same 10 year period. Alberta would continue to be Canada’s fastest growing economy with a growth of 38% by 2020.
  3. Carbon taxes would be re-invested in the economy and this would result in:
  • Improved public transit
  • Upgrades to the electricity grid to incorporate renewable energy
  • Investment in renewable energy and energy efficiency projects
  • Refunds to manufacturing to maintain 2008 output levels
  • Full refunds to home owners to offset higher energy costs
  • Investment in domestic agriculture
  • lower income taxes
  • improved job creation over the “business as usual” scenario

Effectively, carbon taxes would increase the cost of high carbon activities and reduce the cost of lower carbon activities. Market forces would do the rest. One might argue that this unfairly penalizes the oil and gas industry, however it needs to be recognized that the oil and gas industry is implicitly and explicitly subsidized through government support of infrastructure (roads, pipelines, refineries, etc), preferential royalty arrangements, research funding and military spending. It can also be argued that the environmental cost of oil and gas development - especially in the tar sands- is not being effectively accounted for in the current economic scenarios.

Finally, the TD report is only as good as its’ underlying assumptions and one of its’ most fundamental assumptions may be incorrect. Every economy can be evaluated in terms of its’ energy efficiency as expressed as the energy required to create $1M of GDP. On this scale, Canada is the worst of the industrialized countries, requiring the equivalent of 5.6 Mbbls/day of oil for each $1M of GDP. In reality, Canada only consumes approximately 2.7 Mbbls/day in liquid oil (or about 40% ) with the remainder of our energy needs coming from hydro, natural gas, coal, nuclear, etc. By comparison, Denmark only consumes 2.3 Mbbls/day in total energy per $1M GDP - this is less than half the Canadian requirement.

Unless we make fundamental changes to our economy, Canada will require almost 3.6 Mbbls/oil per day to meet the TD bank’s projected 27% growth rate. The US DOE Energy Information Agency estimates that world oil demand in 2020 will be 96 Mbbls/day. Their predictions indicate that this production level requires sustained oil prices ranging from $100 to $120/bbl from 2010 to 2020. Based on recent history, it is unlikely that Canada will be able to sustain economic growth with these oil prices. It is also worth noting that the the EIA concedes that it may be impossible to achieve this level of oil production and in a more realistic scenario, oil prices exceed $150/bbl by 2012 and near $200/bbl by 2020. It is highly unlikely that Canada’s inefficient economy can grow in this price environment.

Limiting carbon dioxide emissions is the best possible scenario for strengthening Canada’s economy. It has the potential to create jobs in the “green” sector while reducing Canada’s dependence on cheap energy. Doing nothing, or business as usual, is simply not an option for the economy - or the environment.

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