Friday, December 11, 2009

CWF and TD reports on GHG policy and the economy - discussion points.

Two recent reports predict economic impact of climate change legislation in Canada. The first (Oct 29, 2009) by TD bank economists, together with David Suzuki Foundation and Pembina Institute (DSF/Pembina). The second (Dec 10, 2009) is a critique of this report by the Canada West Foundation.

The TD report shows results of detailed economic modeling performed by MK Jaccard and Associates (MKJA). TD considers the analysis to be robust.

MKJA made forecasts of economic performance assuming two reduction targets; the government’s proposed 20% below 2006 by 2020 and a more stringent target of 25% below 1990 levels (like Kyoto). Forecasts were made at national and provincial levels.

Results indicate that Canada could meet either emission target and the economy would continue to grow between 23% and 25% from 2010 to 2020.

Climate change legislation would result in improvements to public transit, the electricity grid, refunds to homeowners and manufacturing to offset higher energy costs, investment in domestic agriculture, lower income taxes and higher employment relative to a “do-nothing” scenario.

Alberta would be hardest hit, but would still lead all provinces with economic growth between 38% and 45% of GDP over the decade. In context, growth over the past 10 years was 43%.

The CWF report expressed concern with model assumptions, but provides no new economic modeling. Their critique is based entirely on their interpretation of the MJKA predictions.

CWF states that the DSF/Pembina report underestimates very substantial economic consequences for western Canada and if policy is perceived to be unfair, it will not be effective. It will also weaken Canada’s political union. No support is given for these statements.

CWF uses modeling results to demonstrate that the government’s recommended emission targets would reduce Alberta’s 2020 GDP from $296 to $274 billion -a loss of $22 B in one year alone relative to doing nothing.

CWF does not mention that Alberta’s GDP/capita with carbon tax is predicted to be $80,000/person which is 50% higher than Ontario’s at $52,000/person.

The CWF report uses 2020 projections to argue that reducing carbon emissions would cause Alberta pre-tax salaries to fall by 6.2% relative to no legislation. Ontario salaries would only fall by 0.2%.

Tables in the CWF report show Alberta maintains the highest salary level in Canada regardless of the carbon reduction scenario. Using the government proposed target, average salaries in 2020 would be $61,182 vs $65,890 without reductions. By comparison, Ontario salaries are predicted as $57,321 and $57,453. This is not noted in the report text.

The DSF/Pembina study recommends that 36% of carbon tax revenue be allocated to personal income tax reduction and 10% allocated to offsetting higher household energy costs. According to CWF, this results in a net cost of $1,318/Albertan/year because a higher proportion of the taxes are collected in Alberta (the main source of carbon) and the benefits are distributed to Canadian citizens - ( with 90% of these living outside Alberta).

CWF argues this distribution of the carbon taxes across Canada will result in a bigger wealth transfer than the current federal equalization system and it primarily affects Alberta and (to a much lower extent) Saskatchewan. Sadly, CWF does not seem to recognize that carbon emissions do not recognize provincial boundaries.

CWF claims that there will not be sufficient re-investment of carbon tax revenue in the energy sector - ( “energy sector” clearly means “fossil fuel sector” ) and Alberta/Saskatchewan are left to fund Carbon Capture and Storage without outside assistance.

Somehow CWF seem to have missed recent headlines that the federal government has committed their $1 billion dollar “clean energy fund” to subsidize CCS projects in Alberta (this has resulted in the federal government canceling their renewable energy subsidy programs in favour of promoting oil and gas).

The CWF report simply disputes some of the DSF/Pembina assumptions and then proceeds to interpret the MKJA model results in a biased and provocative manner.

CWF emphasizes each case that can be seen as Ontario being unfair to Alberta and ignores any information that looks beneficial for Alberta.

The CWF report confuses differences in potential economic growth with real economic costs.

CWF ignores the real economic risks associated international penalties, tariffs and sanction - as well as economic risks associated with un-mediated climate change.

The CWF report indicates that the MJKA economic models were run assuming a constant oil price of $46.48/bbl over the 10 yrs. Recent DOE forecasts suggest prices will run between $100 and $200 /bbl. during this decade. Canada has the least energy efficient economy in the developed world and oil prices at these levels will damage our economy far more than any carbon tax.

The status quo is not an option, it is time to make a change.

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