Source: The Canadian Press/Michael Bell.  Saskatchewan Premier Brad Wall released a climate change plan on Oct. 18 that he is calling an alternative approach to the recently announced carbon price.

Source: The Canadian Press/Michael Bell.  Saskatchewan Premier Brad Wall released a climate change plan on Oct. 18 that he is calling an alternative approach to the recently announced carbon price.

At the Chamber of Commerce in Regina today Premier Wall outlined his concerns regarding last week's Federal Carbon tax proposal and, in its place, he presented his alternative solution for dealing with carbon. 

On the plus side: Premier Wall is no longer arguing against the need to do something. On the significantly less plus side is his alternative: no carbon tax and instead he wants the federal government to invest $2.65-billion into R&D in nuclear and Carbon Capture and Sequestration (CCS).  

Hurrah - no tax increase. Support for CCS and nuclear. Everyone is happy? Er - no.

 

 

Premier Wall's stated concerns about the carbon tax have questionable validity. His arguments against are:
- It would be foolish to introduce when Secretary Clinton plans "no carbon tax/price or cap/trade"
- The Federal Government is acting prematurely
- There is little evidence it works/BC emissions have risen since the tax was introduced in 2010
- It poses a risk to jobs, the economy and competitiveness in Western Canada
- Recycling revenue from a carbon tax is nothing more than a "bureaucratic merry-go-round".

The fundamental problem with his proposed solution is it goes against established economic orthodoxy which maintains the most efficient way to reduce something you want less of, is to increase its price and then allow the market to find substitutes. That same line of thinking holds that one of the least efficient ways of achieving the same thing is to have the Government use public funds to subsidise their preferred technologies. The $1-billion loss at Boundary Dam CCS illustrates perfectly and, before additional public funds are invested in the same technology, there needs to be a transparent, independent, and verifiable, accounting of the economics of the $1.5-billion of public funds which have already been invested in Boundary Dam CCS. This is something for the Provincial Auditor.

The other major problem facing Premier Wall is that his plan, which is in stark contrast with Ottawa's, appears to have no allies from other provinces. That does not lend it credibility and neither does it increase the chances of Premier Wall being able to prevail over what is rapidly emerging as national orthodoxy on the carbon file.  

 

 

FIRST: PREMIER WALL'S CONCERNS..

Why put a price on carbon when the US Democratic nominee has no such plans

His concern refers specifically to Secretary Clinton's climate change plan, announced last week. However his read of it - that Secretary Clinton has no plans for a carbon tax/price or cap/trade - is very narrow. While the plan does not specifically mention putting a price on carbon it does however say "We limit the amount of mercury, arsenic and other pollutants our power plants can emit — now we need to limit carbon pollution from the power sector. Clinton will defend the Clean Power Plan...".
The Clean Power Plan will require individual states to meet specific standards with respect to reduction of carbon emissions. States are free to reduce emissions by whatever means they deem appropriate and must submit emission reductions plans by September 2016, or, with an extension approval, by September 2018. If a state has not submitted a plan by then, the EPA will impose its own plan on that state.
In other words it is hard to argue that PM Trudeau is acting unilaterally or independently of the US. The US' Clean Power Plan is a signature piece of legislation of the current US President and has been strongly endorsed by the person (Secretary Clinton) who is ever more likely to be the next US President.  
Indeed, as announced just last week, the US has already achieved significant reductions. For the first six months of 2016 carbon emissions, from the entire US energy sector, were at the same level as they were in 1991. That's impressive in its own right and especially so when you consider there were 68 million (or 21 percent) fewer people living in the US in 1991.  
And from page 27 of the 2016 Democratic Party Platform, which was agreed to by Secretary Clinton, "Democrats believe carbon dioxide, methane and other greenhouse gases should be priced to reflect their negative externalities..".  Indeed this excellent analysis by David Roberts at Vox illustrates she may very likely be planning a nation-wide carbon price.

The Federal Government is acting prematurely

Hardly. Here's a quick review of the development of some major pieces of climate legislation over the last 25 years.

The United Nations Framework Convention on Climate Change (UNFCCC) was negotiated in June 1992 and entered into force in March 1994. The UNFCCC objective is to "stabilize greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system". It sets no binding limits on GHG emissions and instead outlines how specific international treaties would be negotiated to set those binding limits. Canada ratified the UNFCCC in December 1992 and in the 24 years since Saskatchewan's GHG emissions have risen 50 percent.   
The Kyoto Protocol extends the UNFCCC and commits State Parties to reduce greenhouse gas emissions, based on the premise that global warming exists and human-made GHG emissions have caused it. Canada ratified the Protocol in April 1998 and in the 18 years since Saskatchewan's GHG emissions have risen 17 percent.
'Turning the Corner - Taking Action to Fight Climate Change' was a policy document published by Prime Minister Stephen Harper's first-term government in March 2008. From the first page "Details of our plan include...forcing industry to reduce its GHG emissions, setting up a carbon emissions trading market...establishing a market price for carbon..". In the eight years since 2008 Saskatchewan's GHG emissions have risen by 9 percent.
The Management and Reduction of Greenhouse Gases Act was introduced in the Saskatchewan legislature by Premier Wall's Government on the 11 May 2009. The stated intention of the Act was to "promote the reduction of Greenhouse Gas emissions" . Seven years and 5 months later and that Act has still not proceeded beyond its first reading. Since that Act was introduced Saskatchewan's GHG emissions have risen 8 percent.
The Paris Agreement: signed by 191 countries in December: need we say more? Additional details here if you want them.

It is therefore something of a stretch to claim the Federal Government, by implementing a carbon tax, is acting prematurely.

There is "little evidence carbon pricing works"

Andrew Leach. Associate Professor - Alberta School of Business; University of Alberta

Andrew Leach. Associate Professor - Alberta School of Business; University of Alberta

It is hard to know why the Premier feels there is "little evidence" about the efficacy of carbon pricing.

As Andrew Leach put it so succinctly in MacLeans: 
"Economists from Mankiw to Krugman and from Mintz to Stanford  generally like the concept of a price on carbon because it is known (and has been since Pigou in the 1920s) to reduce emissions at the lowest economic cost to society".  

Even the Globe and Mail, rarely a supporter of anything to do with PM Trudeau, came out with a positively glowing editorial in favour. No less than ExxonMobil believes a carbon tax is the most efficient way to price carbon as do the following Canadian oil, gas, pipeline and mining companies. Or what about this list of international companies?

SourceEnvironment Canada - C-Tables-IPCC-Sector-Provinces-Territories. Population data - StatCan

Premier Wall cites as evidence British Columbia (where a carbon tax was introduced in 2008) and said emissions have actually increased since. Total emissions have indeed increased however the important metric, given substantial population growth, is emissions per person. These have declined 7.5 percent in BC over the period.

In any event it is odd that Premier Wall would have chosen to compare Saskatchewan with BC since our per capita emissions are almost five times higher than BC's. Indeed, if Saskatchewan was a country its emissions would be the second highest in the world. 

The tax poses a significant risk to jobs, the economy and competitiveness

Prime Minister Trudeau delivers a speech at the start of the Paris climate agreement debate in the House of Commons Monday 3 October, announcing a 'floor' carbon price of $10 a tonne by 2018, and $50 a tonne by 2022. (Sean Kilpatrick/Canadian Press)

Prime Minister Trudeau delivers a speech at the start of the Paris climate agreement debate in the House of Commons Monday 3 October, announcing a 'floor' carbon price of $10 a tonne by 2018, and $50 a tonne by 2022. (Sean Kilpatrick/Canadian Press)

When Premier Wall gave his first major interview about the carbon tax (7 October) he said PM Trudeau was badly remiss in having introduced the carbon tax without an Economic Impact Assessment. It is therefore a glaring omission that none of Premier Wall's claims about the impact of the tax have been backed up with any reports or evidence. It is not as though he has not had the time to prepare such reports: the United Nations Framework Convention on Climate Change was ratified by Canada 24 years ago.

At the outset he claimed the tax would cost each Saskatchewan family an additional $1,250 annually and would "siphon" $2.5-billion out of the province each year. Both of these claims were swiftly debunked: most notably by this Globe and Mail editorial and here by Trevor Tombe, Assistant Professor of Economics at the University of Calgary. One of the fundamental points which the Premier did not seem to understand is that all revenue raised by the tax will stay in the province. This is something which as a result, Ralph Goodale (Federal Minister of Public Safety) felt required to clarify in the House.

It would be strange, would it not, if the previously listed oil, gas, pipeline, mining, banking and other Canadian companies, were vocal supporters of a tax which did material damage to their core businesses? So maybe it doesn't.

In our blog last week we looked at the potential economic impacts of a carbon tax on each of electricity, pump prices for fuel, natural gas, crude oil and agriculture. From our brief analysis we concluded the impact does not seem to be anywhere close to being as significant as claimed by Premier Wall. We don't mean to imply our view is correct and his is not. Rather our point is we should be proceeding on the basis of sound studies rather than subjective statements from people who might prefer to maintain the status quo.

Recycling revenue from a carbon tax is akin to a "bureaucratic merry-go-round"

Speaking in the Star Phoenix last week the Premier noted that if the carbon tax is simply recycled, then there is not much point collecting it in the first place. That may sound intuitively appealing but is incorrect. There is sound academic justification for carbon pricing with revenue recycling and it was eloquently explained in this Globe and Mail article by economist Blake Shaffer at the University of Calgary. Specifically: "The point of carbon pricing is to raise the relative price of emissions-intensive goods, taking into account their full social costs. The goal is to induce substitution, not to make you poorer. Recycling the revenue in a way that is decoupled with emissions reduces the average cost of carbon pricing while maintaining its strong marginal price incentive. Economist after economist will line up to tell you that a tax is the lowest-cost way to reduce emissions. (Those that say a tax won’t change behaviour are ignoring the evidence that it does.)"

 

 

SECOND.  AND NOW FOR SOMETHING COMPLETELY DIFFERENT

Boundary Dam Carbon Capture and Sequestration Project. Ex SaskPower

Boundary Dam Carbon Capture and Sequestration Project. Ex SaskPower

The Premier's proposal for dealing with carbon emissions is to invest $2.5-billion of public funds (conveniently supplied by Ottawa) in Research and Development to come up with 'innovative solutions'. This raises one difficult question: what are the topics for R&D? Fortunately Premier Wall has the answer: nuclear and more CCS. That is hardly surprising given this Government's nuclear proclivities and the $1.5-billion of public funds it has already sunk into the "science experiment" at Boundary Dam. Indeed the poor results at Boundary Dam are hardly surprising: governments are not exposed to market forces and are ill-suited to pick winners. As the University of Calgary's Andrew Leach puts it "Governments can do (and have done) a lot with regulations, but they can’t customize regulations to the particular circumstances of individuals and firms without incurring significant costs and inefficiencies, and even if they could, regulations are well-known to generate fewer incentives to innovate than an equivalent price." 

In any event it is ironic that Premier Wall's Government, the Number 1 guiding principle of which is "Economic growth and job creation through the private sector, not government, as the engine of the economy" is seeking to stifle private sector initiative by imposing government solutions which it then resources using public funds. 

Since January 2014, SaskPower has announced five separate rate hikes totaling a compounded electricity price increase of 21.6 percent. Much of this has been caused by the massive capital requirements of Boundary Dam CCS.  Despite (or maybe because of) the challenging economics of Boundary Dam, Premier Wall has refused any form of transparent accounting of its costs and benefits. That is disappointing but it is what it is. If, however, he is looking for a public mandate to undertake more CCS projects with more federal funds, then it seems almost certain there will first have to be a full public accounting of Boundary Dam CCS economics. The Federal Parliamentary Budget Office has done some initial calculations and found CCS doubles the cost of electricity. The Provincial Auditor now needs to take over and finish the job.

Until she has done so, the Premier is probably just whistling in the wind.