Collapsing carbon credibility

Despite what you might hear from certain Canadian politicians, governments everywhere are starting to back away from anti-carbon policies as the backlash from voters continues to mount. We see it in Germany where they’ve begun returning to coal power. We see it in the cancellation of green subsidies in the U.K., Portugal and Spain. And there are even signs of it in Ontario, which suspended plans for $3.8 billion in new renewable contracts.

Something largely lost in the media flurry over U.S. President Trump’s executive orders was the Republican Congress’s unravelling of notable fossil fuel regulations. The House passed two resolutions last week: one rescinding “war-on-coal” water-quality standards, and another rescinding a rule requiring energy companies to report payments made to governments to extract oil, gas and minerals.

This is just the start. The Republicans will roll back more regulations. President Trump will likely withdraw from the Paris COP21 agreement with its weak, KingCanute-like commitments to keep temperatures rising no more than 1.5 degrees by 2100. The United States will likely decline to advance climate policies for at least four more years. But is it behaving any differently than other countries?

In a recent National Bureau of Economic Research paper, Yale University economist William Nordhaus, a strong proponent of climate policies, shows that government efforts have globally done little to reduce GHG emissions. Only the EU has implemented national carbon policies and even those were very modest. Nordhaus aptly calls all the empty talk from so many governments, from South America to Scandinavia, the “Rhetoric of Nations.”

Nordhaus argues that the original Kyoto accord target of limiting temperature increases to no more than two degrees by 2100 is now infeasible. An increase limited to 2½ degrees is technically feasible but “would require extreme, virtually universal When there’s too much wind, solar or other power, Ontario has had to pay producers to curtail production or dump electricity at a loss. global policy measures.” His optimal path to achieve decarbonization with more aggressive policies, without completely suffocating economic growth, requires letting the global temperature rise by an expected 3.5 degrees by 2100.

Governments have a major credibility problem: they’re overpromising and under-delivering. As I’ve written in this space before, Canada’s “commitment” to reduce GHG emissions by 30 per cent from 2005 levels is certain to fail, even if the optimistic environment minister insists that target is but a “minimum.”

There is, of course, a reason why governments are backing away from carbon policies: voters don’t like them. This becomes apparent the moment the public understands that increasing carbon prices comes at a cost. And the phase-out of oil, gas and coal jobs don’t end up replaced by green jobs, as politicians promised they would.

Take the example of Ontario’s renewable energy policies, which have imposed high energy costs by phasing-out coal and subsidizing wind and solar energy. Sole-sourced, non-competitive contracts awarded to producers of wind and solar power have become extremely expensive. Adding to that cost, for every megawatt of intermittent solar and wind energy added to the grid, another megawatt (or close to it) of reliable baseload power — natural gas or nuclear — must be added as well, for those many days without enough wind or sun. When there’s too much wind, solar or other power, as often happens, Ontario has had to pay producers to curtail production, or dump electricity at a loss into the markets of neighbouring competitors.

Since I live at times in both Ontario and Alberta, I can compare electricity prices for homes in both provinces. Despite the elimination of the debt-retirement charge, the recent all-in price in Ontario for electricity price is 18.1 cents per kilowatt hour, much higher than the 13.7 cents it cost in 2014, despite fossil fuel prices being lower today. In contrast, my Alberta bill shows a rate of 10 cents per kilowatt hour, lower than the 12.4 cents it was in 2014. While I am fortunate that I can afford Ontario’s skyrocketing energy costs, many low-income families are feeling the pinch. It is not surprising voters are angry.

Unfortunately, Alberta’s low electricity prices won’t continue either. In discussions I’ve recently had with senior utility experts, they expect Alberta electricity prices to sharply rise in the coming years. The NDP government’s plan to phase-out coal and promote renewable energy entails four new costs: transition payments to coal-power producers; adding more expensive power from renewable energy producers; matching that power with backup baseload gas plants; and new transmission line costs. While some consumers will get rebates from the province’s new carbon tax to soften the blow, overall, consumers and businesses will be hurt.

On top of the plethora of regulations to phase-out fossil fuel energy production, governments have imposed new carbon levies on fuel and electricity. Economists have argued that carbon taxes should be offset with corporate and personal tax cuts, but this has not happened. Even in British Columbia, where the carbon tax is supposedly “revenue neutral,” only three-quarters of carbon revenues have been used to cut general taxes, once you eliminate targeted expenditures such as tax credits for home renovations, small businesses, venture capital firms, and movie producers.

Ontario plans to use only 15 per cent of its cap-andtrade revenue to reduce the cost of electricity and heating, leaving households and businesses on the hook for the rest. Alberta is using onethird of its carbon revenues for income-tested rebates for some residents, but most revenues are earmarked for green subsidies.

None of this will fool the public. Offering up unrealistic targets, heavier tax burdens on families and businesses, and distortionary energy policies that favour higher-cost but unreliable solar and wind power will undermine Canada’s economic performance with little impact on global GHG emissions.

If Canada’s going to decarbonize, it will happen only when new non-subsidized consumer-friendly technologies finally arrive. Political jawboning won’t do it.