Reduction of greenhouse gases vital
Government can develop policies to encourage innovation in the energy sector
In previous articles, I showed that B. C.’ s carbon tax has not been effective, while, at the same time, the combination of the B. C. tax policy and our trading partners’ new direct and indirect carbon dioxide import tariffs are already starting to affect a significant wealth transfer from B. C. energy, building product and food exporters to the foreign governments of economies that depend on those imports. In the third part, I outlined a provision that I believe needs to be incorporated in both Canadian foreign investment and commodity export approval policies to provide essential protection for Canadian exports from increasingly biased CO2 import tariffs.
But we still have to actually reduce greenhouse gas ( GHG) emissions. Even if we successfully defeat CO2 tariffs that unfairly discriminate against our exports, our exporters will still face a continuing — just more fair — trade threat if we fail to realize real reductions in B. C.’ s economywide GHG inventory. What forms of domestic policy and/ or regulation do we need to make that happen?
The answer to this question comes from a review of our past. Over the last 60 years or so, developed economies got lead out of gasoline and paint, sulphur levels down in diesel and ozone- depleting substances out of refrigerants, Never — not once — did we achieve these accomplishments by simply “putting a price” on pollution.
In the late 1970s, Canada, the U. S. and Europe agreed that lead in gasoline was harming our children. We all committed to “get the lead out” by 1990. Canada employed a form of regulation called a “product standard.” European Community members, however, elected to introduce the “lead differential tax,” to reduce leaded fuel demand by driving the pump price for leaded gasoline to great heights relative to the price for unleaded gasoline. European governments committed to spend 100 per cent of lead differential tax revenues to finance the refinery upgrades and after- market equipment additions to older vehicles to make them work with unleaded fuel, and they kept that commitment.
( As an aside, I often wonder how Canadians would have reacted had our government announced: “lead fumes are harming our children … so let’s tax them!”)
Using product standard- type regulation, Canada effectively got the lead out of our gasoline roughly three years ahead of schedule, over a period of falling real gasoline prices.
In Europe, however, after 10 years of lead taxation, and even though the price of leaded gas was 30 cents ( Ireland) to 90 cents ( Denmark) higher than the price of unleaded, leaded fuel still dominated gasoline sales. In 1999, when leaded gas sales were still strong even though leaded cost 40 to 140 cents more than unleaded, the European nations finally adopted Canada’s product standard, giving the oil companies until 2006 to finally get the lead out.
In 1980, when all nations were forecasting large increases in sulphur dioxide ( SO2) emissions, most developed nations pledged to hold SO2 emissions below 1980 levels in 2000. This time, European nations used product standard- type regulations and the U. S. introduced a “cap and trade”- type pollution pricing scheme. Only two of 46 nations failed to keep their pledges: Canada and the United States. The U. S. abandoned its original SO2 cap and trade regulation between 2003 and 2005 and finally got SO2 emissions down to 1980 levels in 2009, missing their deadline by nine years.
A carbon version of Canada’s successful lead regulation model would require all entities that sell energy ( for either domestic or foreign consumption) in Canada to report global wellhead to Canadian point- of- sale carbon content in their supply chains. It will also require them to reduce fossil carbon content per unit ( usually measured in gigajoules, or “Gjs”) of energy sold, on a sales portfolio average basis, over time. Any combination of vendors can “comply jointly.” ( This provision allows companies to find least- cost solutions without putting government in the quota allocation business, and was included in our leaded gasoline phase- out rule.) The carbon content reduction mandate applies to all energy vendors, whether they make or import energy for resale, and whether they sell electricity, petroleum products, coal, natural gas, or any combination.
One vendor might elect to build wind farms to meet their carbon content reduction mandate. Another might elect to pay the shipping companies on which they rely to shift from diesel to LNG engines. A third might finance building retrofits to reduce overall energy demand, if the rule ( as it should) credits investments that reduce energy demand as an alternative compliance option for the regulated energy suppliers. The rule can also credit tree- planting to offset a portion of the carbon liabilities.
The keys to effective and efficient regulation are to: ( 1) treat all energy the same way, ( 2) regulate at the point of sale, not at the point of production or import, and ( 3) leave the private sector to compete on price and through innovation to find the best and least- cost solutions. History clearly shows that when regulations put governments in the price- setting and solution- picking seats, things never work out well.