19. January 2015 · Comments Off on Gambling our future away? · Categories: Climate Policy, Economic Policy, Jason MacLean

Our elected leaders are compulsive gamblers, turns out. Crazy, right?

Let’s begin with the fact that the federal government has been bluffing since 2006 that it would introduce sector-by-sector regulations for greenhouse gas emissions, including Alberta’s tar sands, the fastest growing source of carbon pollution in Canada.

When recently called by the opposition to show its cards, the government folded. The prime minister told Parliament that “under the current circumstances of the oil and gas sector, it would be crazy, it would be crazy economic policy to do unilateral penalties on that sector. We are clearly not going to do it.”

Speaking of “crazy economic policy,” turns out it’s not only the blinkered — and blinged-out — Alberta provincial government that’s gone all-in on the tar sands. The feds have also bet the house’s money on crude oil.

Literally.

When the federal government released its economic update in the fall, it based its revenue forecasts on the bet that oil prices would remain the same for the next five years.

Now, I say “bet” — lest you think me unfair — because that’s exactly what it was. It wasn’t based on any kind of rigorous forecast, unless the lazy assumption that recent history will repeat itself counts as rigorous economic modeling.

Sound familiar? It should. It’s the very form of “forecast” that led to the housing bubble in the United States. Welcome to the beginning of the end of the “carbon bubble.”

So what will the federal government do? It has two options. The first option is to follow the advice of TD Bank chairman Ed Clark: acknowledge that the world has changed, you made a mistake and deal with the fallout honestly. The second option? Why, double-down, of course!

Hence finance minister — formerly oilsands minister — Joe Oliver’s astonishing announcement last week that the government will delay the forthcoming federal budget because of “market instability.” If this smacks of anything other than a desperate gamble for time in the hope that the price of oil will miraculously rebound in the next couple of months, I’ve got some swampland you may be interested in.

OK, you say, Alberta and the feds are addicted to oil. No wonder they hope the past is prologue. Oil has been good to us. Sure, maybe they’ve goofed a bit lately. But they’re basically on the money when they say that imposing stringent environmental regulations on the oil and gas sector would be crazy economic policy, right?

Wrong.

Most of us assume that governments and corporations are correct when they claim that strong environmental laws and policies would cripple the economy.

But new evidence from the Organization for Economic Co-operation and Development (OECD) says otherwise. The OECD recently compiled the first comprehensive dataset measuring the impact of strict environmental laws on economic productivity for 24 OECD countries from 1990 to 2012.

The result? “(A)n increase in stringency of environmental policies does not harm productivity growth.” (Check out the evidence for yourself by going to
http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=ECO/WKP(2014)72&docLanguage=En; an accessible summary is also freely available online at
http://www.lse.ac.uk/GranthamInstitute/wp-content/uploads/2014/11/Impacts_of_Environmental_Regulations.pdf

Turns out we’ve been betting our future on claims by governments and corporations that are simply untrue.

In fact, according to Harvard Business School professor Michael Porter, strict environmental laws, rather than hurting corporations, may actually encourage corporations to invest in efficiencies and innovations more than they otherwise would. Necessity, the old adage goes, is the mother of innovation.

What’s more, data recently published in the journal Nature Climate Change show that the costs of climate change will significantly suppress long-term growth in Gross Domestic Product (GDP). The authors of the study found that the real cost of carbon is actually US$220 per tonne, nearly six times higher than the notional cost used for accounting purposes by the U.S. Government Accountability Office, and over seven times higher than B.C.’s carbon tax of $30 per tonne.

The study, entitled Temperature Impacts on Economic Growth Warrant Stringent Mitigation Policy, concludes that “optimal climate policy in this model stabilizes global temperature change below 2 degrees Celsius by eliminating emissions in the near future and implies a social cost of carbon several times larger than previous estimates” http://www.nature.com/nclimate/journal/vaop/ncurrent/full/nclimate2481.html.

The upshot? As the authors of the study observe, “even costly means of reducing emissions would be worthwhile.”

All of which is genuinely good news. It turns out that we can combat climate change without crippling the economy by putting a proper price on carbon, as the Ontario government recently announced that it plans to do.

Of course, we could just continue gambling on a federal government that blindly bets on the future turning out just like the past, no matter what the mounting evidence says.

What could go wrong?

Jason MacLean

Published in the bi-weekly column, Sustainability Matters, The Chronicle-Journal, Thunder Bay, Monday, January 19, 2015

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