R&D: Act Three in the Climate-Policy Tragi-Comedy

By Mark Jaccard

Originally published in Alternatives Journal, 2011

If the implications were not so horribly tragic, the spectacle of humanity’s bumbling climate policy failures would make for an entertaining farce. And the next act promises more of the same.

In Act One, governments and environmentalists convinced themselves that economists were wrong to argue that greenhouse-gas-emissions pricing is essential to reduce emissions (whether via carbon tax or cap-and-trade). Governments feared the political cost of raising the price of energy derived from fossil fuels, while environmentalists assured them that people would voluntarily change their ways if informed of the financial benefits of energy efficiency and the quality-of-life benefits of changing behaviour. So, for much of two decades, climate policy was limited to information programs and subsidies, which failed utterly.

In Act Two, a number of governments and environmentalists reluctantly acknowledged that emissions pricing is essential, but politicians mostly balked when faced with being seen to cause energy-price increases. So they gave away permits that matched emission levels (European Union’s cap-and-trade), or they allowed cheap offsets that do little to reduce emissions (again, EU’s cap-and-trade), or they renamed existing fuel taxes as carbon taxes without increasing energy prices (many European countries), or they talked seriously about emissions pricing, but did nothing at all (US, Canada, Australia, Japan).

Act Three is still being scripted. It might involve ever-tighter emissions regulations on vehicles, electricity generators and industries. Criticized by economists for economic inefficiency, regulations have the advantage of making it difficult to see that politicians are causing energy price increases. For example, few people would have noticed if a low-carbon fuel standard had raised prices by 15 per cent over the last five years, a period during which gasoline prices fluctuated by several times that percentage. And regulations can actually reduce emissions!

But regulations are unlikely to be implemented if governments and environmentalists accept the latest arguments of armchair policy experts like Ted

Nordhaus, Michael Shellenberger and Bjørn Lomborg. They argue that governments should downplay emission pricing and replace it with research and development (R&D) subsidies that drive down the cost of low-emission technologies. Fund R&D until solar power is cheaper than coal power, or so the thinking goes. This is enticing to politicians because, again, they avoid emissions pricing. Polluting industries love it: “We promise to stop polluting as soon as you put us out of business with your solar innovations.” And, of course, climate skeptics support the idea because it is a logically flawed approach that, for the reasons described below, will prevent emissions reductions.

First, emissions pricing and R&D to reduce emissions are not alternatives, they are causally linked. Private R&D to reduce emissions happens when there are profitable opportunities. These opportunities only arise because of emissions pricing or regulations that ban emitting technologies.

Second, public R&D could happen without the profit opportunity, but public R&D will never be more than a tiny percentage of the R&D that is needed. Indeed, with government budgets all in deficit, public R&D funds require tax increases. Economists say the most economically efficient way to raise this money is – you guessed it – emissions pricing.

Third, there is no guarantee that R&D will enable renewable energy to outcompete fossil fuels over the next half century. Coal, gas and oil industries have an enormous capacity to fund their own R&D, and they have proven time and again their ability to cut costs in the face of competition. We need emissions pricing and regulations. Without these, we need to block, by regulation or civil disobedience if necessary, any projects that abet greenhouse gas emissions, like coal plants, oil pipelines and gasoline vehicle manufacturing plants. Most likely, Act Three will follow the lead of Acts One and Two of this planetary tragi-comedy.

Copenhagen: Not Learning the Lessons of Kyoto

By Mark Jaccard
Originally published in the Vancouver Sun December 14, 2009

At the Copenhagen climate negotiations, environmentalists from Canada and abroad repeatedly vilify the Canadian government for refusing to adopt an aggressive target that would require an eye-popping 50 per cent reduction of our greenhouse gas emissions in just 10 years. As my grandmother used to tell me: "Be careful what you ask for."

At Kyoto in 1997, environmentalists likewise urged the Canadian government to adopt aggressive targets that matched those of Europe, even though European emissions had recently plummeted with the rapid closure of coal-burning plants in eastern Germany and the U.K.
Even when subsequent independent analysis showed that achieving Canada's Kyoto commitment would require a carbon tax or emissions permit price of $150 per tonne of CO2 (equivalent to an immediate jump in gasoline prices of 40 cents per litre), environmentalists insisted on Canada ratifying the Kyoto Protocol.

In 2002, the Chretien government complied, ratifying Kyoto to loud applause from environmentalists. But those who were close to Chretien now publicly admit the government had no intention of passing the compulsory (hence politically difficult) emissions pricing policy and technology regulations that were essential for achieving the target.
An aggressive commitment effectively resulted in policy paralysis.

Environmentalists do not seem to have learned anything from this experience. Their criticisms of Canada's emissions target -- a 20 per cent reduction from 2006 levels by 2020 -- may yet convince the Harper government to follow the Chretien strategy of adopting an unattainable target.

Perhaps the resulting plaudits from environmentalists will be just enough to push the government's popularity into majority government territory. (Upstaging even the benefits of playing piano with Yo Yo Ma.)

Loudly criticizing governments for not setting unattainable targets might seem like an attractive strategy for environmentalists. But if they really want Canada to contribute to the global response to the climate risk, they should consider switching their focus to the more mundane task of critiquing our climate policy, or lack thereof.

Since gaining power over three years ago, the Harper government has repeatedly promised to implement effective climate policy, but actually has done nothing.

What it should have done is very simple. Canada desperately needs an economy-wide greenhouse gas emissions cap with tradable permits issued by government.

The cap should not be too constraining at first, but it would be tightened in accordance with the commitments of other countries and with consideration of Canada's particular circumstances (the fossil fuel intensity of our economy, our rate of population growth, etc.). If the government were serious about its own targets, it would simply set the cap to match its emissions commitment for 2020.

The trading price of the emission permits would make it increasingly expensive to emit greenhouse gases, thus having the same effect as British Columbia's carbon tax.

This would affect technology choices over the coming decades for industrial processes, buildings and vehicles. It would gradually reduce our emissions at a modest economic cost.

The policy can be designed so that there is no transfer of wealth from fossil fuel rich regions to other parts of the country, thereby avoiding another federal-provincial crisis.

The policy I am describing is identical to the one suggested earlier this year in the report, Achieving 2050, by Canada's National Roundtable on the Environment and the Economy, an advisory body whose members were appointed by the Harper government.

Getting this policy in place is a thousand times more important than setting unattainable targets for 2020. Moreover, as soon as the policy is in place – even at a modest cap initially – we will begin to learn more about what greenhouse gas reduction is really costing our economy, while scientists continue to learn more about the character and magnitude of the climate risk. If we do need to intensify our efforts in future, it is relatively easy to tighten the cap, just as the European are doing with the cap they have already implemented and as Americans are determining through discussions between the US Congress and the US Environmental Protection Agency for their proposed cap.

If environmentalists don’t switch strategy soon, their inability to learn the lesson of Kyoto could set us back another decade in the effort to effectively address the climate risk.