Thursday, March 13, 2008

Tories vs emissions trading

From Monday's Edmonton Journal: "Stelmach has long opposed a national trading system for greenhouse-gas credits, even though most provinces, American states and experts agree it's the way to go. " Says Ed: "I'm not a fan of interregional wealth transfer, and I'm going to oppose it." The CBC says the premier added, "We're not a province that's going to be buying credits somewhere else" and "My job, my responsibility is to stand up for Albertans, and I will."

Let's make something clear right off: a market is not a "wealth transfer" in Ed's sense of making a party worse off. Two parties engage in a market transaction because they both believe they will be better off. The irony here is thick because the real "wealth transfer" in Ed's use of the term is our national equalization program, and Ed has not only not been standing, he's been any or all of sitting, silent, or sleeping with respect to the federal government continuing to move capital from where there is a high expectation of return to where there is a low expectation of return. One might also point to the CPP, which Alberta, absent its own pension plan, effectively subsidizes by virtue of our demographics.

If Ed doesn't want to "buy credits somewhere else" because he thinks the credits do not represent anything of value to Alberta (e.g. are like a Kyoto "Assigned Amount Unit") then fine. But it is totally inconsistent to suggest that the real mitigation of CO2 emissions anywhere in the world has some value to Alberta and then assert that credits associated with those real reductions are valueless.

One less tonne of CO2 emitted on the other side of the world makes as much difference, good or bad, to Albertans as one less tonne emitted in Alberta. Why pay $25 to reduce a tonne here if one can pay $5 to reduce a tonne somewhere else?

The whole concept of comparative advantage seems to be lost on the premier. Stelmach's "logic" would argue that Alberta should grow its own bananas no matter what the cost because importing bananas into the province would constitute an "interregional wealth transfer".

It's true that on I poured cold water on the idea of a carbon emissions credit market. But that's because it won't work unless it's global or, at an absolute minimum, continental. The more localized the market, the lighter the caps would have to be lest nothing at all be accomplished because parties bound by the caps would relocate outside the market. Here we have Stelmach calling for more localization and unilateralism, not less!

These markets are far more effective when you have as many of them linked as possible and have as much liquidity as possible; it gives you better price discovery and also faster, more cost-effective reduction.
- Doug Russell of Natsource LLC, an Ottawa-based emission credit broker.

At the moment it looks like the premier is going to effectively force Alberta companies to divert investment from the projects where they enjoy a comparative advantage to projects where Alberta companies would be at a comparative disadvantage. It's pushing our capital base into the construction of greenhouses for "Alberta made" bananas.

Ed has managed to hit that public policy sweet spot where the policy is absurd regardless of what your position is with respect to the merits of CO2 mitigation. If you think CO2 mitigation is high priority, you have to shake your head at Ed's insistence on overpaying. If you think it is low priority, you have to shake your head at the fact Ed is paying anything at all.

As usual, industry recognizes the absurdity that our supposedly "conservative" governments do not. A carbon tax, paid by consumers, looks like genius in comparison and Tuesday's Calgary Herald has an article titled "Oilpatch urges fuel tax". It quotes Stephen Kaufmann, president of "carbon capture technology's leading proponent, the Integrated Carbon Dioxide Network". If commercial economics or cost are ignored, you "need to spend a huge amount of money to install the capture facilities," said Kaufman. The government seems not the least concerned about whether its climate change plans end up setting new records for budget busting cost relative to benefit, just so long as the boondoggle occurs close to home. According to the Edmonton Journal:

Carbon capture is the main driver of the Stelmach government's plan.... Industry players expect the federal and provincial governments will pony up around $2 billion to help set up a costly pipeline and sequestration system.

The Herald article notes that Enbridge president Pat Daniel estimates that the installation of the technology, collecting, transporting and disposing of waste carbon dioxide will cost $80 to $100 per tonne of emissions. This while credits in Europe, which are trading under more stringent caps than anything proposed by government around here, were trading last month for less than $30.

Perhaps it is part of Stelmach's shrewdness not to seem shrewd.
- Barry Cooper, U of C poli sci prof and Herald columnist

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