carbon capture redux

Wildrose Alliance leadership candidate Danielle Smith addressed environmental policy today. Danielle called for the cancellation of the Stelmach government’s $2-billion Carbon Capture and Storage [CCS] Fund, a program that deserves certainly deserves the ax. But before explaining why in more detail, I'd note that Ms Smith would also "support research into clean coal, hydro, biomass, geothermal, hydrogen, nuclear, wind and solar power, while improving how we meter and price electricity." The pricing mechanism is critical in terms of consumer incentives, although I should avoid reading too much into what Danielle means here. She wisely notes that any "incentives" should be "broad" and warns against trying to "predict winning technologies through subsidies to individual firms or technologies". Which is all great, so why not run with this and support the broadest, least distortionary tactic available to government: a tax on the consumption of "un"clean energy?

One of the reasons why I do not support the federal Conservatives is because they demagogued the idea of a carbon tax so outrageously last election. Never mind that respected conservative economists like Greg Mankiw support the idea. No one would have to pay a carbon tax that they did not want to if they were willing to put enough effort in using alternative energy. Yet the Tories, consistent with their preference for narrow incentives over broad, would evidently prefer the highly illiberal approach of regulation.

What about cap and trade, which is the approach being taken by the US House of Representatives? An LA Times article attacks the idea, quoting from the Financial Times of London, which observes that "Carbon markets leave much room for unverifiable manipulation. [Carbon] taxes are better, partly because they are less vulnerable to such improprieties." Having studied this issue while working for the Financial Markets Division of Finance Canada, in coordination with Natural Resources Canada and Environment Canada, I have to add my own view that the FT is entirely prudent in its skepticism. If the financial crisis of 2008 taught us anything, it is that instead of revealing true value, markets can obscure it if the incentives of the market players are disconnected from true price discovery and the connection to the fundamental price driver (in this case a political policy) is too remote.

But what about subsidies for carbon capture? I've condemned this idea before, but it is worthwhile pointing to some more recent studies. Dave Cournoyer notes that the chairman of an Alberta advisory council believes that carbon capture and storage will "at least double" electricity prices in the province, and calls attention to a U of Calgary researcher's view that “[l]ittle of the oil sands' carbon dioxide can be captured because most emissions aren't concentrated enough." Costs for the US' flagship clean coal project, FutureGen, which was meant to test carbon capture and storage, spiraled so high that the government canceled it in 2008. A Reuters story from March says "many experts say burying carbon from coal-fired power plants will still be in its infancy for years beyond 2020." A recent report from Harvard's Belfer Center found that, until at least 2030, "[c]osts of abatement are found typically to be approximately $150/tCO2 avoided". Many environmentalists, whose opposition the Stelmach government hopes to buy off with billion dollar subsidies for carbon capture, are not keen on the idea either: Greepeace calls it a "scam" and, according to another FT article, in Europe "CCS could become mired in a political and regulatory thicket before it can ever be deployed."

I have to agree with Alberta Liberal energy critic Kevin Taft: "If it comes down to a choice between carbon capture and storage or hospital beds, I for one am going to choose hospital beds."