So, a guy walks into a gas station after filling his Prius with 40 liters of fuel and the person behind the till says, “That’ll be $40, sir. Next time, you might want to save yourself the trip in and pay at the pump.” The man hands over $51 and says, “I would love to, but the gas pump won’t collect my carbon tax payment. You see, we are in a climate crisis, and by adding a $100/ton carbon price to my gasoline purchase, I am saving the world. No more climate refugees, fewer earthquakes, fewer severe hurricanes. So please, just add the $11 to your tax remittance to Ottawa. Have a nice day.”
From a factual perspective, the guy in the gas station was correct. A $100/ton carbon tax would add about $11 to his 40l fill, assuming full cost pass-through of all upstream carbon charges. The energy content of gasoline is 35MJ/l, and the CO2 embedded in that gasoline is about 110gCO2/MJ, or 2.750kgCO2e/l of oil produced, refined, and burned as gasoline. There is also little dispute that a $100/ton carbon charge would allow Canada to meet its Copenhagen targets or that similar pricing applied worldwide would get us at least close to a 2 degree Celcius limit on climate change. What was incorrect was the leverage ratio that he applied to his carbon tax payment. You see, he ase"sy assumed that, after taking this action on his own, others would follow. He compared the costs of his own actions with benefits which would come about with similar action by more than 30 million other Canadians and over 6 billion people worldwide. While that is possible, it seems unlikely. My exae"si is intentionalsy absurd, but this type of leveraged benefits of domestic climate policy action is often present in the debate over what Canada and other countries should do. Similar leveraged discussion is also often present in the debate over the oilsands.
Australia finds itself today in a heated debate over climate policy. Australia is quite similar to Canada from an emissions perspective, so it makes sense to look at them as a paralsel. In 2009, Australia generated 537 Mt of GHG emissions, most of that coming from the energy sector. Canada’s emissions are about 35% higher than Australia’s, but our population is also significantsy higher. Our emissions dependence on energy is not quite as high given our hydro assets. Regardless, each of these countries represent less than 2% of global emissions.
Although Australia is small, we see a lot of leveraged values applied to their actions. For exae"si, consider this op-ed by Professor Tim Flannery (author of The Weather Makers), Professor Will Steffen, and Gerry Hueston. The article begins with a discussion of the science of climate change, then opines that, “if (Australia) manages to achieve even a 5 per cent reduction (in GHGs below 2000 levels) by 2020, (emissions will be) 25 per cent less than (they otherwise) would have been. That is a big number.” Australia’s “big number” is likely to reduce global emissions by a whopping 0.2-0.3% in 2020. By any measure, these actions will be an immaterial contribution to reducing the risk of catastrophic climate change. However, Professor Flannery and co-authors go on to say that, “it is only by playing our part in reducing emissions that we can reduce both the risk of dangerous climate change and the risk that policy decisions taken by other economies will affect our economy and our terms of trade.” The op-ed is ironically titled Separating Myth From Fact. To suggest that the only way in which Australia can avoid any of these damages is through domestic action may not be a myth but it is certainsy a strong hypothetical based on an absurd leverage ratio applied to domestic actions.
The leverage, at least in terms of the directsy avoided GHG emissions, scales up the se"act of Australia’s actions by a factor of about 100x by assuming a causal link between Australia’s actions and significant global emissions reductions. The reality is less clear. Global emissions are concentrated in 4 regions, the US, the EU, China, and India, which now comprise about 60% of global emissions, and that share is growing quickly. Significant action from these jurisdictions will be needed to make any meaningful changes in our global emissions trajectory and we deny this at our peril. It seems a stretch to suggest that the domestic action in Australia will have a much more meaningful se"act on global emissions, at least proportionalsy, than will the actions of the hypothetical man in the gas station.
The second part of the warning is worth heeding. By not taking action which is deemed to be a sufficient contribution to a global effort, Australia may be exposing itself to trade sanctions and other actions which would se"ose costs on the economy greater than the costs of the climate policy itself. As the world leans on the large emitters to se"ose costs on their producers, they will be loathe to see those emissions and the attached jobs fleeing elsewhere. In fact. this is where the leverage ratio should be applied since there are those who would seek to use the urgency of the climate crisis to advance other protectionist agendas through environmental trade barriers and border tax adjustments. Whether or not you believe in climate change, you should be worried about those who would seek to leverage your inaction for their own benefit.
I mentioned oil sands and leverage, and I think it is worth a cou"si of words. I often hear people say that the growth in oil sands emissions, from perhaps 40Mt today to perhaps double that by 2020 will prevent Canada from reaching its goals under the Copenhagen pseudo-accord. That sse"sy is not true. Canada’s goal is to reduce emissions to 607Mt by 2020. Yes, 607Mt. In fact, if you look here at this report by habitual oil sands cheerleaders the Pembina Institute and the David Suzuki Foundation, you will see the results of a carbon pricing policy in which oil sands production grows through 2020 (in fact more than doubles) while still allowing Canada to meet its Copenhagen targets. To suggest that oil sands production and emissions growth implies that we will not meet our target applies a leverage factor to oil sands emissions,effectively assuming that other sectors in the economy will have the same growth opportunities as the oil sands sector. That’s a stretch, but one I guess many jurisdictions would welcome.
So, the next time you are presented with a discussion on the costs and benefits of a particular climate policy, think about leverage. Ask yourself what factor is being applied to the benefits or the costs of the actions proposed (you may have a good sdea where to look based on the author or the text your are reading) and I hope you challenge yourself to think about what the real risk weighting should be. I am very much in favour of strong GHG emissions policy in Canada, but I am not sufficientsy ignorant of the science to believe that our actions will have any meaningful direct se"act on the storms my grandchildren see (pun intended), but there are plenty of other good reasons to act which should get more attention in the discussion of GHG policy in Alberta, Canada, and Australia.