Last night, I was given a wonderful opportunity by some of our students to present my views on the oil sands in front of an interested and engaged audience here at the University of Alberta as part of the Oil Sands Visionaries speaker series. Given the flack I have taken from some of my colleagues for being labeled as such, I best stop using the title after this post.
My talk last night was based around my view that the key impediment to further oil sands development is the lack of a credible GHG policy in Canada, and that this lack of a policy is the result of the target trap in which Canada has found itself. I argued that Canada’s government, thanks to unsophisticated approaches to climate negotiations, has now for the second time committed to targets which would require the most stringent climate policy in the world. I further faulted ENGOs which have deemed Canada’s targets to be modest and made it clear that they would consider it a failure if Canada were only to implement the equivalent of a $100/ton carbon price because that price would not likely stop the oil sands and would not deliver comparable reductions against a 1990 benchmark to those promised by the EU. I then decided to go for the anger triple-play by faulting industry in general for painting the picture that the oil sands could not compete under a carbon policy, while at the same time pointing to notable exceptions like Suncor’s Rick George. I then made my pitch for a carbon fee-bate policy which would place a carbon price on oil sands and other sources of carbon emissions equivalent to that paid by firms in the EU and which, if implemented worldwide, would allow the world to meet science-based emissions reduction targets.
After my talk, my vision was responded to by Mike Hudema from Greenpeace, Rick Hyndman from CAPP, and Ken Chapman, founder of Cambridge Strategies. Each of them brought points forward which changed the way I would give my talk if given a do-over, and I thought it might be interesting for some of you to hear how their points resonated with me.
Mike Hudema took issue mainly (or at least first) with my near-exclusive focus on GHG emissions, highlighting as I had that many other environmental concerns exist in the oil sands, and that all of these taken together compromise the social license to operate the oil sands. In hindsight, I should have pushed myself out of my GHG comfort zone to put forward a more comprehensive policy approach for the oil sands, including monitoring, reclamation liabilities, and tailings management. Unfortunately, I don’t know if I could do any of these justice which only a portion of a 30 minute talk, but I think I owed those issues more than a glancing look on my first slide.
Ken Chapman took issue mostly with the Alberta government’s management of the oil sands resource on behalf of Albertans who, as we know well, own the resource. Again, I think in hindsight that I could have done this point more justice as well. We tend to look at royalties, environmental regulation, job creation, and other aspects of the oil sands in a vacuum while we should be looking at them in a more integrated way. No question there is more short term financial rent if the resource is extracted at the lowest possible financial cost, but where the cutting of current financial cost implies the creation of significant external costs borne today and into the future, this is a false economy. Again, if given a do-over, I would argue much more clearly that environmental policy should not be seen as a tool for enhancing the so-called Alberta Advantage through a race to the bottom. We should ask ourselves as resource owners what we are prepared to accept in terms of environmental damage from resource extraction, and allow that to define the conditions under which these activities can take place. From there, we can then assess the residual financial value of the resource, and set the royalties to capture our fair share.
Rick Hyndman was mostly in agreement with my carbon policy vision, which did not come as a surprise as we have spoken at length about my ideas and his (which are very similar) in the past. What struck me from Rick’s discussion, and what I expect would surprise many Albertans, were Rick’s frank assertions that “the business-as-usual approach is not an option” in the oil sands, and that he strong favors a carbon pricing approach. I think, if given the chance to give a similar talk again, I would emphasize that the question of whether or not carbon emissions policy needs to be tightened in Canada is largely settled and that industry, governments and environmental groups can all agree on the direction we need to travel. What they cannot agree on yet is how far, how fast, or who the winners and losers from the policy and the implied re-distribution of wealth should be.
Overall, the experience was incredibly valuable for me, and I hope that my presentation and the ensuing discussion provided some new insights for the audience.
Finally, for the benefit of some who mentioned this to me last night, I did send a follow-up to Mike to apologize for interrupting a couple of his opportunities to speak last night. I would have found similar interruptions from him or from the audience very disruptive, and so I should not have imposed those disruptions on him. I hope that Mike and I will have the opportunity to discuss similar issues in the future, as I expect that we both can learn from each other, and I will do a better job in the future of respecting his opportunities to speak in the same way as he respected mine.
Thanks to all who attended.
Andrew
flack? colleagues? sorry to have missed your talk but if there is a video somewhere, please let me know..will love to watch
I enjoyed your presentation last night, and parts of the discussion afterwards.
Three points.
0) Have you posted your slides?
If so, where?
If not, when and where do you plan to do so?
1) If I recall correctly, you think that a starting point for global policy should be that emission charges are equalised across the globe.
If I am wrong, I hope your slides will clarify this.
If I am right, I have the following questions.
What is an example of global emission charge schedule would curtail total expected future global emissions to 500 Gtonnes of CO2 equivalent?
How does an allocation to each sovereign jurisdiction of a global 500 Gtonne emissions allowance based on an equal per capita sharing using 1990 populations compare with the implicit expected allocation resulting from the global emissions charge schedule mentioned in the last question?
2) I did not quite catch the details of you fee-bate proposal for Alberta, and look forward to clarification from your slides.
I have an as yet incompletely specified question about your proposal, which I may formulate more completely once I see your slides.
How do the wealth transfers from your proposal compare with an alternative of a emissions charge set at the level of your fee that finances a “general” tax reduction structured to maintain the current vertical equity structure in Alberta as much as possible?
Hi David,
Thanks for coming and for posting. Re: your points, see below.
0) I have not posted the slides. I don’t have re-distribution rights for many of the photos used, and so I will have to clean the deck before doing so. If I post them, they will be here on the blog site.
1) You are correct in regard to what I believe should occur, but the starting point for my pitch last night is that Alberta should get out of the the target trap and commit to at least matching leading jurisdictions in terms of the carbon/value tradeoff implied by policies in the respective jurisdictions. It would be naive, I believe, to think we will have a unified global price, but my pitch is much more about promoting a measure of effort which is not based on arbitrary lines in the sand. So, you are right in that I think the best way to achieve emissions reductions globally would be to advocate for a price-based negotiation, but that was not core to my pitch which was regarding positioning Alberta policy in a global context.
In regards to your question re the policies which would be required to limit cumulative CO2 emissions to fewer than 500GtCo2e, I did some looking for a scenario for which I have any modeling results and none the IPCC scenarios come close to that, as their tightest scenarios are a little under 350ppm or a little over 700GtCO2 of emissions. Clearly, the price to reach these types of thresholds would be quite high. I simply don’t have a sense of how high, but you would have to be likely 5-10 times the current price and projected trajectory for EU prices to get there. I certainly can’t break down that tight a global constraint on regional levels, although I am sure someone has run it.
2) The policy is really as you described it last night…an output-based allocation with a fixed-price guaranteed buy-back of excess allocations or sale of additional permits…a standard feebate policy (see the Swedish NOX program). The performance benchmarks I suggested for oil would be a API- and sulphur-weighted performance benchmark based on the product delivered out of the production facility gate, as well as the difference between feedstock and output stream for upgraders and refineries. The benchmarking is close to the Solomon’s Complexity Weighted BBL used in the EU.
There wealth transfers in total would be equivalent to a tax approach with the exception of the implied output distortion from the intensity measure. If you are benchmarking the two policies for a comparable carbon price, total emissions would be higher under my system, and so the total value of emissions rights which are nominally granted to firms would be higher, likely by a factor of 1.5-2 based on work I just read by Rivers and Jaccard, although I don’t have specific modeling numbers. If you benchmark on ex post emissions, you would need a higher carbon price under my policy, and so again the allocated value implicit in the benchmark would be higher. I can’t put a precise figure on it.
Relative to the current SGER system, individual firm performance becomes valuable, while historic emissions intensity is devalued. As such, there will be transfers of wealth within sectors. There would also be transfers of wealth through those industries which can pass through marginal cost increases. Other industries would see differences within sector but not much passed outside. Again, without a full emissions policy model, I can’t give you a precise figure.
Thanks for reading.
Andrew
Andrew
From Colin Soskolne:
Hello Andrew:
Unfortunately, last night there was no time for me to ask you a question, indeed to ask for a point of clarification. So, I look forward to your response to my following point and question:
You had mentioned, if I heard you correctly, that you would look to a levelling off in CO2 accumulations of between 420 and 450 ppm. This is surprising to me especially in the context of the moral question that Ken Chapman had raised.
Indeed, the number that I have heard is 350 ppm as the “safe number”; as this number increases above 350 ppm (now at about 387 ppm), we are committing to global heating that will not sustain life as we know it. The instabilities in the climate system and the movement from global warming to global heating kicks in above 350 ppm, so that as the ppm increase, mitigation opportunities are lost and catastrophic harms on an even grander grand scale (as noted by Mike) will continue to occur to human and other life forms.
So, could you please explain to me what you meant in speaking to expecting ppm to level out between 420-450, and in the same breath feel that we have time to contemplate alternative economies and hopeful technologies … as opposed to “simply” shutting the operation down or transitioning URGENTLY to a green economy? Would such action not be an ethical and, indeed, a moral imperative? And, talking about ethics, what about the principle of solidarity with world opinion under, say, Kyoto norms?
Instead, what we do in Canada, and in Alberta, is adopt a position of extreme arrogance in arguing that “we will find a made in Canada/made in Alberta solution”. Good leadership would set a better example, in my view. Humility is, it seems to me, in short supply on this matter in Canada.
From a survival perspective, I understand the data to point to ongoing and escalating catastrophic harms, suggesting to me in public health at least, that the time for “playing games” with economic models or other approaches that simply tinker and tweak on the periphery has to be urgently replaced with an ideological transformation, exactly along the lines that Mike and Ken were speaking to last night.
The US economy transitioned in the space of some 18 months in the Second World War from one of manufacturing cars to one of making armaments. I use this example not because I support war and armaments, but because transitions are possible with wise leadership and political will.
Ryan, if you would like to post this on your next Energy Club announcement, along with Andrew’s reply, I would be pleased. I would see this as further stimulating ongoing discussion that was generated by last night’s provocative forum.
Thank you, Ryan, for all that you and your team do in organizing these forums.
Best wishes,
Colin Soskolne
Dear Colin,
Thanks for your questions and for attending. I want to be very clear that I was not specifically advocating for any particular stringency of global policy – I was advocating for a measure of Alberta’s relative performance which accurately benchmarks the tradeoffs which we are imposing (or could impose) on our firms and consumers. I think this view dovetails nicely with Ken’s point as he clearly believes that we are in a position to do better and to lead. Unfortunately, the current standards used by ENGOs in Canada are such that we could have a policy that was 4-6 times more stringent than those imposed or proposed anywhere else in the world and have it be seen as weak, modest, and lagging behind. I simply don’t accept that. I think that is behind at least some of what you point to as the effort to find a “made in Alberta solution” which means doing “less”. When ENGOs are saying that our government would fail us all by implementing a $100/ton carbon tax within the next 8 years, someone has their definition of “less” and “fail” out of sync in my opinion.
I have also read Hansen’s book and other sources that suggest that 350 is safe, or at least safer than 450. David Laughton commented last night on the basis of what would amount to roughly a 300ppm target, or lower still and presumably thus also safer. However, this is not really important for my point. My point is that, given that Alberta is not in a position comparable to the US or even perhaps the EU to drag the rest of the world behind them to a strong global outcome, any action we take in Alberta is symbolic and trivial and we are being pushed into actions for political reasons or by groups looking to make symbolic gains. Global carbon emissions, as you well know, dwarf the emissions from our “climate crimes” here in Alberta. Further, shutting down the oil sands would have a negligible impact on both our own transition to a green economy and the global transition to this future utopia. Shutting down the oil sands would take 2 million barrels per day, or slightly more than 2 percent of the world’s oil out of circulation while simultaneously disrupting perhaps 1/10 of 1% of demand through the impacts on the Alberta and Canadian economies, which would arguable increase global oil prices, but likely not by a significant amount. Without significant other policy intervention, it would simply be cost-effective to import other oil, via our existing pipeline network, to satisfy our demand at the higher prices. This would be absolutely foolish. Yes, we could simply ban oil consumption in the province, and invoke the equivalent of the war-measures you describe, but I am not so sure that is the correct way to travel.
So, what would I advocate for? Well, I simply don’t believe that we in Alberta have the leverage to assure or deny the survival of the species. Perhaps I under-estimate us, but I simply don’t see it. First and foremost, I think we need to address emissions in our province in a way which makes the most out of the resources we can convince our politicians to allocate to the problem. I would much rather see the royalties from the production of one barrel of oil sands and 0.1t of carbon emissions, let’s optimistically say $20 used in the most effective way. With that $20, for example, you could close any remaining gap between the cost of coal versus natural gas power, and actually make it worthwhile to shut-in some existing coal production. If you were to re-task that $20 directly to a subsidy to nat gas power (again, foolish policy, but useful for illustration), you could likely incent the displacement of 2-3MWh of coal power for your $20, thus saving 1-1.5t of carbon emissions. In this simplistic choice, shutting in oil sands production saves you .1t of carbon emissions, which using the wealth would save you 1-1.5, or a 1000-1500% return. Not bad. And yes, oil sands have other environmental consequences, but as you know well so does coal. It’s all about deciding which emissions generate the least value for us, and targeting those. Environmental groups often accuse governments of letting perfect be the enemy of good when it comes to environmental policy, but I think the reverse is true here. Looking at an environmental policy as good if it shuts down the oilsands while leaving coal simply makes no sense at all.
Rather than picking winners and losers, I would much rather see us put in place a policy that reflects our values. Do we really care about oil sands, or do we care about carbon emissions, water pollution, etc? If we care about carbon emissions, than our policy should be as blind as possible to the source of those emissions. In that way, you will take those emissions which generate the least value out of the economy.
If you would prefer a war-measures type transition to a green economy, I would ask how you plan to pay for it. Obviously, many sacrifices were involved in the US action you described, however I am sure that they were under extreme pressure to make the most our of the resources freed up by those sacrifices. All I am asking is that we do the same for carbon, and not let our emotional response dictate an ill-founded carbon policy here which would amount to us falling on a sword for no significant benefit here or abroad, and that the actions we take make the most out of the sacrifices we ask of our population. The war preparation is a good metaphor, and I may use it.
Thanks again for coming and for taking the time to comment. I am cross-posting this response and your message on my blog at http://www.andrewleach.ca. If you wish to link to the question and the answer, please do.
Andrew
I have just noticed the reply below that I sent directly on March 7 does not appear to have been posted to your Blog. So, I am doing so now (below):
Dear Andrew:
Many thanks for taking the time to respond to me. I appreciate it.
Despite your interesting reply, however, I feel that you have not actually answered my question.
Does the discipline of economics not have a way of addressing the need for a radical shift in paradigm in response to a looming and, indeed, an unfolding crisis? I fear that any delays by offering different modes of “bean counting” contributes to delaying urgently needed action.
Of course, we are constrained by our values and the dominant paradigm in not only how we see a problem, but certainly also as to how we might frame it and respond to it.
In this regard, I happened to watch a 2 hr and 40 minute-long docu-drama about neo-liberalism called “Encirclement” (NFB of Canada, 2008). I believe that it provides so many of the answers to questions such as these. So, I highly recommend the viewing of this film. You can learn more about accessing the DVD at the following link: http://encirclement.info/index2.html The production arm is at: http://www.filmsdupasseur.com. It is in French with some English (interviews with Noam Chomsky), but with excellent English sub-titles throughout. This is a MUST SEE educational experience in my view.
Some of us see the world’s ecological integrity as being in dangerously precipitous decline, and finding answers to what are clearly complex problems is vexing, to say the least. So, please keep doing whatever it takes to help us move to a safer place for both present and future generations, not only in the interests of the rich, but of all people globally.
Best wishes and regards,
Colin Soskolne
Hi Colin,
Thanks for your comments again. Your question below is an important one:
“Does the discipline of economics not have a way of addressing the need for a radical shift in paradigm in response to a looming and, indeed, an unfolding crisis? I fear that any delays by offering different modes of “bean counting” contributes to delaying urgently needed action.”
The short answer is that economics is really the study of how people make decisions, and so I would say that economics would provide you with several ways of instituting the change that you are seeking and also a means to understand why certain solutions are doomed to fail. Importantly, I think economics is also well-positioned to allow us to understand the global political economy situation in which climate policy finds itself. My “bean counting” is not meant as a delay tactic, but as a means of addressing what I see as an important cause of limited action, and that is that no jurisdiction has, to date, been willing to impose the types of incentives (carrots or sticks) on a broad enough set of individual and corporate decisions to drive real change. Yes, the EU has a cap-and-trade system, but the cap is not sufficiently tight to drive a price higher than 20 euros. Right now, the global situation has the EU asking many other jurisdictions including Canada to impose much greater hardship on their firms in order to meet a global goal, and I think that is important for people to understand. Simply jumping up and down and talking about a crisis is unlikely to do much about that.
I can’t remember if you used the analogy to the Second World War or if David Laughton did, but I think it’s a good one. If countries had spent time worrying about their proportional death tolls, the war would likely have been lost, but the same can be said of a decision by the US to enter the war on day 1 to “do its fair share”. I really believe we need to get to a price-based metric, and an agreed-upon way to benchmark it across economies. If we get that, then people can stop fighting about wealth transfers and leakage and just worry about getting the policies in place to meet the agreed-upon emissions price in their own country.
Andrew