Rescuing the frog

Today was mostly a course prep day for me and, as part of that, I was updating a graph package for my students.  I decided to pull down some longer history on Alberta natural gas prices and overlay them with settlement prices for futures contracts.  These are US-dollars-denominated contracts but for gas at the Nova Inventory Transfer (NIT, or the hub everyone still calls AECO in Alberta.

The next time someone complains about high gas prices, maybe show them this? How soon we forget the times when natural gas prices were in double-digits and expected to keep going up!

Good afternoon ladies and gentlemen. It’s a pleasure to speak to you today to express my overall support and to provide context for the Greenhouse Gas Pollution Pricing Act, Section 5 of Bill C-74.  This legislation is the backbone of the federal government’s approach to climate change and will complement the measures already taken by Canada’s provinces. It will also allow provinces without carbon pricing systems to benefit from the federal architecture to impose a carbon price and to receive the revenue collected from it.  This combination – a federal policy with provincial-level flexibility – recognizes the diversity of provincial economies yet still allows for federal leadership on climate change.

The Bill guarantees that carbon prices will apply on nearly all carbon emissions from energy use in Canada – from the cars on the 401 (and yes, the 417) to the largest industrial facilities.

The bill provides for the federal price to be applied in provinces without sufficiently-stringent carbon pricing policy.  Assuming no changes in provincial policies, implementation of this bill would likely exempt the provinces of BC, Alberta, Ontario and Quebec and likely Manitoba. These provinces, home to 90% of Canada’s population and responsible for 83% of Canada’s emissions, would potentially be subject to this legislation were their domestic climate change policies to be significantly weakened.

Why a carbon price? Simply put, a carbon price leverages the power of the market to enable emissions reductions at the lowest possible cost.  It does not rely on governments to determine who should emit how much or what their technology decisions should be – it relies on individuals to make decisions. The carbon pricing plan proposed in this Bill, like current policies in BC, Alberta, Ontario and Quebec, puts a price on carbon emissions from most sources, not just large, industrial facilities. The broader the of carbon pricing, the lower will the price have to be to meet a given target or the greater will be the emissions reductions at any given price. As you can see from the graphic below, emissions in Canada are not just a big industry issue.

Do carbon prices work? Absolutely.  We have plenty of evidence from BC’s carbon tax, which has been in place since 2008, to say that carbon prices reduce emissions below where they would otherwise be.  Work by Nic Rivers at the University of Ottawa among many others has shown this conclusively. This doesn’t mean they are magic – they will not always lead emissions to be lower than historic levels, especially when macroeconomic growth is rapid or technological change is slow, but I can assure you that demand curves slope downward, despite frequent claims to the contrary. When emissions have a price, we will use fewer of them.

If you think innovation and technological change are the answers to climate change, a carbon price is the best policy choice.  When asked how governments could spur innovation in green tech, University of Syracuse Professor David Popp provided five rules for governments. The first of these was: Carbon price, carbon price, carbon price. Why?  In Popp’s words, “supporting technology development means not only investing in new technologies but also creating demand for clean technologies throughout the economy,” which happens organically with a carbon price. A carbon price is also a useful alternative to governments picking winners with regulation and subsidies.

Why not have a one-size-fits-all federal policy? Our provincial economies have very different emissions profiles and means to reduce emissions. In some provinces, electricity is already carbon-free while, in others, long-lived, fossil-fueled assets provide electricity.  In provinces such as my home province of Alberta, about 1/4 of our GDP comes from what are known as emissions-intensive and trade-exposed sectors.  The national average is less than 4% and some provinces have half of that still.  A measure which is a good fit for Ontario and Quebec might cause chaos in Alberta and Saskatchewan, while an approach such as that previously implemented in Alberta would fail to cover almost all of the emissions in many provinces in the country.

The federal government has chosen wisely here, not only providing the provinces with the means to both select their own policies but also to determine the uses of the revenue from federally-imposed carbon prices. Here, provinces will certainly have different priorities. Some examples: University of Calgary’s Trevor Tombe showed that Ontario could implement a carbon tax and, without changing the distribution of income, boost its sales tax credit by 80% and eliminate health care premiums. Alberta and BC have chosen policies with progressive outcomes – in both provinces, the bottom 40-50% of income-earners were better off with the carbon tax than without. These choices are far-better made provincially than federally.

I do have some concerns with this legislation. I am concerned with the discretion provided to the Governor in Council to apply these measures to provinces. Section 189 (1) holds that (Cabinet) may, “take into account any factor (it) considers appropriate, including the stringency of provincial pricing mechanisms,” to determine whether a province should be covered by the federal price. Here, I’d like to see a clearer definition of stringency. Conveniently, the price on carbon allows just such a test and judging by this standard would prevent an outcome where Cabinet applies to one province a price on carbon far higher than that which it might allow to apply in others. I am also concerned that Section 188 does not stipulate that, in the event that a carbon tax is collected from a province, that total federal transfers to that province will increase…only that an amount equal to the carbon tax revenues will be spent in that province. While the government intends to address these issues through regulation, these clauses may leave an undue breadth of federal government power.

Thank you for your time and attention and I look forward to your questions.

A lot of discussion happening about pipelines, market access and crude differentials these days.  I’ve started using this map as a means of illustrating the various levels to this debate.  First, it’s important to always note that all oil is not equal – if you’re looking at a WTI-WCS differential and getting really upset about it, keep in mind that you’re conflating heavy crude in Alberta with light crude in Oklahoma – there are pricing differences due to location and quality involved.  It’s generally more useful to look at apples-to-apples comparisons, and for that a Maya-WCS differential is very useful.  Today, Maya is trading at almost $25 per barrel above WCS based (almost entirely) on geography.  Pipeline tolls to the Gulf Coast are less than $10 per barrel and so, if efficient infrastructure were in place, we could expect to see at least $15 more per barrel for our product today than we are currently receiving.  That hurts.

Edmonton faces a choice with the design and construction of the Valley Line LRT project – either the project can be designed to include or accommodate a future re-animation of the legacy creek bed and delta – which is a provincial priority according to the Environmental Assessment of the Valley Line – or it can render even more permanent the decisions made in the 1960s and 1970s that transportation infrastructure trumps our natural environment.

Figure 1 Mill Creek bed. Source: Spencer Environmental and City of Edmonton.

The City has completed both their initial environmental assessment for the project, tabled in July of 2013, as well as an updated assessment, released in February, 2015.

In the initial environmental assessment, it is stated that, “The City of Edmonton and Alberta Environment and Sustainable Resource Development (AESRD) have committed to evaluating the potential to reestablish connectivity of the Mill Creek system, including the reach located within the study area. Based on this strong desire to retain the channel in its current condition, and the long-term restoration efforts required if disturbed, disturbance and backfilling of parts of the channel is rated as an adverse, minor, long-term and predictable impact. It is minor not because of its importance but because of the small reaches included in the project area.”  While it is true that preserving the existing delta and remaining abandoned channel is important to eventual re-animation, it’s also important to consider what additional infrastructure is being placed in the creek’s historic path – in this case, a rail line, a 300 ft rail siding, and the Muttart Conservatory station – and how that infrastructure could accommodate a re-established creek. That the station for the Muttart Conservatory would be placed on or adjacent to a lost creek bed is, perhaps, an unwelcome irony.  Having the station adjacent to, and/or designed to accommodate a re-established creek would be more fitting.

In the most recent assessment, the City has stated that they have redefined project boundaries to minimize impacts on the abandoned Mill Creek channel, but they haven’t addressed the more important point – what about the impact of the project on potential efforts to re-animate the channel in the future?

On the two maps above, you’ll see that the project boundaries, from the south bank of the North Saskatchewan River through to the Connors Road footbridge encompass the entire legacy creek bed, with the exception of small areas on the north side of 98^th avenue. Building the Valley Line in this exact right-of way would, potentially, preclude the reestablishment of connectivity of the Mill Creek, or render it prohibitively expensive.  That said, the Valley Line LRT   construction project, done right, could provide the best opportunity to re-establish the Mill Creek that we’ve seen since it was diverted in 1970.

The City has established that P3 contractors for the Valley Line must provide means for wildlife to cross Connors Road and the tracks by means of an underpass, providing access for smaller animals (skunks, coyotes, rabbits, etc.) to Gallagher Park and the Edmonton Ski Club grounds. Further modification to the plans, involving a daylighted creek channel and wildlife access along with the creek flow under 98^th ave as part of the project would allow the project to have a positive impact on the natural environment, enhance regional biodiversity, and allow for the re-establishment of an important historical attribute of the City of Edmonton.  Given the height of both Connors Road and 98^th Avenue relative to a re-established creek bed, it is unlikely that major roadwork would be required to complete this project.

Re-established creeks are amazingly resilient – in Burnaby, BC, the long-diverted Still Creek was re-established and today, salmon spawn in the creek.  A properly-designed Valley Line could bring thriving fish populations back to the Mill Creek and re-establish an important link in the North Saskatchewan river ecosystem.

If you think this is an initiative you could support, contact your City Councillor, your MLA, or your MP – all three levels of government matter here. While the LRT is a City of Edmonton project, it will be funded by all three levels of government so they need to hear from us.

Want to get involved? Contact Andrew Leach at leach.andrew@gmail.com.

PDF Version of this flyer: Bring Back the Mill Creek7

PDF of a Presentation to the Transportation Committee of Edmonton City Council for March 25, 2015.

This week, Press Progress and the Vancouver Sun’s Peter O’Neil reported that Kinder Morgan had quantified the economic benefits of oil spills in its application to expand the Trans-Mountain Pipeline from Edmonton, Alta. to Burnaby, B.C.  Yes, the benefits of oil spills—they create jobs in the communities where the spills occur. Beyond being a public relations disaster for the company, this should lead us to re-examine what we accept as proof of the economic benefits of projects in general.

Companies facing regulatory hearings like Kinder Morgan, groups promoting events like the Vancouver Olympics, or politicians justifying public expenditures like the new hockey arena in Edmonton generally talk about the benefits of their projects using a tool called economic impact analysis. This technique takes spending, runs it through a statistical model, and predicts impacts of that spending on both GDP and employment.

There are, basically, two issues with this method, and both are wonderfully illustrated by the oil spill example. First, the method is agnostic as to what the money is spent on, so money spent cleaning up an oil spill looks remarkably similar to money spent building a new hospital or school in terms of economic impact.  Second, the technique generally does not account for where the money comes from, or how it would otherwise have been spent. Money spent on a hockey arena in Edmonton might otherwise have been spent on light rail or tax reductions, both of which would also have economic impacts. In the case of an oil spill cleanup, the costs are likely to be directly incurred by an insurance company, but the premiums paid for that insurance come at the expense of the value of the oil transportation service—the higher the expected clean-up costs from oil spills, the higher insurance premiums will be, and this will mean higher pipeline tolls, which in turn implies lower profits, taxes, and royalties on the products shipped. Simply-put, there’s no free lunch.

Read more at Maclean’s Magazine.