A letter, and my reply

Peter Adamski wrote in to the Edmonton Journal in reply to my op-ed piece this morning, and I thought I would post a quick reply here.  Of course, by posting here, I get the advantage of having no word limit, so should Mr Adamski read this, I would welcome a longer post of his critiques.

Mr Adamski says that my plan will resonate no more than the government’s plan because it uses an emissions intensity targets and claims that, “as a way of reducing overall GHG emissions, intensity targets are a sham.” Mr Adamski then suggests that, “if we really want to signal that we’re doing something serious about climate change, then we should abandon intensity targets in favour of actual GHG emission reduction targets.”  Respectfully, I think that Mr. Adamski is confounding two concepts: the stringency of the climate policy and the means of application.

Mr. Adamski is absolutely correct to suggest that, in a growing economy, a given percentage reduction in emissions intensity will not result in an equivalent reduction in emissions, but rather in much lower reductions or even net increases in aggregate emissions.  This does not, however, imply that emissions intensity targets can not achieve real reductions in emissions if they are set with sufficient stringency.  Consider the example of vehicle emissions standards.  A law requiring that all vehicles on the road achieve a fuel-efficiency rating of less than 5l/100km would be an effective emissions intensity standard on driving.  This would be a very stringent requirement, and would almost certainly reduce emissions from transportation.  Importantly, it would not reduce emissions in direct proportion with the overall improvement in the efficiency of the transportation fleet.

Mr Adamski appeals to the absolute cap on GHG emissions, the holy grail of climate policy.  Again, there is an implicit commitment to a stringent cap in his statement.  I could propose, for Alberta, a hard cap on emissions of 300 Mt/year, never to be exceeded under any conditions.  This cap would likely never bind in the province, and would certainly not reduce emissions by any meaningful amount, yet it would be an “actual GHG emissions target,” just not a very stringent one.

Now, Mr. Adamski is correct that my policy proposal is not without flaws, and that one of the key flaws is the implicit output-based allocation of emissions permits.  This creates a distortionary effect which effectively subsidizes output and prices emissions-efficiency improvements as opposed to directly pricing emissions reductions. However, what is most important is the trade-off created for firms.  In the case of a hard cap policy, the stringency of the overall cap is only felt by individual firms through the price of emissions permits.  The price of emissions permits determines the trade-off which the firm makes when deciding to emit GHGs, regardless of their initial allocation.  In the case of my policy, the same is true with the caveat of the output distortion.  Work by Jaccard and Rivers in the most recent edition of Canadian Public Policy shows that this distortion is important, but not catastrophic.  They show that you could meet Canada’s emissions targets through a system of output-based allocations (which would present similar trade-offs for firms as the fee-bate regime I propose), but that the carbon price would be higher than in a pure cap-and-trade or revenue generating carbon tax.

So, in conclusion, I do think the idea of emissions-intensity targets has been mis-used by our government, and that was a key part of the talk I gave last Thursday night.  The intention of my policy is not to try to fool anyone by equating emissions intensity reductions with emissions reductions.  Rather, the intent of my policy is to ensure that firms operating here and in leading climate change jurisdictions face similar costs and benefits of emissions reductions in their operations.  Let’s not confound the means of application of a price on carbon with the stringency of that price though, please.

4 responses to “A letter, and my reply”

  1. Peter Adamski

    Professor Leach, you claim that emissions intensity targets can achieve real reductions in emissions if they are set at a sufficient stringency. I don’t doubt that. I’m sure that’s possible in some sectors of the economy. I just don’t see how it’s possible with the oilsands, taking into account how much they are expected to grow and how much we should be reducing their emissions.

    Let me explain, using the in-situ production example you used in your Journal op-ed.

    Let’s say current in-situ production stands at 134,000 barrels per day (bbl/day). This amount, using the current CO2 emissions average of .1 ton per barrel, would generate 13,400 tons of CO2 per day. Your proposed 20 percent benchmark, if it were reached in the following year, would reduce this to 10,720 tons of carbon per day. However, if the “energy-superpower” dream captivates our province and in-situ production is allowed to increase 400 percent by 2020 to 536,000 bbl/per day, your performance benchmark would have to increase to 80 percent just to maintain the 2011 emissions levels.

    But that’s not the worst of it.

    The G8 countries have already agreed, albeit aspirationally, that they should collectively cut emissions 80 percent by 2050. (For this exercise, let’s assume 80 percent of 2010 levels.) So if, as an “energy superpower” we’re producing 536,000 bbl/day, to reach this target, Alberta would require a CO2 emission average of .005 ton/barrel by 2050.

    Is this possible? Not if we quadruple our production. Not if we’re still fixed on fossil fuel consumption.

    Eighty percent by 2050 and its companion 50 percent by 2020 are often cited as the targets the world needs to achieve if it’s to have any chance at holding global warming to a 2C temperature rise. And from what I’ve read I tend to agree. If in your estimation that makes me appear as a knight of yore chasing down some holy grail, then so be it. I’m in good company.

    To achieve these targets, I favour a carbon tax, and the best one I’ve seen thus far is the one Dr. James Hansen proposes: applied at the source, significant from the start (equivalent to about a dollar per gallon) and increasing sharply by however much is required to reach the targets, with the revenue distributed back to taxpayers on a per-capita basis, so that those that use less energy make money and those that use more energy lose money.

    In short, a carbon tax, if it’s tough enough and applied far and wide, would encourage us to make the kinds of decisions that reduce our fossil fuel consumption. A carbon tax can’t do it alone. Other measures will be required. But I can’t imagine an effective GHG reduction plan without a carbon tax.

    Of course, the population at large would balk at such a tax—they already have—but if the severity of the problem were made clear to them, we might be able to muster the political will to implement such a tax.

    Best regards,

    Peter Adamski

  2. Peter Adamski

    Professor Leach,
    I’m familiar with Jaccard and Rivers, but only through their work with Jeffrey Simpson on Hot Air: Meeting Canada’s Climate Change Challenge. I stand to be corrected, but I don’t recall them speaking so fondly about intensity targets in their book. Here’s some of what they had to say about intensity targets:

    “[Large Final Emitters] never publicize the fact that if intensity falls more slowly than output rises, emissions would keep rising.”

    “[Intensity targets] would be a good start if the intensity reductions exceeded the growth of the output . . . because then the plan would indeed lower absolute GHG emissions. “

    “We know that extracting oil from the sands produces at least twice the GHG emissions per unit of energy as does the extraction of conventional oil. At that rate of expansion, any improvements in intensity will be overwhelmed by the sheer additional volume of emissions.”

    “[Our simulations] show that energy efficiency, the Holy Grail of so many environmentalists, would not play the dominant role in GHG reduction that so many of them believe it will and must.”

    As far as Simpson, Jaccard and Rivers are concerned, there are only five policy options available, but they dismiss two of them leaving only three: command and control, market oriented regulations (cap and trade, vehicle emission standards, etc.) and emission taxes, i.e., a carbon tax.

    I don’t get the impression, certainly not from reading Hot Air, that they are in favour of an intensity-based system unless of course it meets the criteria noted above.

    Regards,
    Peter Adamski

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