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Thursday, April 11, 2019

Does it make sense to impose carbon taxes while buying pipelines?

The Max Bell School of Public Policy, a new school hosted by McGill University in Montreal, has now run two, free, public debates. The first one, held in February 2019, had as its topic "Does Rising Populism Threaten Good Public Policy?", and featured an excellent cross-section of panelists. (They didn't actually answer the question, although there was plenty about Trump.)

The second one, held last night and live-streamed on the school's website, brought an interesting if somewhat imbalanced set of panelists to debate whether the Canadian government's imposition of a carbon tax, while spending $4.5 billion on a pipeline to take Alberta bitumen to tidewater in Vancouver, makes sense. 

The conclusion, I am afraid, is no. 

The most forceful speaker, the one most at ease clearly getting her point across, and the one with the best grasp of facts, was by far Tzeporah Berman. I'll skip her CV, but you should look her up if you don't know her: she can be considered a radical, having helped organise the Clayoquot Sound protests in the early '90s; but she also served as co-chair of  the Oil Sands Advisory Working Group, where she tried to dialog with oil company executives in an effort to understand their positions and develop common ground in the fight against climate change. This makes her, in my view, one of those environmentalists with whom it is actually possible to have a rational conversation, unlike the BANANA folks (Build Absolutely Nothing Anywhere Near Anything). Her view was that we have, maybe, ten years to get emissions under control in order to stay below 2 degrees; that there is enough coal, oil and gas in existing resources for a 4 degree world even if we do not expand production or drill new wells; and that building pipelines, which will lead to oil sands expansion, is at best a bad decision and will at worst be catastrophic.

The second panelist, Trevor Tombe, a professor of economics at University of Calgary, made the point that, from a purely economic standpoint, solutions which cost the least per tonne of CO2 avoided or sequestered would be preferable. While I accept Berman's point that economics can't address the full climate change costs of delaying any further, or the intangible non-climate costs such as leaking tailing ponds in the oil sands, I think there is an element of truth here. The third panelist, the commentator Tasha Kheiridden, came from the conservative side of the aisle and kept going on about market-driven technological solutions such as carbon capture and storage (CCS) or hydrogen vehicles; sadly Tombe didn't pull the cost per tonne for these approaches out of his hat, which I would assume is huge; further the long timeframes required to build and commercialise these systems conflicts with Berman's point about timeliness.

That being said, Tombe outlined a scenario where existing pipelines continue to run but are not expanded, and no new ones are built. The cost to the Canadian economy, in his calculation (which I won't try to repeat as he went over it pretty quickly), was estimated to be $1500 per tonne of CO2 avoided, a large number, and for a saving of 450,000 bbl/d at (by this estimate) 433 kg CO2 emitted per barrel burned = 71 million tonnes of CO2 per year. Now this is a reduction of roughly 10% of Canada's total emissions, obtained by the simple expedient of not building any new pipelines; but his point was that we should build the expanded pipelines, take the cash and use that $1500 to save two or four or ten tonnes of cheaper CO2 elsewhere; a value of $200/t has been floated by a number of pundits as more than sufficient for a 2 degree world. This is a somewhat warped argument in my view, and arguably it would be better to leave that oil in the ground, especially since (hopefully) we won't be needing that oil past 2030, making the long-term economic viability of new pipelines somewhat suspect from a banker's point of view. 

Actually these new pipelines are, in fact, somewhat suspect from a banker's point of view, which is why the Canadian government had to step in and buy one, with several billion taxpayer dollars, to ensure it gets built. But arguably this is a declining industry: Berman made the point that Norway will stop drilling in its coastal waters, and will not invest any of its sovereign fund in new drilling; several world-scale banks have decided to not fund any more drilling or expansion; employment is declining as efficiencies reduce the need for manpower. Perhaps the industry should  be allowed to quietly fade away... 

And the $200/t number, while larger than the $20/t recently imposed in Ontario to much opposition caterwauling, still only adds $0.40 to a litre at the pumps; even at this rate, gas prices would still be lower than in most of Europe. I paid €1.45 a litre for diesel in Finland last fall; gasoline was running 1.60 to 1.65. The exchange rate is about $1.50 per euro, so these prices are all well over $2.00 per litre, or $USD 5.70 per gallon for my American cousins. And somehow they seem to have healthy economies over there, just not a lot of Ford F150s. (Granted it would be a shock to go to $0.40 per litre overnight, but phased in over a small number of years would be possible). 

Kheiridden, in my view, crashed and burned fairly spectacularly, not once but repeatedly, with rambling references to the Gods of unfettered markets, small government and technological prowess. I have not been paying attention to the conservative movements out there, but if this is consistent with the level of discourse coming from the right on this topic, they have a problem. She did however admit that the conservative movement, historically, would have been a strong proponent of conserving the environment, and unloaded on the Canadian conservatives and their leader, Andrew Scheer, for not having an environmental platform of any kind. 

Where she did manage to put Berman on the defensive, briefly, was the charge that the environmentalists want to "shut down the oil sands", leading to huge losses of jobs and incomes; Berman's view, which she struggled to make, was that it is a declining industry and should be allowed its market-driven decline, with support and retraining for those put out of work taken out of the subsidies the industry currently receives: while some may want to shut it down tomorrow, Berman seems realistic enough to realise that the economic and social fallout needs to be addressed. And in any case it seems there are already more employees making beer than bitumen in Canada, which if true would be an interesting factoid. 


A very interesting evening and I highly recommend watching the website for future debates, which will hopefully continue to be both free and live-streamed. 

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