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October 18, 2018 | Carbon taxes aren’t saving the planet, but these ideas will

Stewart Muir is founder and executive director of the Resource Works Society, a Vancouver-based group open to participation by British Columbians from all walks of life who are concerned about their future economic opportunities. He is an author, journalist and historian with experience on three continents including a financial editor of The Vancouver Sun responsible for mining and markets coverage. Since Resource Works was established in 2014, the group has gained international recognition for its practical approach to the public challenges of responsible natural resource development and use.

Resource Works executive director Stewart Muir offers his prescription for moving beyond the conflict and confusion.

For one who has been a close watcher of British Columbia climate policy for the past dozen years, the current polarization in Canadian carbon politics has a familiar tone to it. That’s unfortunate, because some of the most obvious things that should be done to address climate concerns are not being done, while at the same time carbon taxation is misleadingly being promoted as if it is a master stroke that will save the planet and the nation from 1.5 degrees of heating.

The upside for Canada as a whole, if we can get this right, is huge. I see abundant evidence that by making the right choices, the country can become an energy and climate change superpower. Over the past several years I have spoken with probably hundreds of experts, from all across the country and internationally, on these topics. My thinking has evolved along the way. Where it starts out, however, is with a topic that I happen to know quite well from the personal experience of covering British Columbia’s vanguard work over a decade ago in pricing emissions.

My ideas are going to take some space to unfurl, so this is a fairly lengthy post. If you are impatient to get to the point I suggest scrolling to the end that summarizes what’s needed to put Canada back on track, if only we have the guts to try.

To plan the future, it’s always worth trying to learn the lessons of history. I’ve made some surprising discoveries about BC’s carbon tax performance, outlined below. A lot of it boils down to the fact that consumer behaviour should be the starting point for any successful climate policy. Clearly, we do need to do better, whether by improving the tax or finding more effective approaches.

The single biggest thing we can do is to escape the deterministic constraints on thinking that are stifling innovation. We also need immediately to start taking a more expansive view, so we take in the big picture. If we want to get serious about climate action, 12 actions are needed that fall into these four broad themes:

  1.  The need to think globally not locally.
  2. The need to scrap the deterministic approaches to knowledge and innovation that are holding us back and degrading the quality of discussion.
  3. The need to see things the way they are seen by shoppers/voters/moms.
  4. The need to not give up on educating and informing.

Within this framework, I’m providing a number of recommendations that will help Canada and the world get away from the shouting and into the work. As 2018 comes to a close, a number of Canadian jurisdictions are hurtling toward the carbon-policy implementation phase on a number of tracks, and it’s rapidly become apparent that the groupthink on a number of issues, particularly by those who style themselves as climate warriors, is taking us in the wrong direction.

Back in 2007, a lot of British Columbians were willing to be convinced that “climate leadership” was a worthwhile thing to aim for. Being the first jurisdiction anywhere with a carbon tax became a point of pride for Premier Gordon Campbell, who whenever I ran into him was lugging around a stack of books with the latest ideas on public policy. The idea of carbon pricing was winning him support from some unlikely quarters and looked as if it would help to cement his reputation as an implementer of bold (although occasionally impractical) ideas.

In 2007, the green movement was having a moment. Stephane Dion had just snatched the federal Liberal leadership with a strong environmental agenda. As Campbell’s new carbon tax got closer (legislation was introduced in April 2008), one of my colleagues at The Vancouver Sun, columnist Don Cayo, became hell bent on ensuring that the new levy would be revenue neutral. Don was a rigorous free marketer who was a continual thorn in the side of anyone proposing new taxes. Revenue neutrality? Nobody had any idea what he was talking about at first, but Don soon turned his peeve into a successful crusade. The principle was adopted and Bill 37, the Carbon Tax Act, came into effect with neutrality enshrined.

The mantra from officials in Victoria made it sound pretty simple: the carbon tax will let us discourage the behaviour we don’t want to see, while encouraging the things we do want.

Bill 37 was followed by the Economic Incentive and Stabilization Statutes Amendment Act that accelerated the personal and small business income tax reductions, announced in Budget 2008, as part of the revenue-neutral carbon-tax plan.

It was quite the accomplishment. Campbell had converted the burden of a new tax, that even his most red-tape-obsessed supporters should have found loathsome, into a driver of old-fashioned prosperity. A few years later, another new tax, the HST, proved to be Campbell’s undoing, but that’s another story.

In any event, largely because of how the British Columbia experience came to be understood, until recently revenue neutrality was widely thought to be the saving grace of a carbon-taxation policy, the factor most likely to ensure a policy’s political survival and prevent desertion, even by conservative voters.

I do remember ridiculously long line-ups at the gas stations the day before the new tax was to be introduced, by motorists who believed for a short time that the end of affordable gas was nigh because at midnight they’d start paying an extra 2.5 cents a litre. Otherwise, it was a pretty smooth implementation.

For a full decade, except in the 2009 provincial election when the Opposition NDP campaigned to get rid of the tax altogether, the neutrality concept went mostly unexamined and completely unchallenged.

Over the years, the carbon tax idea spread to other jurisdictions, although nowhere near enough to make any discernible difference to climate on a global scale.

The year the tax came into effect, BC saw a big drop in the amount of gasoline sold for road-transport use. Looking back, it is obvious that this drop was due to the global recession in 2008 which saw the province’s economy and incomes shrink. This is borne out by multiple other economic indicators.

Still, over the next five years a trend of lowered gasoline sales created the strong impression that the carbon tax was working as designed. (Gasoline sales account for about 20 per cent of fossil fuel uses covered by the tax.)

Here’s where things take an unexpected twist.

According to my new analysis, performed recently using the latest available information, the received wisdom about what carbon taxes accomplish turns out to be highly questionable.

In the first decade of its carbon-tax regime, British Columbia actually saw a mere 3.6-per-cent decline per person in the use of gasoline for road transportation. This reduction was a very small dividend for 10 years of a costly and ambitious program that was supposed to put British Columbia on the cutting edge of climate innovation.

I’ve heard it claimed that the BC carbon tax was a success because it led to a 10-per-cent decline in fuel consumption. That would indeed be the case if you took 2007 to 2014 as the comparison period. But a close examination of the latest information shows that by 2017 the average resident was consuming only 37 litres a year less gasoline than in 2007, a drop of only 3.6 per cent over 10 years. This seems like a pretty measly reward for all the effort.

Even if there was a lowering of consumption due to the carbon tax during the post-recession recovery years, by 2015 per-capita gasoline use was on the rise again. Last year saw a small dip (0.4%).

Based on this outcome, I’d like to be convinced that putting huge efforts into a politically challenging carbon tax will produce better results in the next 10 years than it did over the last 10. So far, I’m not convinced.

The following chart suggests that consumers might actually be simply absorbing the carbon tax, without adjusting their behaviour, as long as they have the income to do so.

 

bc-carbon-tax-history-3.png

A lot of people are going to ask: was the carbon tax effective in achieving its stated outcome or wasn’t it? The carbon tax has been in effect for both decreases and increases in gasoline use per capita.

The pattern here begs the question of what exactly was happening with consumption over these years. It seems that even though carmakers are continuously improving fuel efficiency of their products, consumers are exercising their preference for efficient SUVs and pickups over sedans and hatchbacks.

In the case of British Columbia, the 2008 introduction of the carbon tax coincided with a sudden, massive drop in the number of new cars and trucks (including SUVs) sold, according to this data from Statistics Canada.

BC-new-car-sales-2.png

 

Before the carbon tax – and before the great recession – for every new car that was sold, one truck or SUV was driven off the lot. After 2008, as the global economy began to perk up again, the demand for SUVs began to soar. As the chart above shows, that trend has continued right up to the summer of 2018 — at which point the ratio was 2.7 new SUVs for every new car – and is clearly tracking to widen further.

So, in spite of the added cost of carbon tax, consumers were still ready to exercise their preference and pay the penalty. It was the exact opposite of what might have been predicted. What the heck is going on?

I don’t believe the carbon tax caused people to buy larger cars. The sharp acceleration into larger cars after 2008 was more likely due to the increasing fuel efficiency of internal combustion vehicles generally. Between 2007 and 2017, the average greenhouse-gas (GHG) emissions of the approximately 1,000 consumer vehicle models tracked by Natural Resources Canada fell by about 17 per cent as average engine displacement dropped from 3.7 to 3.1 litres.

The improvement was not just because engines got smaller. Take the example of the plain vanilla Toyota Camry. The six-cylinder, 3.5-litre automatic was on sale for both model years 2007 and 2017. A decade of fuel-efficiency innovation brought respectable results, depicted in the chart here. (Natural Resources Canada collects this data here)

fuel-economy.png

 

Rather than be content driving the same car that now used less fuel, it looks as if what many British Columbians actually did was keep their fuel budget the same while getting into more capacious vehicles such as SUVs and pickup trucks, which by 2017 were also operating much more efficiently.

From Honda Civic to Ford F150: How tastes changed under carbon tax

Canada’s best-selling light vehicle in 2017 was the Ford F150 pickup truck, quite a change from 2007 when it was the Honda Civic. The least fuel-hungry version of the F150 available in 2007 ran on a 4.2-litre engine that produced 25-per-cent more CO2 emissions than the average vehicle. One decade later, Ford was offering the same truck, this time with a 2.7-litre engine that was smaller than the average light vehicle engine, and which delivered just slightly-below-average climate performance.

In other words, the F150 pickup of 2017 had about the same climate attributes as a 2007 car. Anyone who had hoped that drivers after 10 years of the carbon tax regime would be getting around in vehicles using less fuel may feel disappointed by this outcome. It’s now clear that what people actually did was use the gains of efficiency to get themselves into the ride of their dreams, carbon tax or no carbon tax.

British Columbia is a very small market with fewer than 5 million residents. Despite being on the vanguard of carbon pricing, there is no way that fiscal policies applying only within this one jurisdiction, even over a 10-year period, could have had any meaningful effect on the manufacturing trends of vehicles sourced from North America, Asia and Europe.

Efficiency gains driven by some combination of market forces and regulatory pressures in other jurisdictions around the world would appear to have been a deciding, and positive, influence.

The 3.6-per-cent per-capita reduction in gasoline for road use in B.C. over the inaugural carbon tax decade up to 2017 was probably going to happen anyway, as consumer preferences were basically following the same trend elsewhere in Canada.

In the recent Intergovernmental Panel on Climate Change report sounding the red alert on climate change, one estimate states that to save the world there has to be an 81-per-cent reduction in CO2 emissions in light-duty vehicles between 2014 and 2050. Based on my analysis of Canadian trends, it’s clear that automobile manufacturers have already been setting a favourable trend to achieve this for internal combustion vehicles. If the average annual GHG reduction seen between 2007 and 2017 was to occur annually between 2014 and 2050, the total reduction would be 62 percentage points, or about three quarters of the way to the 81-per-cent goal. (See IPCC October 2018, Chapter 2, Table 2.8)  It’s not much of a stretch from there to additional improvements in technology that can get us the rest of the way.

While it is clearly possible to keep improving the technology of internal combustion engines (ICEs), many of our politicians seem obsessed with removing hydrocarbons from the road, giving little thought to innovation involving the gargantuan hydrocarbon transportation system. If the belief is that consumers can easily be forced into electric vehicles, we should pause for a moment and consider what happened in practice in British Columbia. Car buyers did not keep the same cars over time, or move into ones using less fuel. They moved into bigger cars with the same emissions and similar consumption. It appears as though consumers have a relatively inelastic mental conception of what their fuel budget should be, and dislike underspending as much as they hate overspending.

As Canadian policymakers work to decarbonize the national economy with plans to move a huge number of motorists into electric vehicles, it will be interesting to see what confidence level they have that the levers they are able to move will be effective, and do the things expected. If the 2007-2017 British Columbia experience is any guidance, the outcome over the next decade is probably going to be a lot less predictable than many of us would expect. If we want to be successful in future efforts to lower emissions, it would be a good idea to include more psychologists and behavioural economists in the policy discussion.

Where do we go from here?

Now the latest update on climate from the IPCC has arrived, we have a document that is specifically designed to use public panic as a constructive form of policy pressure. Never mind needing a silver bullet to save the planet, now we need “a hail of silver bullets,” said one climate policy guru quoted in the Telegraph. As a result, once again we are seeing a moment of rare concentration of minds in Canadian media on carbon taxes. It’s just like 2006 all over again – except that this time, the urgency feels greater, plus we have the experience of a dozen years of real-world experience as opposed to theory.

The induced-panic phase has been surprisingly effective, though not necessarily in constructive ways. Columnist Andrew Coyne tweeted that the BC carbon tax is the root reason for the province’s economic success in recent times. But housing alone accounted for $20 billion in capital investment in 2017, an increase of $7 billion over the 2013 figure. Carbon taxation was a bigger driver than this? Highly unlikely. (Page 79 at https://www2.gov.bc.ca/assets/gov/british-columbians-our-governments/government-finances/financial-economic-review/financial-economic-review-2018.pdf) No doubt carbon pricing had an impact, for example in how $20-billion worth of new construction was designed to be more energy efficient, but to say that carbon taxes are the dominant fact of the economy is nonsensical.

At this stage in late 2018, many commentators are expressing alarm at the multi-province, anti-carbon-tax resistance movement. The Ford-Moe-Pallister-Gallant/Hicks-MacLauchlan-Notley/Kenney coalition, if that’s the right term, is growing in strength with six provinces now, in some sense, dealing themselves out of cooperating on Justin Trudeau’s tax-based climate mission. At this stage, it still remains to be seen whether Philippe Lagassé, the new Quebec premier, will include fighting carbon taxation in his vote-winning pledge to reduce taxes.

Even without Quebec in the tax-fighting coalition, the federal Liberals are left handling a mighty thorny, and suddenly very politicized, climate quandary complicated by pipeline politics.

If it’s any solace, everywhere else in the world carbon taxes also have had to survive local politics. Australians have seen a carbon tax come and go. In Washington State, the same voters who in 2016 rejected a carbon tax proposal once will next month (November 2018) consider a GHG levy of $15 a ton. According to The Atlantic, if the measure passes “Washington will make history, becoming not only the first state in the union to adopt a type of policy called a carbon tax—but also the first government anywhere to do so by ballot referendum.” We’ll see how that goes. Whether the resolution passes or not, it will affect only a middling-sized state in a nation led by Donald Trump, the world’s most brazen climate dissembler.

Given this setting, the question that should be asked in all this is not: “How can I paint those I dislike as [climate deniers/anti-tax zealots] for thinking critically about carbon pricing.”

It should be: “Having seen only limited success with carbon pricing, and realizing that IPCC climate warnings cannot easily be translated into meaningful action, what conclusions can a reasonable person draw?”

The IPCC report is a useful compendium of scientific and technical information. It is scientists trying to do their best to express what they show compellingly to be a crisis situation. But let’s not mistake it for a strategy. The missing piece here is a realistic plan for recognizing the political, diplomatic, cultural and scientific barriers to success. Until we get that part right, whatever happens on the policy front is pretty much irrelevant.

Over the years, I’ve waded through the jargon and examined cavils and canards emanating from all sides of the debate. A dozen years later, I’m no longer sure that carbon taxes, even if revenue neutral, are going to provide the practical solution to the problems we face. Nor will the straight line always be the shortest path to a solution.

Let’s face it, the dominant influence on Canada’s economy is the United States, a country that rejects carbon pricing and is pulling out of the Paris climate agreement. A Canada-only carbon tax represents yet one more additional cost of doing business north of the border, and the inevitable reaction will be that some industrial activity starts to move to the U.S. (Never mind that the US is lowering its emissions, without any help from a carbon tax, because it is cheaper to update some of its coal power-generation with natural gas.)

China’s growing appetite for energy will not be solved by more solar panels, although any diversification and decarbonization of primary energy is obviously a good thing. Non-hydro renewables provided just over 2 per cent of primary energy there in 2015. Coal use is actually increasing by 25 per cent, a trend that can only be reversed by replacing coal combustion with other large-scale reliables such as natural gas and nuclear. So how do we get practical on climate?

We need to quickly get over being awestruck by the IPCC findings, learn from recent experience, and pursue meaningful climate gains while there is still time. We can start by recognizing that Canada is not only a potential energy superpower, it can also be a global-climate superpower. If we follow the plan below, change is possible:

 

12 ideas to make Canada a global climate superpower  

If we’re really serious about making gains, here are some practical ideas that should be adopted by any government that is serious about going beyond the hype. They’re organized into four categories:

Think global not local

Face the fact that the problem is global and we need world-scale thinking to succeed.

  • Those who oppose sending Canadian LNG to Asia are effectively promoting the use of coal for electricity generation. We can and must do better. Canada should double or triple LNG exports as quickly as possible. Although there may be increases in local emissions, those will be easily and quickly offset by gains elsewhere.

Focus on the demand side, not the supply side.

  • China can get crude oil from Canada to make liquid fuels from, or it can continue what it is doing and convert coal to liquid with massively greater climate impacts. By 2020, China will be producing 13 millions tons of liquid fuel from coal, and 17 billion cubic metres of gas. We can improve that.

Recognize that Canadian products are not the only ones that carry climate implications.

  • Imported fuel from the United States and Saudi Arabia has a carbon footprint, yet we are pursuing policies that would curtail only Canadian fuels by punishing upstream emissions. This is wrongheaded and must be reversed.

As a small, trading-based economy, Canada has to stand up for itself better in a competitive world.

  • The oilsands, and growing unconventional hydrocarbon reserves, should be a source of national pride in innovation and environmental stewardship that we defend vigorously. It makes no sense to apologize for being a producer of needed hydrocarbons when a mere four generating plants in the United States in combination exceed the GHG production of the entire oilsands. A responsible federal government would encourage private philanthropy efforts in Canada, including those led by Indigenous people, to ensure that the torrent of one-sided,  anti-Canadian information is challenged from the basis of responsible and achievable climate policy.

Innovate relentlessly

Start by investing in what’s already working.

  • Reward success where it already exists (not just where someone dreams of it occurring). When it had the chance to invest a billion dollars in decarbonizing the oil and gas sector in Canada, the federal government said no to a supercluster proposal from Alberta, investing instead in a number of other proposals. Was the problem that Ottawa feared criticism for giving “subsidies” to the fossil fuel industry? If so, that is the wrong approach. The Canadian energy industry is actually doing an excellent job already of lowering its carbon footprint. For example, the GHG emissions intensity of production at Canada’s newest oilsands mine, Fort Hills ,is currently on par with the average refined barrel in the United States, according to Suncor’s sustainability report for 2018. With a nationally supported plan, think how much more such companies could accomplish. A truly progressive government would be one that brings an oil-and-gas supercluster into the national innovation program.

Undertake the proper economic analyses required to understand the options.

  • We have academies full of climate number-crunchers who have no clue of what the economic scenarios are, and are seeking principally to create the justifications for their own pre-baked outcomes. In Vancouver, the city tried to ban natural gas without ever performing a single economic study, an approach I was nearly alone in criticizing at the time. The most basic questions are not being asked, as if it is irrelevant to wonder how many dams need to be built to electrify the economy,  and how hospital laundries will clean their sheets without natural gas dryers, and how our children will manage to swim in cold swimming pools, also because we have banned natural gas. Or is someone arguing we need to abolish those activities; if so, will you please step forward? Asking the tough questions up front is always the best approach.

Be realistic about what can be achieved.

  • However satisfying it may be to hold late-night emergency debates about climate change, by the cold light of day Canadians are still going about their business as they have been for years: as members of a society where each person consumes the equivalent of 200,000 calories a day of energy. Unless we suddenly start consuming a lot less, that energy still has to come from somewhere. As the electorate of Ontario has shown, there is only so much tolerance for bleeding-edge solutions. For British Columbia to go 100% renewable, you’d need to replicate the province’s 54 largest existing generating plants, according to my analysis here. I’m not saying we shouldn’t do that, but looking back on the recent experience of building just one large dam (Site C), it’s clear that any one large,  energy-producing installation on the landscape, whether it is based on solar, wind, hydro, or dilithium crystals for that matter, will require protracted, i.e. decades-long, social and political negotiations. Given the ho-hum inaugural decade of BC’s carbon tax, I think it’s entirely fair to say that those who refuse to engage in discussions about improving and evolving the use of stored chemical energy (i.e., hydrocarbons), preferring instead to demonize their opponents and sidestep any meaningful progress in favour of convoluted experiments handed down from the ivory tower, will ultimately be the greatest climate harmers of all.

Nuclear power is Canada’s next-best zero-carbon solution after our abundant hydro.

  • We need to do more with it domestically and as an export. Among other reforms, uranium exploration should be allowed in British Columbia as a climate action imperative.

Listen to shoppers/voters/moms as if they were Nobel laureates

Before investing any tax dollars in one-time subsidies for electric cars, ensure all low-hanging fruit has already been picked.

  • Specifically, ensure that every existing appliance using natural gas is replaced if it does not meet current efficiency goals. It’s surprising how many old and inefficient furnaces are still in use. On the transportation front, incentivize owners of older cars to replace their automobiles with the same-body models, using more efficient engines, instead of being tempted to upgrade to larger vehicles with the same carbon and fuel budget as their old cars. For all the high-minded theories that win Nobel prizes, without meaningful outcomes on the ground what’s the point?

Anticipate that the public’s sensitivity on fairness questions will upend all kinds of well-intentioned policies.

  • Nobody is listening right now to the small Alberta companies that are either closing their doors, or quietly relocating to the United States because of policies that are slowly squeezing the life out of the domestic energy sector. What hurts most is that these policies do absolutely nothing for the environment, because hydrocarbons are simply sourced from elsewhere, be that Texas, Russia or Saudi Arabia. If you want to understand how such resentment spreads through a whole population, spend a few days travelling around cities and towns in Alberta. Swapping responsible fuels for misery hydrocarbons is not progress that people will accept. It is going to take a lot of work to repair the hurt that Alberta is feeling right now.

Never give up trying to educate and inform

Restore integrity to the climate discourse.

  • Bold climate measures were sold as a grand bargain among governments, industry and environmentalists, but it’s now clear that some of those pushing them never had any intention of fulfilling the deal. The Alberta example is the starkest. In 2015, the Alberta government agreed to bring in a consumer carbon tax as well as a hard cap on oilsands emissions. This was a major development that resulted in political, industrial, Indigenous and environmental leadership sharing the stage to mark success. When some of the environmentalists surprised everybody by continuing their anti-Alberta-energy crusades with the exact same ferocity, trust was shattered, and it has not been restored. When the pendulum swings, it is going to swing hard. A new approach is needed to rebuild the broad pro-climate coalition.

A lack of public awareness is costing Canada billions of dollars.

  • School curricula that ignore, or idealize, energy economics have resulted in a generation that simply cannot perceive or deduce the realities of global energy and climate. The persistent low ranking of climate change as a public priority is one result. So is a passive attitude toward exporting Canada’s most valuable wealth-creating jobs and capital investment opportunities to the United States under current climate policies. Education initiatives are needed in schools and media to address this.

There’s my three cents. If you’ve read this far, congratulations. I’m always open to hearing other views and look forward to spurring a lively debate on these important issues.

Stewart Muir
[email protected]
Twitter @sjmuir

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October 18th, 2018

Posted In: Resource Works

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