Energy Policies

Higher energy costs, infinitesimal environmental benefits

A growing consensus seems to be emerging about the need for a global agreement to tackle climate change. More and more countries are announcing ambitious greenhouse gas (GHG) reduction targets. Within the next 15 years, Canada wants to reduce its emissions by 30 per cent below 2005 levels. The United States want to reduce its emissions by 32 per cent below 2005 levels within the same time frame. China has pledged that the country's emissions will reach a peak by 2030 and start declining thereafter. Even corporations are supporting the World Bank's proposal to price carbon.

In such a context, Conservative Leader Stephen Harper's defence of the oil industry indeed seems ludicrous, as political economy professor Andrew Jackson argued in The Globe and Mail last week.

However, the history of climate-change negotiations tells us that politicians often don't put their money where their mouths are. They are, by and large, more concerned with image than with getting anything done.

It has been more than 35 years since the First World Climate Conference was held in Geneva in 1979. Since then, world leaders have gathered at 20 United Nations climate-change conferences and multiple world summits. What do they have to show for it? Apart from wasting taxpayers' money, close to nothing.

The only binding international agreement to have been negotiated was the Kyoto Protocol, which proved to be a total failure. Participating countries had to reduce their GHG emissions by an average of 5.2 per cent below their 1990 levels. Even though they reached their overall target, world emissions grew to 50 per cent higher in 2012 than they were in 1990. The growth rate of emissions even began to rise at the beginning of the 21st century.

The Intergovernmental Panel on Climate Change (IPCC) says the rate of increase of atmospheric CO2 concentration during 2002-11 was higher than for any decade since direct observations began.

Fortunately, Kyoto's failure and the inability of countries to reach a global agreement since 2012 tell us a lot about the economics and politics of climate change, and about the fate of the 2015 UN conference in Paris.

First, a binding international agreement that doesn't include developing countries – such as the Kyoto Protocol – will do nothing to curb GHG emissions.

Emerging countries' emissions are growing, and are expected to represent 66 per cent of world emissions in 2020.

We also know that emerging countries will never commit to stringent GHG reduction targets.

They know all too well that cheap energy is the lifeblood of economic growth, which they are not ready to forgo for some hypothetical benefits in the distant future in the form of avoided climate change. A forced transition to a carbon-free economy – the IPCC says we will need to be carbon free by 2100 in order to keep temperature increases under two degrees Celsius – cannot be realized without economic costs.

Economic restrictions on energy, whatever their form, will force economic production to shift to more costly sources. More people will have to work more hours to produce the same amount of energy. This is the very definition of a loss of productivity, a loss of wealth.

Economic studies have shown that green job creation is not enough to counterbalance the job losses that such restrictions impose on the rest of the economy. Quebeckers and Ontarians have seen their electricity bills increase as a result of renewable energy policies (wind and solar, respectively). European countries have been struggling, too. Spain has created an Electricity Deficit Amortization Fund to finance the deficit created by renewable energy feed-in tariffs. Britain has just announced that it will curb its subsidies to renewables, partly to provide relief to consumers who have seen their electricity bills increase by 60 per cent over the past decade.

This is why emerging countries such as China and India, while participating in global talks and stressing the importance of tackling climate change, are still using vast amounts of carbondioxide-intensive coal. Between 1995 and 2012, these countries' coal-related emissions grew by 163 per cent. Global GHG emissions from coal combustion have surpassed those from the combustion of oil for the first time in 2004, and have kept growing ever since. This "coal renaissance" is best illustrated by the fact that China is building approximately one new coal-fired power plant a week. Even Japan is planning to build 43 coal power plants, while at the same time promising the UN that it will reduce its GHG emissions.

The global hypocrisy on this issue is palpable. Making the oil industry a target might make us look good from an international relations standpoint. But the fact is that that the talks surrounding the Paris conference are only talk. Given that developing countries have other priorities, imposing too many restrictions on the oil industry will result in higher energy prices for Canadian consumers, while delivering infinitesimal environmental benefits. 

Michel Kelly-Gagnon is President and CEO of the Montreal Economic Institute. Guillaume Tremblay is a Public Policy Analyst at the MEI. The views reflected in this column are their own.

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