The Path to Armageddon

Contributed by Robert Lyman © 2019

Robert Lyman is an Ottawa energy policy consultant and former public servant and diplomat. Read his full biography here.

The Intergovernmental Panel on Climate Change issued its Special Report 15 Summary for Policy Makers of September 2018. In that report, the IPCC found that if the countries of the world wish to meet the goal of limiting global average temperature increases to 1.5 degrees C over pre-industrial levels, they would have to reduce emissions by 45% (from 2010 levels) by 2030 and eliminate them altogether by 2050. The Green Party and certain other environmental groups in Canada have endorsed the view that Canada should declare a “climate emergency” and commit itself to the goal of achieving the goal described in the IPCC report.

If experience is any teacher, we will soon have youth across Canada parading in the streets and before legislatures demanding that governments adopt policies consistent with this goal. Before we all jump on the climate emergency bandwagon, I thought that it might be useful to examine the implications for Canada of such an approach.

First, before we can chart a path to where the Green Party wants us to go, we have to understand where we have come from and where we are now in terms of greenhouse gas (GHG) emissions. Canada’s emissions were 730 megatonnes (Mt) in 2005[1]. They rose to a peak of 744 Mt in 2007. From 2007 to 2017, they varied up and down a bit but ended at 716 Mt. So, the average annual emissions reduction over the past decade was 2.8 Mt per year.

A reduction of 45% from 2010 levels would take Canadian emissions down to 401.4 Mt, a decline of 314.5 Mt from 2017 levels.

The following table and graph show the current breakdown of Canadian emissions by economic sector.

Canada’s GHG Emissions by Sector 2017

[1] Source: Environment and Climate Change Canada

These figures give us a base from which we can plot the future.

First, we must make a very important assumption, which is that between 2017 and 2030, there will be no increase in Canada’s GHG emissions as a result of increases in population and economic activity. This is important, because Canada’s population is growing quite rapidly due to elevated immigration levels.  Economic growth, while very slow now, might increase over the next decade. In effect, this assumption is based on the belief that increases in emissions intensity (emissions per unit of Gross Domestic Product) achieved by energy efficiency investments will offset the effects of population and economic growth. Thus, we will treat the 2017 level of emissions as the base for calculating whence the future reductions might come.

The federal government has already established the broad policy framework under which emissions reductions might occur. It involves the use of a carbon dioxide pricing regime plus over 600 “direct action” or “complementary” measures taken at the federal and provincial government levels. The latter include a wide range of regulations, subsidies and program measures. The rates of carbon dioxide taxes, levies and/or permit prices is scheduled to rise by $10 per tonne of emissions per year until they reach $50 per tonne in 2022. That is the equivalent of about 11 cents per litre in taxes on gasoline. Environment and Climate Change Canada (ECCC), in its recent report to the United Nations, projected that the combination of carbon pricing and complementary measures would reduce emissions by at least 160 Mt by 2030. While the department did not publish a detailed breakdown of how it arrived at these figures, I think we can reasonably take a skeptical view of them.

To understand why, consider that, in 2018, Canada’s average pump price for gasoline was $1.35 per litre. Adding 11 cents to that that increases it by 8%. The elasticity of energy demand (i.e. percentage reduction in demand for each per cent increase in price) is well below 1, meaning that an 8% increase in price is likely to result in a reduction in demand of less than 8%. If this percentage price increase were similarly reflected in the prices of other fossil fuels, it would at most result in a 5 % decline in fossil fuel demand. Again, assuming for simplicity’s sake that the reduction in emissions exactly matched the decline in fossil fuel consumption, the reduction in emissions due to a $30 per tonne tax would be (716X.05=) 36 Mt. More emissions reductions would have to come from much higher carbon dioxide taxes, much more stringent regulations and generous subsidies, or some combination of all of these.

From where, exactly, would those reductions come?

A very simplistic answer is that the reductions might be born equally by all economic sectors. A 314.5 Mt reduction from 2017 levels is a 44% reduction. A 44% reduction in emissions in all sectors would result in the following totals.

Emissions levels Resulting from Same Percentage Sectoral Cuts

This might seem like an “equal pain” approach, but in fact it would produce considerably different burdens upon the industries and regions affected. The cost of emissions reductions is very different in each industry, one of the reasons why a “pure” carbon dioxide pricing approach has such theoretical appeal, but the federal and provincial governments have already decided that they want to take a more intrusive, government-led and directed approach to reducing emissions. That moves the challenge of emissions reductions squarely into the political arena, where the choice of emissions reduction strategies and measures is far more likely to be determined, not by the comparative costs or cost-effectiveness of alternatives, but by the political strength of the competing interest groups.

“Fairness”, as often happens, is in the eye of the beholder. A fundamental reality is that almost half (48%) of the GHG emissions in Canada are produced in just two provinces, Alberta and Saskatchewan, because of the emissions intensity of the hydrocarbon-producing industries located there and the fact that electrical utilities there continue to use coal for electricity generation. The Alberta and Saskatchewan economies naturally take advantage of the underlying resource base, just as the Quebec, Manitoba and British Columbia economies derive great benefit from their wealth of hydroelectric power resources. An “equal percentage sector emissions reduction” approach would, of necessity, adversely affect Alberta and Saskatchewan far more than other provinces. As long as the issue of emissions reduction is portrayed in moral terms, in which carbon dioxide (a benign gas in almost all respects) is treated as “pollution”, the provinces whose emissions arise from other sectors (like buildings industry and agriculture) are bound to argue that their contributions to emissions reduction should be proportionately less – a lot less. For Alberta and Saskatchewan, the shutting down of around 44% of the production from their most important industries would be viewed as an enormous, perhaps intolerable sacrifice.

So, we are left to ponder other options. One that would probably be favoured by the Green Party would be to completely eliminate all oil sands production and the related emissions. Oil sands emissions include those from in situ production (41.7 Mt), mining (16.4 Mt) and upgrading (22.4 Mt), for a total of 80.5 Mt. The Greens would undoubtedly also favour the complete elimination of coal-fired power generation, which would reduce emissions by 57.4 Mt. Greens lobby hard to reduce use of and emissions from light duty passenger vehicles (cars, SUVs and pickup trucks); regulated improvements in fuel efficiency will take us some distance, but one would have to restrict use fairly severely to achieve an emissions reduction of 25 Mt. That adds up to 163 Mt. We would still have to find 152 Mt.

This is where the choices get really tough. The United Kingdom has made very large emissions cuts by reducing its heavy industry, much of which has moved operations to Asia. Canada could find some way to force the closing or “disinvestment” in a substantial portion of our heavy industry, including petrochemical plants, mining, steel, cement, and metal fabrication plants located right across the country. With severe enough measures, we might be able to cut industry activity and emissions in half, reducing emissions by 37 Mt. Massive retrofitting of all industrial, commercial and residential buildings would cost trillions of dollars and would take far more than 11 years to achieve, but with an immense expenditure, we might be able to reduce emissions by 40%, saving 34 Mt by 2030. Reducing waste emissions might add 5 Mt. While farmers would protest loudly, one might be able to reduce agriculture operations and emissions by 20%, saving 14 Mt. Of course, this would reduce food production, so we would have to transport more from other countries. However, these tough cuts total 90 Mt, leaving us with only 62 Mt to go.

The transportation sector presents special problems because it is not technically feasible to use non-oil fuels in the aviation and marine sub-sectors, and electrifying freight railways and road trucking is extraordinarily expensive. However, as once proposed in a pre-electoral platform of the Green Party, it might be possible to severely curtail all non-essential aviation, for example prohibiting all flights for recreational purposes. This might reduce emissions by 3 Mt.

The largest source of emissions left are in the oil and gas sector. We need to have access to conventional oil just to allow domestic transportation, and six million Canadian homes rely on natural gas for heating. If we shut down all conventional oil production from western Canada and Newfoundland we could eliminate 31 Mt. of emissions,  we would have to reverse many pipelines so that we could import oil from the United States and other sources. Finally, we could shut down half of our natural gas production, cutting 34 Mt of emissions. The 314.5 emissions reduction goal would be met.

We, of course, would be left with a few problems along the way. All these measures would severely reduce income, investment and employment in all sectors of the economy. We would become massive net importers of goods and services, and the Canadian dollar would decline to previously unimagined lows in value relative to other currencies. The cost of building the additional electrical generation and transmission facilities needed to convert much of the transportation and buildings sector to electricity would be in the hundreds of billions of dollars, and it would take decades to get the approvals for the transmission lines. Similarly, as construction of mass transit systems can cost $150 million per km and up in major cities, we would face an immense bill to provide the alternatives for mobility in major cities; accomplishing this within 11 years is clearly impossible.  Restriction of personal vehicle use would greatly affect mobility in small towns and rural areas, and elimination of recreation-based flying for both those entering and leaving the country would have a terrible effect on the hotel, restaurant and tourism industries.

The most challenging problems, however, would be political. The ownership and control of resource production rests with the provinces under Canada’s constitution, and they would certainly object to having that authority exercised by the federal government. Governments can restrict, prohibit and tax most activities, but they cannot force consumers to buy or investors to invest. As citizens would not choose the solutions needed to meet the Green Party objectives, how could they be brought about? Are governments prepared to contemplate the withdrawal of liberties and the imposition of state control over all economic activities? Even that would not ensure success, as no Canadian government in history has ever faced the challenge of centrally controlling the complete transformation of every aspect of the economy, and doing so within 11 years.

Reducing emissions by 314.5 Mt from 2017 to 2030 would entail average annual emissions cuts of 24.2 Mt per year, nine times higher than the reduction achieved over the last decade, which included the most serious recession since the Great Depression. That would both require and create the worst and most prolonged economic depression in history.

To anyone who seriously contemplates this path to Armageddon, it is simply impossible.

Now, how do we tell the kids?