What is Climate Policy Costing Canadians? An Introductory Overview

Contributed by Robert Lyman © 2019.

Robert Lyman is an Ottawa energy policy consultant, former public servant, and diplomat. His full bio is here.

After recently giving presentations on the economic effects of Canadian governmental policies on climate change, I have been asked to provide a single number that captures the cost for the average person or family. I understand, from a communications perspective, the advantage of offering a single, simple answer that will stick in the minds of an audience. However, there are important pitfalls in offering a simplistic and potentially misleading response. Indeed, the question itself reveals a lack of understanding of the magnitude and pervasiveness of the actions now being taken by the federal, provincial, territorial and municipal governments, and a lack of information upon which to base such a calculation. Perhaps examining why such a calculation is so difficult will offer insights into the answer.

The Range of Costs

Governmental measures to “mitigate” climate change by reducing present and future greenhouse gas emissions include the following.

• Taxes on energy consumption (e.g. carbon dioxide taxes).
• Tax exemptions for favoured industries (e.g. tax breaks for solar, wind, ethanol and electric vehicle producers and purchasers).
• Regulations that require companies to change what they produce (e.g. regulation of vehicle emissions and appliances).
• Regulations that restrict what companies and consumers can produce and purchase (e.g. regulations forcing utilities to cease using coal-fired power plants or to pay above-market rates to renewable energy producers).
• Regulations that shift costs from favoured industries to the general taxpayer or electricity ratepayer (e.g. rate changes caused by policy directives or legislated restrictions on local government’s ability to impose property taxes on industrial wind power).
• Subsidies to favoured producers (e.g. grants to renewable energy producers).
• Subsidies to favoured consumers (e.g. EV purchasers, aboriginal communities).
• Electricity policies that require utilities to build uneconomic transmission lines and “smart” transmission and distribution systems.
• Biased procurement policies that require government departments to exclusively buy “green” energy and to pay above-market prices to favoured producers.
• Research and development, technology demonstration, and assistance in commercialization that benefit only renewable energy producers.
• Funding for communications programs to promote climate hysteria.
• Funding to environmental non-governmental organizations to fund pro-mitigation policies and to disparage the fossil fuel industry.
• Zoning and other regulations to promote densification of urban areas.
• Others.

Recall that there are at least 600 of these different measures so well known that the Government of Canada reports on them bi-annually to the United Nations.

The federal government might be expected to publish a comprehensive list of its own programs and related expenditures on climate change, but it does not. An analyst seeking information on federal expenditures must hunt through a large number of search terms including “climate change”, “sustainable development”, “green initiatives”, “clean energy” and others, and the inventories are not complete.

In a May, 2018 collaborative report by the federal and provincial governments’ Auditor Generals (AGs), the AGs observed that no one has a complete record of all the programs in place, that the number of programs at the municipal level appear to be growing quickly, and that there is very poor coordination among governments in administering these programs. The AGs also observed that there is no way to measure these programs’ total cost and cost-effectiveness, nor their extent of overlap and duplication. See the report here:

http://www.oag-bvg.gc.ca/internet/English/parl_otp_201803_e_42883.html

This is not the whole of it. A major component of current climate change mitigation in Canada is the efforts of various interest groups and governments to block the construction of essential pipeline infrastructure. This infrastructure would allow Canadian oil and natural gas to reach export markets. Further, these groups seek to impair the access of Canadian oil producers to investment capital. These efforts, as assisted by the federal government’s changes in the regulation of energy infrastructure, have directly cost oil producers $20 billion in forgone income in 2018 alone. This dollar value is according to the Royal Bank of Canada and the Fraser Institute. There are no authoritative estimates of the loss of capital and the flight of Canadian oil industry capital to the United states; one rough estimate is $60 billion to date.

The Difficulties in Measuring Costs to the Economy

When one measures costs, the first question is “to whom?” The present climate policy measures entail costs to taxpayers, electricity ratepayers, consumers, industries, firms, and the economy as a whole.

Someone’s costs may be another’s revenues, so economists try to measure the changes in income at the national level. To do this, however, one must have available a general equilibrium model of the Canadian economy and be able to use the right assumptions and the right inputs to calculate the effects on Gross Domestic Product over time. Further, one must have a way to isolate the effects of climate policies from all other influences on the economy. No authoritative source has yet published such an analysis.

General equilibrium analysis, moreover, is not without its faults and limitations. The underlying assumption is that economies always trend towards an equilibrium. It follows that a disruption (e.g. loss of an industry or firm) in one region will quickly and smoothly be accounted for, through the efficient adjustment of market forces, by increases in other parts of the economy. In reality, such adjustments are often long and painful.

How Does One Value the Political Consequences?

Approximately half of Canada’s GHG emissions occur in Alberta and Saskatchewan. The GHG emissions that are associated with emissions-intensive resource industries in the rural and small-town areas of the rest of Canada account for about one-sixth of Canada’s GHG emissions. Therefore about two-thirds of Canada’s regions are directly threatened by policies that seek to sharply increase the cost of fossil fuels and to “phase out” the industries that operate there. Canada’s resource industries just happen to be the sectors with the highest productivity and highest contributions to Canada’s balance of trade.

The systematic undercutting of the Alberta and Saskatchewan economies will not be accepted by the people of these provinces. These provinces’ governments will use every available policy and legal instrument to oppose the “decarbonization” of the Canadian economy, which is the ultimate goal of federal climate policy. The threat of secession is now generally underestimated and discounted in central Canada. How would one estimate the value to Canada of losing two provinces along with their resource revenues that currently go to Ottawa?

Averages Mislead

The costs of Canada’s climate policies are borne in very different ways by individuals, families and firms. These differences are based on many factors including location, energy consumption, available energy choices, and incomes. A small family that receives a substantial rebate on carbon dioxide taxes may not be much affected, unless the family is located in Alberta and the breadwinner loses his/her job as a result of climate policies. A company that sells insulation services may do well, while one that operates in an energy-intensive industry with low margins may be forced out of business. Generally, those who live in Alberta and Saskatchewan suffer very adverse effects, while those who live in Quebec may suffer less so, at least until the emissions reductions targets move high enough to affect them as well. A major manufacturer may be forced to raise its costs above those of its foreign competitors, and thus decide to relocate its operations and emissions to a different country.

Bottom Line

Whether we consider financial costs or economic costs, no one knows the total costs of current and future climate policies. These costs are pervasive, immense, and growing. One can cite individual anecdotes concerning very large figures, such as the fact that carbon dioxide taxes will impose on consumers an additional cost of at least $24 billion per year by 2020. This number may grow to $80 billion per year by 2030. However, any attempt to condense all costs of current and future climate policies into a single value is fraught with uncertainty and error. Any number that one might produce would lack an authoritative foundation and could be easily challenged, and thus lack credibility.