Contributed by Robert Lyman 2020. Lyman’s bio can be read here.
In this PowerPoint presentation, I have tried to answer a question about climate policy that is too rarely asked in Canada. How much does it cost? Only those with a profound ignorance of economics, or a contempt for it, would say that the answer to this question is unimportant. The central economic fact of life is that there are always more things that we want and need than we can afford; when we fail to understand what our choices cost, we indirectly deprive ourselves of things that may be far more important to our overall wellbeing.
The costs of current climate policy can be measured in many ways;
• By the financial costs to the governments (i.e. taxpayers) of the programs, tax incentives and other measures that they implement;
• By the financial costs imposed by these measures directly and indirectly on businesses and individuals;
• By the direct economic costs of misallocated resources, foregone investment, losses in employment, losses in export earnings, or other measures; and
• By the reduction in current and future income for the country as a whole or certain regions.
We have limited information on most of this, so we have to proceed by citing anecdotes, or an examination of specific examples.
In this presentation, I show that the effects of federal and provincial climate policies so far have fallen disproportionately in two areas – on the present income and future investment prospects for the Canadian hydrocarbons industries and the prices paid by electricity ratepayers due to above-market rates for wind and solar energy generation. In regional terms, the burden of increased costs has fallen disproportionately on Alberta and Saskatchewan.
Three major pipeline projects that had spent years undergoing regulatory review have been blocked or delayed by governmental decisions and inertia plus deliberate obstruction by well-funded environmental and indigenous groups and some provincial governments. The Northern Gateway Pipeline, the Energy East Pipeline and the Trans Mountain Expansion Project together would have offered $32.5 billion in capital investment, an additional $65.3 billion in national income and about 3,500 long-term jobs. Three major liquified natural gas projects in British Columbia have been so delayed that the sponsors gave up in frustration and decided to invest elsewhere – the Aurora LNG project, Prince Rupert LNG project and WCC LNG project. Together, these projects would have entailed $67 billion in investment. The Teck Resources Frontier oil sands mine was cancelled after eight years of regulatory review; it would have offered $20.6 billion in new investment, provided $70 billion in revenues to governments, and created 2,500 long-term jobs.
Canada has the same pipeline capacity to deliver crude oil to export markets that it did in 2016. The absence of adequate “takeaway” capacity has depressed prices for Canadian heavy crude oil in US markets. Over the 2014 to 2018 period, Canadian producers’ revenues declined by $40.6 billion due to discounted heavy crude prices. During the same period, the United States has added thousands of miles of new oil pipeline capacity.
Canada lost $100 billion of investment in energy projects in two years, according to the C.D. Howe Institute. New planned investments in the energy sector fell from $146 billion in 2015 to $35 billion in 2018; this represents 4.5% of Canada’s GDP.
The federal and provincial governments, in the name of climate policy, have changed the regulatory systems to place climate considerations over economic considerations, as though what Canada does by itself can have any influence on global emissions trends. Global oil, gas and power demand grows every year, especially in Asia. Many countries compete to meet these demands. None of the major producers and exporters endures the burden of climate-inspired regulation, taxes and restrictions that Canadian companies do.
In 2016 and 2018, the Trudeau government imposed and then expanded its moratoria on northern onshore and offshore oil and gas drilling, thus preventing the companies with 63 existing exploration and discovery licences from moving to develop the resource potential in the North. The Trudeau government also passed legislation to change Canada’s regulatory review systems governing environmental assessment and review and the licensing of new energy infrastructure. The changes worsened considerably the outlook for future approvals. Worse, they politicized a regulatory review process that was long respected for operating at arms’ length from partisan considerations. The former NDP government in Alberta imposed a statutory cap on GHG emissions from oil sands production that, if upheld, could result in cumulative production losses between 2027 and 2040 of over 2 billion barrels of oil, with a lost value of $153 billion.
The imposition of carbon dioxide taxes has worsened the investment outlook, added an additional element of uncertainty (as companies do not know how high taxes will go after 2022), and signaled that the adverse effects now felt by the oil and gas industry will probably be extended to all the emissions-intensive industries across Canada – mining, petrochemicals, oil and metals refining, steel, cement, aluminum, pulp and paper, and others.
The phase-out of coal-fired power plants in Ontario, Alberta, Saskatchewan and Nova Scotia and the efforts of provinces governments to force the use of wind and solar generation in their place is still proceeding. The cost so far in Ontario has been an 80% rise in electricity generation costs, an increase of consumers’ electricity bills over the life of the facilities totaling $9.2 billion and the loss of 75,000 industrial jobs. The estimated cost of new wind and solar projects in Alberta ranges from $4 billion to $8 billion, without taking into account the extra expenses that will be associated with integration of these sources and balancing the systems in future.
Then there are the many, many unknown costs associated with the 237 existing federal, provincial and territorial emission reduction programs, the multiple subsidies to renewable energy projects and electric vehicles, and the measures that are yet to be added to meet the 2030 target. The cost in terms of national unity may be the worst of all, but who can put a price on it?