Monday, 24 October 2016

Saskatchewan Premier Brad Wall: Closet climate lefty?

TL;DR: Saskatchewan’s climate white paper has many problems, but its main planks — grand public works to support much needed new technologies; command-and-control intervention instead of market-based, regressive, ineffective carbon pricing; and insistence that those least able to pay not bear the greatest burden — should be saluted by the left, not demonised. The document needs to be tweaked, not trashed.
  • The white paper says carbon taxes are unfair; they are.
  • The white paper says the EU and California’s emissions trading schemes don’t work; they don’t.
  • The white paper says that direct regulations such as banning coal plants, and enforcing low-carbon fuel use are more effective and faster than carbon pricing. This is true.
  • We need small modular nuclear as it’s clean, baseload, dispatchable but also in this form much more scalable, and perfect for remote communities. Regina is the only Canadian government openly, proudly backing nuclear and not hiding this sector under a bushel. This should be applauded.
  • Carbon capture and storage (CCS) for coal will probably never be profitable as there are already so many cheaper clean alternatives. But we still need carbon capture for many industrial processes that have no easy decarbonisation solutions. So Regina should be convinced to switch its CCS focus from the coal-fired power sector to industrial emissions, like Norway has just done. 
Meanwhile, what on earth is a supposedly progressive group like Climate Justice Saskatoon doing backing flat taxes?

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It’s a funny old world. Every now and then, the political left and right perform a do-si-do, with conservatives taking up what has historically been the progressive stance on an issue and their lefty counterparts doing the reverse.

One Prairies-based example of such political cross-dressing is the public-works-focussed climate strategy of Saskatchewan’s right-wing government and how it has been demonised by carbon-price-loving liberal-lefties and environmentalists as a fingers-in-ears approach while the planet burns.

In reality, while the Saskatchewan climate plan is very far from perfect (and its gaps and errors should not be minimised), the main planks are very much in keeping with traditional social democratic thinking, while its critics appear to have drunk the neoliberal climate Kool-Aid.

Saskatchewan’s 54-page climate change white paper released last week argues furiously against the federal ultimatum to the provinces of carbon taxation or emissions trading—market-based greenhouse gas mitigation policies that in climate-vanguard Europe for example most of the left views with deep suspicion. The province’s suite of preferred alternatives include regulation of industry, large-scale public works, and significant expansion in government funding for research and development­—an étatiste command-and-control approach that one normally associates with a Keynesian, social democratic left.

In response, the Pembina Institute, an environmental think-tank, criticised the strategy’s opposition to carbon pricing as “out of step” with business groups such as the Carbon Pricing Leadership Coalition, a group of corporations that includes Shell, Enbridge and Suncor, and market-oriented green outfits such as Smart Prosperity and the Ecofiscal Commission.

Climate Justice Saskatoon, which has links to the Leap Manifesto of Naomi Klein, Greenpeace and Idle No More, attacked the plan as "inadequate, and biased towards economically unsound technology options,” that are no replacement for carbon pricing.

It’s a world turned upside down. To buttress the Saskatchewan government’s opposition to carbon taxation, the white paper authors draw on analysis from Marc Lee, a researcher with the Canadian Centre for Policy Alternatives, perhaps the country’s most prominent left-wing think-tank. While Lee is in principle in favour of some form of carbon tax so long as it moves from a regressive flat tax policy to something more progressive, he has sharply criticised British Columbia’s carbon tax for its unfairness toward the poor and working class, and for the lack of evidence that it has resulted in lower emissions. 

Carbon taxes, like value-added taxes such as the GST, are flat taxes and thus regressive. The left has historically been strongly opposed to flat taxes because the rate imposed is the same regardless of income or wealth. The left has instead always preferred progressive taxation, where tax rates steadily increase as one moves up the income and wealth ladder. Various elements of the right have long wanted to rid society of progressive taxation altogether and impose a wholesale move to flat taxes, but has been stymied by how popular progressive taxation is. From former Reform Party chief Preston Manning to Canadians for Clean Prosperity, headed by Mark Cameron—former Conservative Prime Minister Stephen Harper’s director of policy and research—a certain flavour of right-winger is positively gleeful that carbon taxes opens the door to doing away with income and corporate taxes. This form of carbon pricing is now giving the right an ecological fig leaf to moves that it has never before been able to get away with outside of eastern Europe and some of the most hardline Republican-controlled states in the US.

And with carbon taxes, there are additional effects that exacerbate the already regressive nature of other flat taxes. The poorer you are, the greater proportion of your income is devoted to energy and transport costs, both of which tend to be carbon-intensive. Adding to this, it is increasingly the case in Canada’s cities that soaring real estate costs are pushing working class families further out of the urban core, thus requiring still greater expenditure on travel from locations poorly served by public transit. The wealthier professional class meanwhile get to take the subway or their bike to work. Lastly, renters tend to live in older, leakier and thus less carbon-saving apartments, and so can end up paying absolutely more not just relatively more in carbon taxation than the usually wealthier owners of new homes. For all these reasons, the Intergovernmental Panel on Climate Change itself notes that carbon taxation’s regressive nature is the main barrier to its adoption. So BC introduced a low-income credit to partially offset these effects.

However, as the Saskatchewan white paper notes, quoting Lee, while BC’s carbon tax has gone up since being introduced, this low-income credit has not, making the regime regressive, with lower-income households paying a greater share of their income than higher-income households. Meanwhile, some two thirds of the carbon tax revenues have paid for corporate income tax cuts and another 17 percent in cuts to the progressive income tax system.

To be fair, Lee has written that a progressive version of the carbon tax would go some way to correcting this injustice, but he has also noted that in any case, the mitigation effect of BC’s tax is more hype-based than evidence-based.  The Saskatchewan white paper again quotes Lee’s figures: Since 2010, BC’s greenhouse gas emissions have increased every year. The brief drop in emissions in 2009-10 was instead a product of the global recession. BC’s carbon tax is “as near as we have to a textbook case” of what a carbon tax should look like, according to Angel Gurria, secretary general of the OECD, yet there is little evidence to suggest it is working to mitigate emissions.

Extending this criticism, the paper goes on to deploy the arguments of Simon Fraser University sustainable energy researcher Marc Jaccard, who like Lee is not opposed to carbon taxes in principle but feels they should be complemented with other, more demonstrably effective measures. The paper approvingly quotes Jaccard’s finding that BC’s carbon tax is projected to achieve a reduction in 2020 annual emissions by three to five megatonnes of carbon dioxide equivalent, while the same government’s decision in 2007 to cancel two coal-fired plants and one gas plant is projected to achieve a reduction of 12 to 18 megatonnes in 2020, compared to business as usual. The single largest emissions reduction effort performed in Canada has been Ontario’s shuttering its coal-fired power plants, a product of government fiat not a carbon price, has reduced annual emissions by 25 megatonnes.

Many have written that this is because BC’s carbon tax rate, $30 a tonne, is simply too low to have any behaviour-changing effect on consumers or businesses. The International Energy Agency reckons a global price on carbon should be $95-$100 by 2030 for the price signal to begin to have deep decarbonising effects. Canada’s National Roundtable on the Economy and the Environment had put the figure at CAN$50 by 2015, climbing to $100 by 2020 and more than $300 by 2050. Economic modelling by Jaccard found that to achieve the federal government’s current climate pledge of a 30 percent reduction on 2005 levels by 2030 (a mere two percent reduction on 1990 levels, the normal international baseline) would require an immediate national carbon price of CAN$30 a tonne, rising $15 a year till it hits $200 by 2030, and perhaps as high as $265. Jaccard believes such high rates are politically infeasible. But his modelling work shows that the same scale of emissions reduction can happen via direct regulations (admittedly as a complement to a low carbon tax of $40 a tonne).

But what about emissions trading, also known as cap-and-trade, that other form of carbon pricing that Prime Minister Justin Trudeau says provinces may adopt in order to achieve an equivalent of $50 per tonne by 2022? One of the key problems with carbon taxation is the uncertainty over emissions reduction. Emissions trading at least imposes a cap on emissions, and then different economic actors have to buy or are given permits to pollute up to that maximum. Again the white paper leans on the work of Jaccard, who noted in a recent paper that California, which has achieved some of the fastest emissions reductions in North America, has a modest price on carbon of $15 a tonne through a cap and trade programme that is linked to Ontario and Quebec, but roughly 90 percent of these reductions have come from direct regulation such as low carbon fuel standards and zero-emission vehicle requirements for auto manufacturers, not emissions trading. The white paper also argues that emissions trading does not work in the real world. The document notes that EU carbon credit auctions have never achieved anything close to the €30 a tonne target price, instead hovering around the low single digits. The latest carbon credit auction in August of the Quebec-linked Californian carbon trading system (that Ontario is to join in 2017) sold only 35 percent of the available credits. In May, the auction sold just 11 percent.  

Climate justice campaigners in Europe have long been very much opposed to the EU ETS for a number of reasons. The ‘trade’ part of cap and trade does nothing to reduce emissions. Instead, it allows companies to buy “emissions allowances” or “carbon offsets” which are supposed to represent emissions reductions elsewhere. Offsets in particular often do not deliver real reductions over what would have happened anyway. Emissions trading, like carbon taxation, aims to drive market actors to make the cheapest short-term cuts, but these quick fixes, such as switching coal for gas, can end up locking in fossil fuel infrastructure that may be preferable in the short term, but in the medium term we actually want to phase out as well. Large-scale clean-energy infrastructure projects that are expensive to build over the short term are less responsive to carbon pricing. They require programmes of public works instead.

Here we see the ideological world turned upside down once more: A core belief of carbon pricing proponents is that the market is the most efficient mechanism for realising mitigation targets. Yet a core belief of the left has always been the opposite: that the market is less efficient at realising such social goals than democratic planning.

And just such a planned, grand projet d’état is exactly what Saskatchewan is engaged in via its commitment to the world’s first commercial-scale carbon capture and storage operation. It has ‘picked a winner’. This is, in part, because the price on carbon needed to drive uptake of CCS given its substantial costs would be astronomical. Such high carbon prices are unlikely to be achieved in the time we need negative emissions technologies (NETs) such as CCS to come online, so a more government interventionist approach would be needed to make CCS viable in the appropriate time frame. Meanwhile, most climate and energy scenarios developed by IPCC modellers that allow the planet to keep within 2°C of warming above pre-industrial temperatures assume widespread uptake of negative emissions technologies—tech that removes carbon from the atmosphere, with a major role for CCS. At some point in the second half of the century we will have to go net negative, meaning we are drawing down more carbon from the atmosphere than we are pumping out.

However, many green campaigners are right to be sceptical about CCS—up to a point. After a brief few years of enthusiasm in the mid 2000s, commercialisation of CCS has since hit the buffers. Funds expected to be raised via the EU ETS have not materialised and cash-strapped governments are getting cold feet. The fundamental problem remains that CCS simply makes coal so much more expensive than many other clean energy options already available. Meanwhile, research seems to consistently show that leaks from fluid carbon dioxide stored underground or under the sea bed are likely, undermining the entire enterprise. Recent breakthroughs offer some hope that carbon dioxide can instead be stored in solid mineral form much more rapidly than previously thought, but little is known yet on the cost of this.

So the Saskatchewan government’s position that CCS will allow coal-fired electricity generation to continue on as before while the climate is protected is probably not quite right.

But while Saskatchewan’s CCS project is attached to the coal-fired generating station at Boundary Dam, coal is not the only source of emissions to which carbon capture technology can be applied. Last month, Norway, the other major jurisdiction in the world that has bet big on CCS, announced in the wake of the fizzling out of the prospects for CCS in the power sector, it was switching the focus of its CCS strategy away from coal as a target, and toward industrial emissions from the cement, ammonia and waste sectors instead, at a cost of potentially billions of crowns. This is important because while there are multiple off-the-shelf alternatives that are available right now given the political will that cover about two thirds of the sources of global emissions, for the remaining third, easy solutions remain elusive. This is especially true for sectors like steel and cement, where the bulk of emissions come not from combustion of fossil fuels, but from chemical reactions involved in the manufacturing process itself. We need steel and cement for so much of modern society, not least for trains, trams, subways and wind turbines, and how we anchor offshore wind turbines to the sea bed, but there are no cheap, strong substitutes for most applications yet. So for these sectors, carbon capture is our best hope, at least for the time being.

Rather than demonising Saskatchewan as putting its collective head in the sand, climate campaigners would do far better to lobby Regina to replicate Norway’s initiative, but perhaps for the province’s potash sector, which is similarly difficult to decarbonise and identically irreplaceable. If either Saskatchewan or Norway were to be successful in efforts to profitably commercialise CCS-for-industry, this would be a huge victory for global warming mitigation. And the learning that will proceed from the province’s CCS efforts are likely to be helpful later in the century when we will need to be drawing down vast quantities of carbon from the atmosphere.

The second reason that Saskatchewan should cheered on by activists is that in its climate strategy, it is the first province to place development of nuclear power generally, and small modular reactors specifically, in pride of place. Indeed, it is the first jurisdiction in the country to even acknowledge the central role nuclear is playing in the clean transition.

When Ontario decided to shutter its coal plants, it told the world that renewables, primarily wind and solar, would fill the generation gap. But wind and solar are variable energy sources. The wind does not always blow and the sun does not always shine. Sometimes there is too much wind or sun. The amount of electricity generated is determined not by power system planners, but by the weather. One of the reasons that the discovery of fossil fuels was such a boon for civilisation during the Industrial Revolution is that for the first time in human history, we could have abundant, cheap energy at any time we wished. We did not have to wait till the caprices of Mother Nature aligned with our goals. Green groups will say that the problem of variability can be solved with energy storage, but the cheapest, least carbon intensive, most efficient ‘battery’ that lasts for more than a few days that we have right now is storing water behind a dam, and Ontario reached the limit of reservoir it could build decades ago. So to provide electricity when the wind turbines cannot, Ontario had to build out great swathes of gas fired capacity. (Only wind is mentioned here because solar power provides less than one percent of annual generation in the province) Similarly, energy systems modelling research is showing that if Alberta is to depend on wind to pick up the slack when that province closes its coal plants, it will have to build out almost as much new gas capacity to pick up the slack for wind. And, in a truly perverse outcome, the province would have to use renewable energy credits to try to encourage firms to build out the expensive gas plants that can quickly ramp up and ramp down depending on the weather while sitting idle at other times.

And it is not even gas that has done the heavy lifting of the clean transition in Ontario, but its fleet of nuclear plants, which today deliver 60 percent of the province’s electricity (compared to wind’s six percent and gas’s 10 percent). Lamentably, most environmental NGOs and green think-tanks in Canada are opposed to this clean, dispatchable, baseload technology over fears over its safety despite it being the energy source with the fewest deaths per terawatt hour. Like the global warming deniers, these groups persist in their point of view in the face of all evidence to the contrary.

Like hydro (another clean, dispatchable, baseload source of electricity), build-out of nuclear does however have very expensive up-front capital costs. This makes it less favourable to risk-shy investors without significant government guarantees, as has been seen in the UK as a Tory government allergic to large-scale public works has had to in effect bribe private firms to build its Hinckley Point C reactor, far outstripping what a purely public project would have cost.

So ironically, going nuclear should be much more likely under more left-leaning, interventionist governments, even though it is the left where one is most likely to find the most fervent opponents of this clean energy source. Yet we have in the conservative Saskatchewan Party a champion of government intervention to support the development of small modular nuclear reactors. One of the great selling points of SMRs is the hope that they will be able to be manufactured on an assembly line, and so enjoy significant economies of scale compared to the construction of reactors on-site. Modular also means that these reactors would be scalable like Lego bricks. Up to now, such scalability has been one of the main attractions of wind and solar. Combining the scalability of variable renewables with the reliability of nuclear allows the latter to more quickly meet steady growth in demand while maintaining security of supply. Better yet, very small modular reactors (VSMRs) could be deployed in remote Canadian regions that currently depend on dirty, expensive, undependable diesel generators. The VSMRs could be flown in via shipping container and remotely operated. With decades of experience in the nuclear sector, Russia is keen to develop the technology, but many developed, developing and emerging countries are understandably reluctant to lock themselves into dependence on Moscow for their energy needs for 30-60 years. Canada, which also has decades of experience with nuclear power, would be viewed as a much more trustworthy supplier.

There are a handful of start-ups in Canada and the US that are keen on developing the SMR concept. Some offer little more than paper technologies but other firms are larger or have more experience in related fields. But as with conventional large-scale nuclear, such companies need a great deal of government hand-holding to get their product across the bridge from concept to successful development of markets. As left-wing economist and advisor to UK Labour leader Jeremy Corbyn Mariana Mazzucato has argued in The Entrepreneurial State, far from the private sector being the locus of dynamism and innovation as we are regularly told, the private sector only finds the courage to invest after the public sector has made the high-risk investments. From microcomputers to mobile phones to biotech and pharma, it was in fact state bank-rolling of not just R&D, but government’s active creation of new markets that is responsible for most of the tech and medical wonders that surround us. It will be the same with SMRs, and while green think-tanks and NGOs embrace carbon pricing, a policy that explicitly says the market knows best, Brad Wall’s government is swimming upstream against this ideology and, yes, picking winners.

None of this is to say that Saskatchewan’s climate strategy is in all respects exemplary. There remain many, many problems. Wall’s belief that CCS will keep coal alive is likely as mistaken as British Columbian Premier Christy Clark’s wish and prayer that she can develop a liquefied natural gas industry in her province amidst a global glut. Wall cheekily says that all the nuclear plants around the world that use Saskatchewan uranium should be counted as emissions reductions that the province has implemented. This is never going to happen. For this sort of change in carbon accounting to occur, all the emissions of oil, coal and gas that are Canadian-sourced but combusted elsewhere would then have to count as Canadian emissions. And Regina’s resistance to new federal methane regulations is as much a flouting of the climate math as Edmonton and Ottawa’s insistence that oil sands can further be developed while keeping below 2°C of average global warming below pre-industrial temperatures. Worst of all, it’s not just electricity that needs to be cleaned up; transport and heating need to be decarbonised as well (presumptively by cleaning up electricity and then electrifying these sectors), but there is no mention of any of this. BC for all its problems at least has a series of electric vehicle incentives (albeit nowhere near as effective as those enacted in Norway, where more than a quarter of all new vehicle sales are electric).

But there is no reason to be demonising Saskatchewan’s climate strategy any more than that of any other province. Quite the contrary. Its focus on command-and-control intervention, grand public works to support new technologies, opposition to the most widely touted market-based emissions mitigation policies, and insistence that those least able to pay not bear the greatest burden, is in general the sort of thing required by a just transition.

Wall’s climate strategy is, even with its many lacunae, closer to any left-wing concept of climate justice than Climate Justice Saskatoon’s fart-catching for the green capitalists.

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(Much more could be said about how the white paper backs nitrogen-efficient crop varieties, no-till farming, and use of genomics to improve beef and dairy yield, all of which are important contributions to the climate discussion in agriculture, but this analysis on the energy policy aspects is already long enough as it is)

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