Friday, April 17, 2009

Cap and Trade Sucks - Get Real Alberta and Start Taxing Carbon

There is lots of buzz about cap and trade as a scheme to reduce carbon emissions. I think it is merely wealth transfer and a petrie dish to grow a culture of more corporate corruption. To get some context read Stephen Murgatroyd's blog post on the subject.

This Edmonton Journal story on the Alberta perspective on carbon pricing is more context. And we are being told Canada has to rationalize with the US standards - and Obama is pushing cap and trade too.

The $2B Alberta investment in carbon capture and storage is pretty impressive. The Americans ponied up $1B for CCS and the Chinese are into it for $6B but look at the investment per capita and Alberta is definitely a leader in this effort. That is a longer term and capital intensive solution and will not solve the political issue of cap and trade versus carbon tax options.

This issue of how to respond to the CO2 emissions puts Alberta in the political, ecological and fiscal cross-hairs big time and on a world scale. We have dipped our provincial toes into the CO2 emissions issue with some legislation that is timid and tepid and hopefully temporary. We tax carbon now at $15 a tonne based on intensity targets. That is a start but the political credibility of this policy has lost its lustre long ago. As we grow the oil sands we allow emissions to grow in absolute terms and that is not a viable solution to the GHG issue for Alberta.

The experts say the real cost of CO2 is about $125 a tonne so we have long way to go to get realistic about paying the piper and not passing the problem on to future generations. Alberta Environment Minister Renner questioned on the Alberta price of carbon is quoted as saying: It probably would do better if it were higher." You bet Mr. Minister.

The perennial concern is what happens if Alberta pays a realistic price for carbon and others do not. Will our economy will suffer? That is known as the "Edge Effect" where everyone knows what is the right thing to do but can't agree on the right time to do it. I'm hoping Alberta takes the first serious step and taxes carbon as a carrot and a stick to get serious about encouraging new technologies and penalizing those who refuse to invest to reduce their carbon footprints.

A made-in-Alberta for Alberta carbon tax keeps the cash in Alberta. Transferring wealth out of Alberta with a cap and trade policy to pay who knows what for what kind of flaky schemes that alleged ecological advantages is stupid and breeds greed and corruption. Surely we have seen enough of that these days with the market meltdown. We are all enduring this recession/depression thanks to the under-regulated American financial system and the breathtaking personal greed and corporate corruption in that sector.

Albertans want the problem solved here - not just a fiscal surcharge penalty that somehow absolves us of the duty to adapt our economy to better serve the environment. The best way to do that is to park the ideological posturing about taxes and use taxes to change behaviour. We know that works and it is easier to monitor and evaluate effectiveness.

That way the money raised with such a tax stays in Alberta to foster investment in things like a state of the art mercantile upgrader so more bitumen gets processed here with jobs and value added benefits here too.

I think we Albertans need to get that comprehensive carbon tax happening now and stifle the efforts of those who are pushing a wealth transfer away from Alberta with their cap and trade ecological schemes and bad economic dreams.

It will not solve the Alberta emission challenges and only penalize our economy. Beat them to the punch and put in a realistic tax on Alberta carbon now Premier Stelmach.


  1. Joey Hundert11:30 am

    Ken, who do you trust to dispense of the funds raised through the tax? Our innovation infrastructure is jammed already. Who would be able to appropriate funds to the right technologies without skewing the innovation market place?

  2. When we did a consultation with the oil and gas industry in 2007 they said $15 a tonne was a business cost - $45 a tonne was a requirement to change...

  3. Anonymous6:03 pm

    This debate is only going to intensify moving forward as a tax on carbon is some form is surely on the way.

    I think we need to make our own rules not have them imposed on AB by the feds or Yankees.

    I agree that AB needs to keep funds from a carbon tax in the province for future investment. The question is how, the devil is in the details.

    I suspect that a carbon tax would only be acceptable to the public if it was clearly communicated that all funds would be used to build Bitumun upgraders, CCS and renewable energy infrastructure in AB.

    I don't like the idea of the govt. picking technological winners and losers. Petro-can is really the only example you need of how not to do it. Ken you have indicated how Epcor and the former encana have been successful. It depends on the structure of these public/private companies.

    I'd be interested to read more about these public/private companies on your blog.

    What possibilities exist for this to be done in concert with a tax??

    the debate will rage on i'm sure!!


  4. Anonymous7:46 pm

    What kind of a "conservative" would talk about taxing carbon? This was Stefane Dion's ridiculous idea and was soundly rejected by people coast to coast.

    What a joke, Ken.

  5. Approprite taxation used to provide for public services for the common good including conservation of the environment is never a joke.

    Anyone limited in thinking by an ideological strait-jacket and are so shallow in their convictions and beliefs they have to be anonymous commenters on blogs are the real joke.

  6. Thx for the suggestions Jarritto on future posts - I will look into how to use your idea.

  7. One Alberta Voter6:48 pm

    There is much to be said on both sides of the carbon tax vs cap and trade debate. It is important to remember that the two are not mutually exclusive and an elegant mix of elements might help us to draw on the best of both systems. Make no mistake about it, however, either system is going to cause a significant rise in the cost of energy from carbon-emitting sources. That's the whole point, to disadvantage those sources and give a competitive advantage to clean energy sources.

    I do not understand the Alberta government's attempt to limit a cap and trade system to within the province only, recited by Rob Renner in the Edmonton Journal article. Aren't we supposed to be freemarketeers and free-traders? An open market in carbon will, like any other open market, function more effiicently and cheaper than a closed, protected market. If we are going to go with cap and trade, we should be thinking on an international scale.

  8. Anonymous10:59 am

    One Alberta Voter: The keep it in Alberta idea means real CO2e reductions in Alberta, which means less money leaving the province in future, which means - hopefully - we come out stronger. Yes, a wide open market will be cheaper initially, but the fear is our resources get extracted, CO2e emissions in Alberta stay high, companies write off the costs (or pass them on) and Albertans get left holding a gas-filled bag while emissions traders in Toronto, New York, etc., laugh all the way to the bank in their hybrid Hummers.
    To hell with that. If we're going to pay, we get to play, period. And you know what? Bet even highest-return motivated industry would still pay more for Alberta credits (within reason) that might lead to lower carbon costs for them in the future. Not every CFO is focused on this quarter, this fiscal year. Nor are smart investors.

  9. One Alberta Voter11:50 am

    Anonymous, I don't take for granted at all that the new carbon markets that are being developed wil operate perfectly, and maybe not even well for a while. Nevertheless, political and market pressures should pressure them to work incrementally to improve.

    Given that, providers of carbon credits should be motivated to provide a quality product (i.e., real, verifiable carbon reductions or offsets)and low prices. Those who can will attract business. If those Alberta operators who want to purchsse that product are forbidden from doing so, having their choice restricted to "Alberta-grown" credits, they may be forced to buy sub-standard or more expensive products. That is both uneconomical and discourages the pressure to improve internationally.

    Your point about Alberta getting stuck with emissions is a matter of appearances (and yes I know that appearances rspecin environment on on a lot of Albertan minds right now). If in reality Alberta continued to emit a disporportionate amount of carbon, but that generated the financing to spur a boom in cost-effective carbon management elswhere in the world, the overall world carbon picture (and that what really matters) would benefit.

  10. Anonymous5:57 pm

    Well, no, One Alberta Voter. If Alberta continues to emit a disproportionate amount of carbon, relying on paying for real reductions elsewhere, it will eventually pay itself out of options, and face mandatory production cuts here anyway, right? I mean, pay others to cut until there's no one left to cut, and yer kinda screwed, aren't you?
    The end game is inevitable if you play it the carbon freemarket way. Alberta must change the game in the opening moves, or it loses - the only question is how long it will take to checkmate.

  11. Anonymous12:57 pm

    I am against both cap and trade and a carbon tax. They both represent increased costs to producers and consumers in terms of the physical costs of the product, the cost to administer, the impacts of trade, competitiveness and upon our provincial and national balance of payments. And yet given this cost, their effectiveness to date in other jurisdictions is a matter of debate. For me, the "green" return on investment is not clear, it is risky and simply not satisfactory.

    I propose something else entirely. It requires a certain level of regulatory compliance but nothing beyond what companies already do in terms of compliance with industrial health and safety regulations, financial reporting systems and internal quality systems or third party audited quality systems.

    It is a concept called “Carbon Labeling”. It simply requires a manufacturer to list the amount of CO2 produced per unit of production. Let us use a cheese producer as an example. The company would disclose that they are producing say 10 g of CO2 per every kg of cheese produced. This would be disclosed on their packaging.

    Now I, as a consumer, have another piece of information that I can consider in my purchasing decision. I have price, I have “brand” and now I have an accurate piece of environmental or ethical information that I can use to compare one brand of cheese with another brand of cheese.

    This will create a MARKET DRIVEN PULL for low CO2 impact cheese products. It will create another incentive for companies, when upgrading their cheese production facilities, to select smaller footprint, more energy efficient production processes knowing that they can capture a higher return on this investment based on higher sales volumes or price premiums versus their higher CO2 footprint competitors. And if they still want to voluntarily purchase carbon credits, they can, to lower their carbon label number even further.

    It essentially allows Consumers/Customers/Markets to drive change and to allocate resources efficiently rather than governments imposing clumsy, costly and to date ineffective mechanisms for change that only encumber markets.

    Empower the individual, not the government!

    The EU and California are embracing a concept similar to this except that they are imposing limits by legislating maximum CO2/100 km targets. It is really just carbon labeling with an enforced limit. The California Air Emissions Quality Board is now the bellweather regulatory agency in the US and there are at least 24 other states that typically follow California limits with more states joining all the time. The EPA usually lags considerably.

    The California Air Emissions Quality Board is the Silent Killer laying in wait for the Alberta Oilsands and will be more effective in driving change than will anything else.

    Kevin Aschim