Cover

PROS AND CONS

Ratify Kyoto or go it alone? Two experts present their opposing views.

November 11 2002
Cover

PROS AND CONS

Ratify Kyoto or go it alone? Two experts present their opposing views.

November 11 2002

PROS AND CONS

Cover

Ratify Kyoto or go it alone? Two experts present their opposing views.

FEW ISSUES on the federal government’s plate are as confusing to Canadians or elicit as much controversy as its decision to ratify the Kyoto Protocol, which calls for this country to reduce its greenhouse gas emissions to six per cent below 1990 levels by 2012. To get a sense of the arguments on both sides, Maclean’s Ottawa Correspondent Julian Beltrame brought two prominent spokesmen together to discuss their differences. Robert Hornung is policy director of the Drayton Valley, Alta.-based Pembina Institute, an environmental research group that favours ratification. Jayson Myers is chief economist of the Ottawa-based Canadian Manufacturers & Exporters association, which rejects the Kyoto approach.

Maclean’s: Can we begin by agreeing that global warming is a serious enough threat that governments should start working on a solution to address it?

Hornung: The scientific case is quite strong now.

Myers: Yeah, it’s a serious issue. There are still some scientists who debate it, but I think it makes sense to reduce greenhouse gas emissions.

Maclean’s: So is

Kyoto the answer?

Hornung: It’s a first step to the answer. If

we’re going to deal

with greenhouse gases, we have to deal with them within a global format and Kyoto is the only game in town. It’s clear we need some international, binding obligation because we found that relying on voluntary approaches hasn’t gotten us very far. Canada made a commitment in 1990 that it would stabilize its greenhouse gas emissions at 1990 levels by 2000. By that year, they were actually 20 per cent above those levels.

Myers: I agree we need an international approach, but that means everyone, including developing countries like China, India, Mexico and Latin American countries where emissions are rising rapidly. They are not now subject to Kyoto emission-reduction targets. And we certainly need participation from the United States, which is not part of Kyoto. But more than that, I don’t think Kyoto will actually reduce greenhouse gas emissions. The only way we can do that, without limiting or capping economic growth, is through accelerating technological progress, by making sure we have more

efficient technologies and new sources of energy. It’s not realistic to expect those technologies to be in place withing the Kyoto time frame. Hornung: Let’s go back. All countries agreed in 1992 that industrialized countries would take the first step. The reason was that at least 80 per cent of the emissions in the at-

mosphere came from the industrialized countries, so it’s only fair. Once we’ve shown we’re serious, developing countries have to come on board, absolutely. As for technology, there’s no doubt technology is a key, but there’s a false impression when people talk about new technologies. We have all sorts of technologies that we’re not using. We know how to build homes much more efficiendy, how to build more efficient vehicles. We know how to produce electricity more efficiently. We can go a long way toward meeting our Kyoto target by 2010 with existing technologies. To meet the bigger emissions reductions in the longer term, yes, we’re going to need new technologies and we should be starting to make investments in that now.

Maclean’s: So is waiting for new technology to come on stream a cop-out?

Hornung: In a sense, yes. Some of those people, like the Alberta government, who say, ‘Let’s make investments now in new technology that will help us in the future,’ they’re really saying, ‘Let’s delay action to, say, 2020.’ Alberta’s alternative to six-per-cent reduction from 1990 levels is emissions that are 39 or 40 per cent higher than in 1990. Those aren’t alternatives, they’re not even in the same ballpark. There’s a valid argument that we need new technologies, but we also need to be focused on what we can do now.

Myers: There are technologies coming on stream in the next eight years, but the fact is these aren’t likely to be in place within the Kyoto time frame. The Kyoto targets are unrealistic. You can’t establish a new power generating unit overnight. A company does not replace all its capital equipment or install a new energy-efficient process overnight. Us consumers, we’re not going to buy better refrigerators or more fuel-efficient vehicles overnight. The strategy of moving to these alternative technologies is not a stalling

strategy. It is what will actually reduce emissions in the future. Hornung: It seems to me we’ve already wasted a lot of time. Myers: But our focus is wrong. We shouldn’t be talking about ratifying Kyoto, we should be talking about implementation. To meet Kyoto, we’re talking about a domestic emissions trading system. This doesn’t cut emissions; it’s passing the buck.

Hornung: I think it’s reasonable to have some kind of flexibility. If someone says, ‘Well, I can’t reduce my emissions in the short term without paying a huge cost, so I’ll pay someone else to do it at half the cost because they’re ready at this time,’ it makes sense. Society benefits overall.

Myers: It also increases the cost of doing business, and that’s not a good thing. We want to encourage companies to restructure to actually reduce emissions, so we should be thinking about commercializing strategies for existing renewable resource technologies and new renewal energies so we can take advantage. What’s happening in fuel-cell technology is the typical Canadian story. While we’re investing heavily in research and development, the commercialization and testing are being done in the United States. That’s where the economic opportunities will come.

Hornung: How serious is the competitive concern really? One economic model says the impact of Kyoto on oil is going to be three cents a barrel. That’s not going to cause someone to leave the country. There’s a difference between short-term competitiveness and long-term. We know that investing and becoming more efficient actually benefit us in the long run. We know that as we move down the Kyoto road to the next stages, the demands for reductions in

greenhouse gas emissions are only going to increase. Looking at a future marketplace, we know there’s going to be a demand for people who can provide goods and services with less of an environmental penalty. So making those investments will only improve your competitiveness in the longer term.

Myers: Well, I wouldn’t underestimate the competitiveness problem. Before we talk about the long term, we have to make sure companies are going to be around for the long term. Profit margins are pretty thin right now in the middle of an economic slowdown. If we’re going to increase the cost of doing business—with no tax incentives that could make it easier for industry to adjust—then the signal we’re sending out is going to affect investment decisions, and the impact could be quite large. This means a loss of production from Canada to the United States or Mexico, and that just means we’ll be exporting greenhouse gas emissions to other countries. That certainly doesn’t benefit the environment.

Maclean’s: The Canadian Manufacturers & Exporters group has predicted Kyoto could cost 450,000 jobs in manufacturing alone by 2010, but does anyone have a firm grip on the costs?

Hornung: No. Anybody who says they have the definite number is lying. We use economic models to make projections. The best you can do is look at the range of results. The range shows that over 10 years, GDP, instead of growing 30 per cent, grows somewhere between 28 per cent and a little above 30. One thing we can say is that range is probably an overestimate of costs because economic models don’t capture co-benefits, like if you reduce greenhouse emissions, you reduce fossil fuel use, so you also reduce other pollutants that have an impact on, say, health-care costs. More importantly,

these models can’t predict innovation. Ifyou look at the [1987] Montreal Protocol to control ozone-depleting substances, what did the models show? The end of the chemical industry. What happened? The chemical industry ended up being the guys who developed the new substitutes and made a lot of money.

Myers: Sure, models are only as good as the assumptions that go into them. Our job-loss estimate is based on the assumption that it’s business as usual in terms of technological progress. No model can assume innovation. But what tends to be lost is the close relationship between greenhouse emissions and economic growth. As the economy grows, so do emissions. Over the last 20 years, emissions have grown about half a per cent less than GDP. Well, to meet the Kyoto target, we’re going to have to increase technological progress by nine times the current rate. Is that realistic? Look at the vehicles we drive. If we had a fuel-cell-powered vehicle on the market today, emissions from vehicles would still not be stabilized by 2010. That’s because a lot of us have cars that we’re not going to take off the road unless we have a very powerful incentive to do so, and a lot of us will continue to buy cars that are not fuelefficient.

Hornung: Transportation is the toughest challenge. But we can provide alternatives to the car, we can provide different fuels and we can encourage people to use their cars differently. Over the last 20 years, we’ve seen people buying more fuel-inefficient cars like SUVs, rather than fuel-efficient vehicles, and we’ve seen people driving more. We have to reverse those trends. I agree with Jayson that we shouldn’t throw the economy into a tank just to comply with Kyoto. But we think we can achieve environmental improvements at minimal economic costs.

Maclean’s: Who should pay those costs, minimal or not?

Myers: At end of the day, every Canadian is going to pay, either through higher taxes, higher energy bills, having to pay more for cars and appliances, higher consumption costs, or through unemployment.

Hornung: Yes, the costs probably do get passed on to consumers. Consumers may have to pay higher energy costs, but that doesn’t necessarily mean higher energy bills. You can make an investment that actually reduces your energy bills—better insulated homes, for example. As for governments—let’s say they offer incentives to industry. Well, if those lead to more efficiency, that may actually increase tax revenues. You can’t look at costs in isolation.

Maclean’s: So, are you saying Kyoto may be good medicine? Hornung: Absolutely. Royal Dutch/Shell estimates that 50 per cent of the world’s energy needs in 2050 will come from renewable energy sources. If we want to remain a major producer in the global energy market in 2050, we’d better think of what we’re going to do. Are we going to sink all our resources into the oil sands, the most carbon-intensive form of petroleum production, or are we going to say we should be investing in some other forms of energy production that will have a bigger share in the future market?

Myers: We have to cut greenhouse gases, but in a way that makes sense. It makes sense to set our own targets and work with the United States on joint programs to develop new technology. It makes more sense to do that with our major trading partner than work with countries that we don’t really do that much trade with.