Part II – keep it in the ground (why market based solutions can’t save us)

Part I discussed Vista Coal in Alberta, and the federal refusal to conduct an EA. Like TMX, this is presumably based on the notion that the emissions will be regulated in the jurisdiction where the fossil fuels are burned.

This supports an endless shell game that allows the world to keep producing fossil fuels, blaming each other, and emissions continue to rise. In reality what it means for this coal is that it could end up being burned in many nations, some of which have a carbon tax or other policies in place, most of which do not.

Let’s first be clear – carbon taxes / cap and trade / market mechanisms, are better than nothing, and have generated some good results in some jurisdictions. I would argue that one of their key benefits in federal-state systems, like Canada, is that they are an opportunity to establish that the federal government has authority to regulate emissions (yet to be determined in Canada by the carbon tax reference cases (see my reflections on those here)).

Some of the issues with a carbon tax, and reasons that it has not realised hoped for results, are found here, where the authors point out that they are seen as the most “efficient” mechanism (I am about to argue otherwise, but it doesn’t change this point);

We question whether efficiency should be an overriding priority of climate policy. If we are to limit global warming to less than 1.5 °C, there is little time remaining to reach carbon neutrality (9). The negative impacts of climate change are already undermining human prosperity and the cost of inaction will escalate the longer we wait (10). Despite the urgency of the problem, carbon pricing places considerable weight on seeking low-hanging fruit and, according to Patt and Lilliestam, fails to appreciate that “we must eventually pick all of the apples on the tree” (11). Furthermore, as of 2019, existing carbon pricing schemes only cover about 20% of global emissions and more than two-thirds of these have prices below $20 United States dollars (USD) per ton of CO2 equivalent.* This is far too low to be effective and increasing coverage and prices presents serious challenges, which we return to below.

They also point out the drawback of this universalist approach;

Carbon pricing strategies tend to be predicated on the notion that, eventually, all emissions are covered so that all prices will be corrected such that no economic decision would escape carbon pricing’s regulatory impact (2). This means that all jurisdictions and economic sectors should be included, ideally with uniform price signals (6). In the absence of uniform pricing, there is a risk that some nations will free-ride on the efforts of others and that firms will relocate to places with lower or no carbon prices (i.e., “carbon leakage”).

Three issues confront this universal approach. First, the required levels of coordination and cooperation are unrealistic, as carbon pricing encounters a fragmented international climate policy landscape (20). In the absence of a global sovereign and considering the great diversity of national circumstances (where countries have different responsibilities for generating the problem, vulnerabilities, and resources to adapt and support mitigation), cooperation or convergence among emission pricing frameworks remain elusive. Second, a universal approach will require well-functioning institutional structures and high levels of regulatory competences and monitoring systems, which do not exist everywhere. Third, carbon pricing strategies tend to ignore that policies need to be tailored to local and/or sectoral contexts in order to address specific sources of lock-in and opportunities for innovation.

The authors go on to propose a wise and well thought out program, “sustainability transition policy” (STP), which “is predicated on the notion that a low-carbon transition will involve multiple and co-evolving social and technological changes” and is described as “STP emphasizes the rapid and effective reduction of emissions, system transformation and radical innovation, the development of context-sensitive responses, and the inherent political nature of decarbonization.”

STP is promising, but there is an even simpler answer: keep it in the ground. If a nation commits to reduce GHGs by 5% per year, they reduce their fossil fuel production by that amount. There are no loopholes, no trade-offs, no caveats – just results. The result of such a policy is GHG production declines.

There is a market element to it in that as supply diminishes the price of fossil fuels may rise – that’s great – then renewables become more competitive, eventually being the obvious choice, and their scale up will take on a life of it’s own.

This may seem simplistic, but you would think the problem that “we are putting too much carbon into the atmosphere” would have a simple solution: make less.

The next post will deal with how to write this into international agreements.

 

 

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