Let’s be honest — price to pay for reducing greenhouse gas emissions

Posted By Ben Eisen

Posted 3 months ago

The David Suzuki Foundation and the Pembina Institute recently released an analysis of the economic impact of greenhouse gas targets on economic growth in Canada. The report advocates the adoption of a punishing "price on carbon," which would act as a tax on virtually everything, along with several other expensive policies designed to reduce emissions. The authors argue for the implementation of a policy bundle designed to cut emissions by 40 per cent by 2020, which they estimate would cost more than $200 billion in lost productivity over the next decade.

The report's analysis can be questioned for a few important reasons. For example, it relies on an optimistic view that the Canadian economy will quickly adapt to new regulations and that government investment and oversight will efficiently enable the development of renewable sources of energy.   

Despite these issues, the authors are at least honest by unequivocally stating aggressive greenhouse gas reduction policies would considerably slow the rate of economic growth in Canada if enacted.

For years, the quality of the policy debate surrounding climate change has been lowered by the "something-for-nothing" crowd (which the Suzuki foundation was once a part of). They claimed ambitious greenhouse gas reductions could be achieved with minimal consequences for economic growth. Describing the notion that there is a significant trade-off between emission cuts and economic growth as a "myth," groups such as the Greenpeace and the Green Party of Canada have consistently understated the costs associated with substantially reducing emissions.

The notion that large greenhouse gas reductions can be achieved at minimal cost is obviously attractive, which is why advocates of tighter regulations and emissions caps promote it. The Suzuki/Pembina report, commissioned by the Toronto Dominion bank, confirms this notion is a fantasy.

This reality comes as no surprise to most adults who realize that most decisions involve the calculation of tradeoffs between competing goods. More hours spent at work can mean more money, but less time spent at home with the family. Ice cream is delicious, but too much of it will make you obese. Most decisions that we make, in our personal lives and in public policy, require us to make tradeoffs between two or more things that we like. Carbon pricing is no exception to this general rule, and the unalterable fact is that aggressive greenhouse gas emission reductions can only be achieved at the cost of significant economic growth.

The cost of aggressive emission reduction, as estimated by the Suzuki/Pembina report, is very large. The authors state that, due to slower economic growth over the next decade, the Canadian economy would be 3.2 per cent smaller in 2020 than it would be if Canada pursues "business as usual" policies. This means that the recommended policies would lead to approximately 50 billion dollars in lost economic activity in the year 2020 alone. That's an average of $1,400 of lost production for every person in Canada, every year, in perpetuity.

Clearly, there are large costs associated with meeting ambitious emission targets. However, the report argues that Canada should proceed with aggressive emission reduction policies despite this eye-popping price tag.

Many reasonable people, this author included, disagree with moving ahead with the report's policy proposals for several reasons.  For example, the unintended consequences of such policies are impossible to predict. The likelihood of unpredicted adverse effects from such a dramatic shock to the energy market makes the proposed policies risky.

Furthermore, the policy bundle includes command-and-control style regulations on vehicle emissions, building codes and appliance manufacturing. Such policies represent an unfair and inefficient approach to emission reduction and produce hidden costs to consumers which are not captured by the report's models. Lastly, even if the cost estimates are accurate, the benefit of the policy package — a reduction in global greenhouse gas emissions of less than one per cent — is not worth hundreds of billions of dollars worth of lost economic activity.

Despite its ultimate support of policies that are ill-advised, this report at least lays out a starting point estimate on the cost of policies intended to curb greenhouse gas emissions.

By eschewing the strategy of tempting Canadians with promises of "something for nothing," and instead arguing for caps on emissions on the grounds that they are simply worth the enormous costs associated with them, Suzuki and Pembina are at least honest. The authors deserve credit for helping to move the policy debate away from dubious promises of a "free lunch" and towards an honest evaluation of the costs and benefits of proposed carbon reduction policies.  

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