Lawrence Solomon
National Post
September 4, 2002

Now that Canada seems certain to commit to the Kyoto treaty by the end of the year, the choice before Canadians is stark. We can cut greenhouse gases in ways that gut the economy and impoverish Canadians – such reforms could cost 450,000 jobs, according to estimates from business lobby groups – or we can reduce gases by modernizing and liberalizing the economy.

Reducing our greenhouse gas emissions by 20% – a goal of the Kyoto treaty – is not a near-impossible technical feat that can only be accomplished at great cost to the Canadian economy, and to Alberta in particular. Reductions on an even larger scale can be readily accomplished while saving money and lowering taxes, while increasing wealth and productivity, and while reducing state intervention. Albertans would be winners along with almost everyone else.

Canada should have an easier time than most other countries in reducing our energy emissions because our industries are more wasteful than those of most others. Our entire energy infrastructure – Hibernia, the tar sands, natural gas pipelines and power plants – has become vastly oversized due to state subsidies of all descriptions. Remove the subsidies and the existing energy operations begin to shrink while new energy developments – most of them subsidy-dependent – largely disappear. Once this happens, our energy sector – among the largest in the world – will become leaner, Canada will become cleaner, and taxpayers will be pocketing the handouts governments had been giving our energy companies to encourage them to make risky investments.

Although Canada’s energy sector is bloated through subsidies, it nevertheless deserves credit for being a major net contributor to the Canadian economy. Not so for the rest of Canada’s resource economy, which would shrink to irrelevance without subsidies. Most mining, logging, and pulp and paper operations are marginal at best, while large-scale agriculture is wildly unprofitable – for every dollar of profits that a Canadian farmer earns, the agriculture sector receives $3.50 in subsidies.

Removing subsidies to these resource industries would do more than cut them down to size, it would impressively chop our greenhouse gas emissions because these sectors rank among Canada’s leading energy gluttons. The nitrogen fertilizer used throughout Canada’s agricultural lands depends on natural gas as a feedstock, for example, while mining and pulping operations consume inordinate amounts of all fossil fuels.

While the government was ending subsidies to the resource sector, it could end corporate subsidies across the board. The chief losers would be outdated steel companies and other smokestack industries whose usefulness to the economy has all but vanished. The chief winners, apart from the environment, would be the corporations and individuals now paying to prop them up. While ending subsidies would create dislocations, and one-time costs, these would be spread across the economy, and not be limited to Alberta.

Ending corporate subsidies alone would likely reduce Canada’s greenhouse gases by 1% or more per year – all that Canada would need to meet the time lines likely to be acceptable to Kyoto signatories. But further savings are available throughout the economy merely by doing what we should be doing anyway – ending the subsidies that ports receive to ship our raw resources, for example, and recovering the full cost of providing employment insurance to loggers and other seasonal workers.

The very largest reductions in emissions, however, would come from ending what may be the most wasteful product of all – free roads. Rather than willy-nilly expand the Trans Canada Highway, as the federal government plans to do, governments should end the free ride that Canadians have had on the Trans Canada and all other roads. Tolling our roads to recover the full cost of their construction and maintenance, even if we simultaneously reduced gasoline taxes, would greatly reduce the fuel consumed by vehicles by applying the forces of supply and demand to road use.

While gasoline taxes collect small fortunes from vehicle owners, the taxes do little to reduce the demand for road building because they don’t reflect which roads are used, and when. The modern toll roads now being built in Canada and around the world can send intelligent economic signals to drivers by charging vehicles more at peak times, and by charging cars much less than trucks, which cause most of the roads’ wear and tear.

Once roads are properly priced, the economy would slowly but profoundly adjust. To lower shipping costs, manufacturers would locate closer to markets, and to lower commuting costs – rush-hour commuters would pay $1 or more per mile travelled in high-cost areas such as Toronto – people would tend to relocate to work closer to home. Canadians wouldn’t necessarily own fewer cars – we would just use them less often in polluting stop-and-go traffic.

Less soot, less waste, more intelligent devices, more intelligent design. A more efficient society would rely less on raw resources and more on value-added services, employing fewer people to crush rocks and more to crunch numbers. A modernized economy has much to recommend it, whether or not the Kyoto treaty is the driver.