Energy Probe

Lawrence Solomon/ Mark Jaccard
National Post
June 10, 2006

Two recent FP Comment columns make the case that Canada should have no policies to reduce greenhouse gas (GHG) emissions. Lawrence Solomon argues that eliminating government subsidies throughout our economy would reduce energy use enough to reduce our GHG emissions. Terrence Corcoran argues (as I do) that the Canadian policy reliance on subsidies and information to reduce GHG emissions has been ineffective, but he disagrees with my policy alternative – a gradually rising emissions tax or a gradually tightening emissions regulation over the next few decades. He argues that the best government strategy for the time being is to follow Mr. Solomon’s advice and do nothing but cut government subsidies throughout the economy, while waiting to see if a future Isaac Newton will prove definitively that human activity is changing the climate.

These entertaining columns provide useful challenges to conventional thinking. But they also have some critical challenges themselves.

Mr. Solomon provides no numerical estimates for the GHG emissions reductions that would result from an end to government subsidies, but this can be roughly calculated. The economy in Canada and globally is driven by the use of fossil fuels. The easiest way to get energy from fossil fuels is to burn them, which produces carbon dioxide, the most important GHG emission. If we removed subsidies in our economy, would people combust fewer fossil fuels and emit less carbon dioxide?

The likely answer is that there would be little change. First, it is unlikely we would replace fossil fuels with alternative sources of energy because we also subsidize nuclear power, hydro power, and other renewables such as wind and biomass. Production cost data (with subsidies removed) indicate that fossil fuels would remain the fuel of choice for Canada and the planet.

Second, it is also unlikely we would use much less energy. If we remove the subsidies, we would presumably also remove the taxes we collect from fossil fuels. Refined products such as gasoline are the most heavily taxed commodities in our economy. Even if we kept high taxes on fossil fuel consumption, research shows that people place a high value on the services they get from energy and would continue to consume large amounts.

Mr. Corcoran inadvertently supports this point when he argues that raising energy taxes will not significantly curb consumption, citing recent oil price increases in support. But if energy price increases because of tight market conditions will have little downward effect on demand, why would comparable energy price increases because of subsidy removal have a downward effect?

Both Mr. Solomon and Mr. Corcoran focus on our use of energy as the issue when it comes to the risk of climate change. Herein lies the problem. The risk of climate change is an environmental concern related in large part to how we use energy, not to how much we use. If carbon dioxide emissions are causing detrimental climate change, this is a market failure that requires some action by government – provided the benefits of such action are likely to exceed the costs.

Mr. Corcoran critiques my policies for reducing GHG emissions by saying they will lead to higher energy prices with little affect on energy use. I agree that there will be little effect on energy use. Again, the important issue is the effect on emissions.

Industry leaders, governments and increasingly the environmental community are beginning to recognize that we can use fossil fuels without emitting GHGs and without significantly higher energy prices. In my book, Sustainable Fossil Fuels, I summarize the evidence from industry and independent researchers showing that policies that constrain GHG emissions by financial penalty or regulation would motivate the electricity industry (to take one sector as an example) to shift over the next few decades toward zero-emission generation of electricity using coal, natural gas and perhaps other fossil fuels (in addition to more nuclear and renewables). The price of electricity over this period would rise by less than 1% per year with prices in 50 years no more than 25% to 50% higher than today. Electricity use won’t fall appreciably. But emissions will.

Mr. Corcoran refers to these as “get -tough policies.” But how tough are electricity price increases of about 10% over the next 10 years as we learn more about the climate change risk? Taking the case of automobiles, industry data suggest that the California vehicle emission standard of 1990, which resulted in today’s hybrid car and advanced the development of fuel cell vehicles, raised the selling price of vehicles everywhere by perhaps $20 to $50 (to pay for research, development and marketing of low emissions cars). Compare this to an average selling price of over $20,000.

Allowing ourselves to continue installing new long-lived equipment, factories and infrastructure that uses fossil fuels and emits GHGs, even though we know that for a reasonable cost we could begin to shift these investments toward zero emission technologies, is tantamount to saying that we are absolutely certain we are not changing the climate. But since we are uncertain, as Mr. Corcoran admits, we should approach the issue in the same way that businesses approach risks in their daily decisions.

A business leader cannot afford to say, “I will only make this risk reduction expenditure if every one of my safety engineers is absolutely certain that a hideous accident will otherwise occur.” Likewise, humanity cannot say, “We will only incur costs to reduce climate change effects or their probability when we are certain the effects will be devastating and that their probability is 100%.” This is no way to run a business – or a planet.

Mark Jaccard is professor of resource and environmental management at Simon Fraser University and author of Sustainable Fossil Fuels: The Unusual Suspect in the Quest for Clean and Enduring Energy.

Larry Solomon responds

A true believer in government

by Lawrence Solomon, National Post, June 10, 2006

Academics, policymakers and regulators can succumb to fads as easily as anyone. Honourable people admit their mistakes and move on, and hopefully learn from their experiences.

Marc Jaccard is such an honourable person, but he hasn’t learned from his mistakes. He still strives to correct “market failures,” not recognizing that they seem always to occur in government-dominated sectors and because of government intervention. He still tries to use government to influence energy consumption, although he realizes government has often done more harm than good. He still ignores data from those whose viewpoints don’t correspond to his, all the while deploring their absence of data.

In the 1990s, Mr. Jaccard was in thrall to one of the biggest and wonkiest fads going in the energy game, demand side management. If you don’t know what this jargon means, you have nevertheless seen it in action and probably participated in it, to doubtful outcome. A DSM program gave you those energy-efficient lightbulbs or water-saving showerheads that now clutter your basement storeroom.

A DSM program provided the subsidy that convinced you to buy a new energy efficient fridge, expecting you to throw out your old fridge and save society some energy. Only your old fridge ended up in your garage as a beer fridge, and you now have two fridges, consuming more electricity than before.

If you lived in British Columbia, DSM came to you courtesy of Mr. Jaccard. As chair of the British Columbia Utilities Commission, he became one of the country’s leading exponents of DSM programs, and, because he could also impose his policies on society, waste was the outcome. In this he was not alone – the great majority of energy experts were then caught up in the DSM mania, disregarding the relatively few dispassionate voices that argued otherwise (I am proud that Tom Adams, my colleague at Energy Probe, was among the very first, in 1990, to expose the sham of DSM programs).

To his credit, Mr. Jaccard has seen the light. Now, along with most of the best brains in the energy business, he realizes just how dim DSM can be, and himself exposes it. He doubtless wonders how he could have been taken in by programs that proved so spectacularly wrong, and how he could have ignored so much evidence from the Tom Adamses of the world that proved so spectacularly right, particularly when the evidence was submitted directly to him in his capacity as BC’s electricity regulator.

Yet although Mr. Jaccard has seen what grief comes of following the herd, he is again ignoring incontrovertible evidence from impeccable sources, this time over greenhouse gas reduction, the gargantuan new rage among energy analysts.

In his response to columns by Terence Corcoran and me on the best way to deal with the greenhouse gas issue, Mr. Jaccard once more sees evidence of “market failure” in a market dominated by government intervention, once more selectively sees the data he’d like to see and blinds himself to the rest, including facts and the data from impeccable sources.

Take David Pimentel, whose data I cited in my column. Mr. Pimentel is the leading critic of ethanol production, the chief government program that promotes an alternative to gasoline. Mr. Pimentel could not have better credentials. This Oxford, MIT, and Cornell-educated agricultural scientist helped establish the U.S. Environmental Protection Agency, he has been chairman of the Environmental Studies Board in the National Academy of Sciences, he has served on 12 of their distinguished panels, and he is the former chair of a U.S. Department of Energy panel that investigated the efficiency of ethanol production. His more recent ethanol findings have been published in the authoritative Encyclopedia of Physical Sciences and Technology.

Yet Mr. Jaccard, in criticizing my column, shows no interest in Pimentel’s data, acting as if I hadn’t even presented data.

“Every time you make one gallon of ethanol, there is a net energy loss of 54,000 BTUs,” Mr. Pimentel calculates for the U.S. market (in Canada, where ethanol crops have a lower energy yield, the loss would be greater). In the real world, this energy loss leads to more tar sands, Arctic pipelines, and coal plants, and thus to more carbon dioxide.

In the world Mr. Jaccard inhabits, wasteful government policies that inefficiently increase fossil fuel use are of little account because, in the next 50 years, his pet technology will become economically viable and rampant energy use will fade in importance.

Mr. Jaccard asserts that government penalties, properly applied, will motivate industry over the coming decades to invent zero-emission coal-burning technology at a cost that is a mere 25% to 50% more than today.

While he peers into his crystal ball, he criticizes Mr. Corcoran as fanciful for thinking that inventions will continue to occur without government prodding. Mr. Jaccard also believes energy costs should rise, although the history of the world shows the costs of energy (as well as every other major resource) to consistently decrease while becoming ever cleaner.

Only a true believer could share Mr. Jaccard’s faith that the future should depart so dramatically from the past, and that government will in future do so much right where before it has done so much wrong.

If the world were run on a businesslike basis, Mr. Jaccard claims, it would protect itself against a possible calamity such as global warming. This analogy, though often recited, is always wrong. No CEOs would sign blank cheques to avoid undefined risks for undefinable benefits centuries into the future, especially when the governments that would be charged with mitigating the risks had a proven track record of making matters worse.

Lawrence Solomon, author of the forthcoming book Toronto Sprawls, is executive director of Urban Renaissance Institute and Consumer Policy Institute, divisions of Energy Probe Research Foundation.; www.urban-renaissance.org.

Lawrence Solomon
National Post
May 31, 2006

Prime Minister Harper needs an alternative to Kyoto. Just about everyone seems to agree that our government can’t just do nothing about greenhouse gas emissions.

But what if doing nothing is the best way governments can reduce emissions?

Just about everything our governments do, have done and plan to do in the economy increases emissions. This is the unintended but inevitable consequence of government activities which, by their nature, decrease the efficiency of our economy and cause us to do less with more – including more carbon dioxide and other greenhouse gas emissions.

This maxim applies to energy policy and to environmental policy, to tax policy and to economic policy. It applies to the federal and the provincial and the territorial and the municipal levels of governments. Just about everything in the economy that they do, just about everywhere. This is why our greenhouse gas emissions have been rising, and why they have been rising more in Canada than in (relatively) do-nothing governments such as those in the United States. If the U.S. government did more, U.S. emissions would be higher.

Look at energy policy. We subsidize the development of Arctic pipelines and offshore oil. We subsidize long-distance transmission of power. We subsidize the expansion of the natural gas grid. The government-created energy glut that then results is soon soaked up as industry discovers new ways to consume it, all of which lowers the cost of fuels to the consumer and discourages investment in energy-efficient technologies. Meanwhile, governments do their best to increase consumption by keeping energy prices down. Some provinces have price controls on gasoline, others subsidize natural gas, most sell power at cost through subsidized Crown agencies.

Governments increase carbon dioxide emissions even when they say they’re doing the opposite. Our governments are embarking on a crash program to run cars on ethanol, billing this as a way to reduce our dependence on oil. In fact, the greater our ethanol use, the greater our oil dependency. It takes 75% more energy to grow, crush, ferment and distill corn into ethanol than the ethanol itself contains. The more ethanol we burn, the more tar sands, Arctic gas and coal mines we’ll need.

We don’t just subsidize the energy industry, we also subsidize everything with a gas tank. Our auto manufacturers are big recipients of tax dollars, as are railroads and shipyards and, of course, Bombardier jets. We subsidize our ports and our airports.

We especially subsidize the rural resource industries – pulp and paper, mining and agriculture – Canada’s leaders in greenhouse gas production. Agriculture alone accounts for almost one-seventh of Canada’s emissions, according to the federal government’s Greenhouse Gas Emission Summary. We so love these resource emitters that they merit direct subsidies as well as layer upon layer of indirect subsidies through the tax and regulatory systems. The Employment Insurance system has special provisions for resource regions, to keep as many resource workers at maximum exploitation levels. The equalization system among provinces likewise maximizes resource depletion. These payments chiefly transfer wealth from Canada’s most industrialized and least resource-dependent province, Ontario, to the more rural resource-reliant provinces. Within Ontario, the wealth is likewise transferred from the energy-efficient urban economy to the energy inefficient rural regions.

Within cities, the government bias toward consuming fuel continues. The city of Toronto, for example, directly and indirectly promotes the private automobile through hundreds of bylaws and regulations. With few exceptions, the city strives for a car-friendly city at the expense of tenants, businesses, pedestrians, cyclists and transit users. Apartment buildings, for example, must provide surplus parking for cars, even when they are located at subway stops and even when their tenants take transit. The expense of the unneeded parking facilities drives up rents for tenants and drives down costs for car use. Likewise, neighbourhood coffee shops must provide car parking, even when the coffee shops cater to locals.

Cities ban private transit operators, who would provide faster service and more direct routes at lower cost, and they ban the use of shared taxis, which would accomplish much the same thing. They simultaneously limit the number of taxicabs on the roads, all of which tells the public that the only way to get good service is to obtain a private automobile.

Although some government programs reduce carbon dioxide emissions – investments in sidewalks, for instance – these are few and far between, and low-ticket items. The great mission of government is to boost the ratio of machine exhaust per unit of economic output. Numerous recycling programs, though billed as energy savers, in fact lead to extra energy consumption. Even energy conservation programs turn into energy consumption programs, thanks to a well-documented “rebound effect” – programs to subsidize energy-efficient fridges not only spur new purchases for the kitchen, they simultaneously lead to beer-fridges in the basement. The expectation of government conservation programs also lead people and businesses to postpone money-saving investments in insulation and other energy-efficient technologies. Without such government programs, the energy- and money-saving technologies would be installed earlier, and less energy would be consumed overall.

Trim government programs, almost any government program, and you’ll trim greenhouse gas emissions. Stephen Harper: A do-nothing agenda is the only viable Kyoto alternative. Your three Rs shouldn’t be to reduce, reuse and recycle products. They should be to reduce, repeal and rescind government programs.

Lawrence Solomon, author of the forthcoming book Toronto Sprawls, is executive director of Urban Renaissance Institute and Consumer Policy Institute, divisions of Energy Probe Research Foundation.; www.urban-renaissance.org.

Response from Mark Jaccard

Just do nothing?: Climate change debate

by Mark Jaccard, National Post, June 10, 2006

Two recent FP Comment columns make the case that Canada should have no policies to reduce greenhouse gas (GHG) emissions. Lawrence Solomon argues that eliminating government subsidies throughout our economy would reduce energy use enough to reduce our GHG emissions. Terrence Corcoran argues (as I do) that the Canadian policy reliance on subsidies and information to reduce GHG emissions has been ineffective, but he disagrees with my policy alternative – a gradually rising emissions tax or a gradually tightening emissions regulation over the next few decades. He argues that the best government strategy for the time being is to follow Mr. Solomon’s advice and do nothing but cut government subsidies throughout the economy, while waiting to see if a future Isaac Newton will prove definitively that human activity is changing the climate.

These entertaining columns provide useful challenges to conventional thinking. But they also have some critical challenges themselves.

Mr. Solomon provides no numerical estimates for the GHG emissions reductions that would result from an end to government subsidies, but this can be roughly calculated. The economy in Canada and globally is driven by the use of fossil fuels. The easiest way to get energy from fossil fuels is to burn them, which produces carbon dioxide, the most important GHG emission. If we removed subsidies in our economy, would people combust fewer fossil fuels and emit less carbon dioxide?

The likely answer is that there would be little change. First, it is unlikely we would replace fossil fuels with alternative sources of energy because we also subsidize nuclear power, hydro power, and other renewables such as wind and biomass. Production cost data (with subsidies removed) indicate that fossil fuels would remain the fuel of choice for Canada and the planet.

Second, it is also unlikely we would use much less energy. If we remove the subsidies, we would presumably also remove the taxes we collect from fossil fuels. Refined products such as gasoline are the most heavily taxed commodities in our economy. Even if we kept high taxes on fossil fuel consumption, research shows that people place a high value on the services they get from energy and would continue to consume large amounts.

Mr. Corcoran inadvertently supports this point when he argues that raising energy taxes will not significantly curb consumption, citing recent oil price increases in support. But if energy price increases because of tight market conditions will have little downward effect on demand, why would comparable energy price increases because of subsidy removal have a downward effect?

Both Mr. Solomon and Mr. Corcoran focus on our use of energy as the issue when it comes to the risk of climate change. Herein lies the problem. The risk of climate change is an environmental concern related in large part to how we use energy, not to how much we use. If carbon dioxide emissions are causing detrimental climate change, this is a market failure that requires some action by government – provided the benefits of such action are likely to exceed the costs.

Mr. Corcoran critiques my policies for reducing GHG emissions by saying they will lead to higher energy prices with little affect on energy use. I agree that there will be little effect on energy use. Again, the important issue is the effect on emissions.

Industry leaders, governments and increasingly the environmental community are beginning to recognize that we can use fossil fuels without emitting GHGs and without significantly higher energy prices. In my book, Sustainable Fossil Fuels, I summarize the evidence from industry and independent researchers showing that policies that constrain GHG emissions by financial penalty or regulation would motivate the electricity industry (to take one sector as an example) to shift over the next few decades toward zero-emission generation of electricity using coal, natural gas and perhaps other fossil fuels (in addition to more nuclear and renewables). The price of electricity over this period would rise by less than 1% per year with prices in 50 years no more than 25% to 50% higher than today. Electricity use won’t fall appreciably. But emissions will.

Mr. Corcoran refers to these as “get -tough policies.” But how tough are electricity price increases of about 10% over the next 10 years as we learn more about the climate change risk? Taking the case of automobiles, industry data suggest that the California vehicle emission standard of 1990, which resulted in today’s hybrid car and advanced the development of fuel cell vehicles, raised the selling price of vehicles everywhere by perhaps $20 to $50 (to pay for research, development and marketing of low emissions cars). Compare this to an average selling price of over $20,000.

Allowing ourselves to continue installing new long-lived equipment, factories and infrastructure that uses fossil fuels and emits GHGs, even though we know that for a reasonable cost we could begin to shift these investments toward zero emission technologies, is tantamount to saying that we are absolutely certain we are not changing the climate. But since we are uncertain, as Mr. Corcoran admits, we should approach the issue in the same way that businesses approach risks in their daily decisions.

A business leader cannot afford to say, “I will only make this risk reduction expenditure if every one of my safety engineers is absolutely certain that a hideous accident will otherwise occur.” Likewise, humanity cannot say, “We will only incur costs to reduce climate change effects or their probability when we are certain the effects will be devastating and that their probability is 100%.” This is no way to run a business – or a planet.

Mark Jaccard is professor of resource and environmental management at Simon Fraser University and author of Sustainable Fossil Fuels: The Unusual Suspect in the Quest for Clean and Enduring Energy.

Larry Solomon responds

A true believer in government

by Lawrence Solomon, National Post, June 10, 2006 Academics, policymakers and regulators can succumb to fads as easily as anyone. Honourable people admit their mistakes and move on, and hopefully learn from their experiences.

Marc Jaccard is such an honourable person, but he hasn’t learned from his mistakes. He still strives to correct “market failures,” not recognizing that they seem always to occur in government-dominated sectors and because of government intervention. He still tries to use government to influence energy consumption, although he realizes government has often done more harm than good. He still ignores data from those whose viewpoints don’t correspond to his, all the while deploring their absence of data.

In the 1990s, Mr. Jaccard was in thrall to one of the biggest and wonkiest fads going in the energy game, demand side management. If you don’t know what this jargon means, you have nevertheless seen it in action and probably participated in it, to doubtful outcome. A DSM program gave you those energy-efficient lightbulbs or water-saving showerheads that now clutter your basement storeroom.

A DSM program provided the subsidy that convinced you to buy a new energy efficient fridge, expecting you to throw out your old fridge and save society some energy. Only your old fridge ended up in your garage as a beer fridge, and you now have two fridges, consuming more electricity than before.

If you lived in British Columbia, DSM came to you courtesy of Mr. Jaccard. As chair of the British Columbia Utilities Commission, he became one of the country’s leading exponents of DSM programs, and, because he could also impose his policies on society, waste was the outcome. In this he was not alone – the great majority of energy experts were then caught up in the DSM mania, disregarding the relatively few dispassionate voices that argued otherwise (I am proud that Tom Adams, my colleague at Energy Probe, was among the very first, in 1990, to expose the sham of DSM programs).

To his credit, Mr. Jaccard has seen the light. Now, along with most of the best brains in the energy business, he realizes just how dim DSM can be, and himself exposes it. He doubtless wonders how he could have been taken in by programs that proved so spectacularly wrong, and how he could have ignored so much evidence from the Tom Adamses of the world that proved so spectacularly right, particularly when the evidence was submitted directly to him in his capacity as BC’s electricity regulator.

Yet although Mr. Jaccard has seen what grief comes of following the herd, he is again ignoring incontrovertible evidence from impeccable sources, this time over greenhouse gas reduction, the gargantuan new rage among energy analysts.

In his response to columns by Terence Corcoran and me on the best way to deal with the greenhouse gas issue, Mr. Jaccard once more sees evidence of “market failure” in a market dominated by government intervention, once more selectively sees the data he’d like to see and blinds himself to the rest, including facts and the data from impeccable sources.

Take David Pimentel, whose data I cited in my column. Mr. Pimentel is the leading critic of ethanol production, the chief government program that promotes an alternative to gasoline. Mr. Pimentel could not have better credentials. This Oxford, MIT, and Cornell-educated agricultural scientist helped establish the U.S. Environmental Protection Agency, he has been chairman of the Environmental Studies Board in the National Academy of Sciences, he has served on 12 of their distinguished panels, and he is the former chair of a U.S. Department of Energy panel that investigated the efficiency of ethanol production. His more recent ethanol findings have been published in the authoritative Encyclopedia of Physical Sciences and Technology.

Yet Mr. Jaccard, in criticizing my column, shows no interest in Pimentel’s data, acting as if I hadn’t even presented data.

“Every time you make one gallon of ethanol, there is a net energy loss of 54,000 BTUs,” Mr. Pimentel calculates for the U.S. market (in Canada, where ethanol crops have a lower energy yield, the loss would be greater). In the real world, this energy loss leads to more tar sands, Arctic pipelines, and coal plants, and thus to more carbon dioxide.

In the world Mr. Jaccard inhabits, wasteful government policies that inefficiently increase fossil fuel use are of little account because, in the next 50 years, his pet technology will become economically viable and rampant energy use will fade in importance.

Mr. Jaccard asserts that government penalties, properly applied, will motivate industry over the coming decades to invent zero-emission coal-burning technology at a cost that is a mere 25% to 50% more than today.

While he peers into his crystal ball, he criticizes Mr. Corcoran as fanciful for thinking that inventions will continue to occur without government prodding. Mr. Jaccard also believes energy costs should rise, although the history of the world shows the costs of energy (as well as every other major resource) to consistently decrease while becoming ever cleaner.

Only a true believer could share Mr. Jaccard’s faith that the future should depart so dramatically from the past, and that government will in future do so much right where before it has done so much wrong.

If the world were run on a businesslike basis, Mr. Jaccard claims, it would protect itself against a possible calamity such as global warming. This analogy, though often recited, is always wrong. No CEOs would sign blank cheques to avoid undefined risks for undefinable benefits centuries into the future, especially when the governments that would be charged with mitigating the risks had a proven track record of making matters worse.