Climate change: Who’ll pay the climate bill?

On the eve of Copenhagen, a report on the cost of global warming sparks a firestorm.

NGOs often complain they can’t get heard on Parliament Hill. Yet the David Suzuki Foundation and the Pembina Institute are now the talk of Ottawa. In late October, they published a study estimating the economic impact of federal climate-change policies. It found that the costs of any meaningful progress on cutting greenhouse-gas emissions would fall disproportionately on western provinces. It also concluded that current policies will not come close to achieving the prime minister’s medium-term emissions targets — and that the measures needed to do so would cause markedly slower economic growth over the next decade.

The response was prompt and vitriolic. Federal Environment Minister Jim Prentice blasted the conclusions as “irresponsible.” Alberta’s environment minister labelled them “divisive.” Other politicians and business leaders decried any policies that would disadvantage the West.

NGOs collectively publish numerous reports every year; few generate more than a smattering of press coverage, let alone direct ministerial comment. The main difference is that this effort received $110,000 in funding from the economists at TD Bank Financial Group, who are taken far more seriously in government and business circles than environmentalists. Moreover, even as he explained in a note to clients that the bank did not officially endorse the report, TD chief economist Don Drummond lent the report additional gravitas by writing that “the analysis ? appears to be robust.” The bank, up to and including CEO Ed Clark, took heat for it.

While TD evidently failed to anticipate how such a report might undermine Canadianpolicy-makers’ efforts to manage public expectations on climate policy, there are, in fact, genuine reasons to question its conclusions. The underpinning research was conducted by MK Jaccard and Associates, a Vancouver-based consulting firm. Few observers evidently spent much time poring over Jaccard’s 100-page technical report, a far more intimidating document than the executive summary. “The analysis was completed using a combination of the CIMS hybrid technology simulation model and the R-GEEM static computable general equilibrium (CGE) model,” the first page explains. Further in, Jaccard admits the exercise involved making broad assumptions about how technologies evolve, how consumers and firms behave, and a host of other fuzzy issues.

Prentice bristled at Jaccard’s methodology. When asked for details, his department lamented that “the policies proposed in the report make no attempt at harmonizing Canadian climate change policies with the U.S.” — a key objective for Prentice.In a subsequent interview, Drummond, even as he acknowledged his own “serious reservations,” praised the study as the most transparent report published yet. “If you think they torqued it because of some a priori bias, show me where they did it,” he said. “This is the largest economic or fiscal shock that has ever been contemplated in Canada’s history. It’s way bigger than free trade, the GST and deficit reduction. I think a healthy dose of skepticism has to be applied to how accurately any model couldsimulate that.”

Some of Jaccard’s forecasts are therefore best taken with a grain of salt. For example, the report claimed reaching Ottawa’s current targets would trim Alberta’s GDP by 8.5% from a “business as usual” scenario between now and 2020, while Saskatchewan would lose 2.8%. Yet different assumptions might yield radically different results.

Even so, the inevitable inference — that emissions regulations will affect provinces unequally — makes sense. Alberta and Saskatchewan “are by far the most carbon-intensive economies” in Canada, Drummond said. “If you do something to reduce carbon emissions, surely it’s going to hit them. How would anybody have expected it to be otherwise?”

Ottawa’s own research admits as much. In March 2008, Environment Canada produced a profusion of literature promoting its emerging policies. One technical briefing said, “The long-term economic impact varies across regions, with Alberta and Saskatchewan, followed by Nova Scotia and New Brunswick, most affected, and Manitoba and Quebec least affected.”

Earlier this year, the National Round Table on the Environment and the Economy issued a report studying the economic trade-offs between regulating emissions nationally or provincially. That study, too, found the West might experience far greater difficulty. “If it acts independently, Alberta will have difficulty achieving 20% reductions by 2020, even at prices of $400 per tonne,” the report observed. The dollar value refers to the regulatory cost of a tonne of carbon dioxide emitted. Not even the more militant NGOs envision carbon prices rising that high so quickly.

Similarly, Jaccard’s finding that reducing emissions could trim Caada’s GDP substantially also seems reasonable. Not only does this contradict Ottawa’s sanguine reassurances, it also repudiates what many NGOs have been saying for years. (Previous Suzuki reports, for example, said achieving Kyoto-style targets would create little economic fallout.) Strikingly, Jaccard’s report opined that reaching even the government’s less stringent emissions targets would require a carbon price of $100 a tonne by 2020. It would also require massive investment in high-speed rail, wrenching changes to building codes, vehicle and appliance standards, and much else besides.

It is now widely considered gauche to question publicly whether global warming is a genuine problem. Squabbling over how high a bill Canadians should accept to address it — and to whom it should be mailed — is still very much in fashion. That’s not lost on the industrial lobbyists meeting regularly with Prentice and other officials in Ottawa. It’s also understood by premiers jockeying to protect sensitive industries. And it’s certainly recognized by all parties heading to the upcoming UN climate-change conference in Copenhagen (Dec. 7–18), where developed and developing countries will square off once again over which countries will have to slash emissions, and by how much. It is, after all, what the fighting’s all about.