The challenge of climate change is daunting; the understanding required to get policies right in Canada so that emissions go down is considerable. Canada’s population and economy are growing, consuming more energy. This is a basic fact, if uncomfortable for some: Canada is going to use more energy, not less. Our climate change problem is an emissions problem, rather than an energy one. If policy focuses on exhorting or otherwise influencing Canadians to use less energy, it will largely fail as an answer to climate change even though reducing energy use is desirable; if it focuses on lowering emissions through regulatory or market-based policies, it can work. This country is a major energy producer, but the kinds of energy that provinces produce range from low-emissions to high-emissions.
Governments must try to navigate between environmental and business lobbies, to say nothing of developing policies that the public will accept. Then there are international considerations, since global warming is a worldwide challenge. Even if Canada had not signed and ratified the Kyoto Protocol, Canadians would be obliged to consider what other countries are doing, and what they intend for the next round of Kyoto after 2012. As it is, Canada did ratify Kyoto and therefore undertook obligations to reduce GHG emissions by 2008–12.
Governments – and the public – often mix up policy and action. Governments like promising to do things: to “generate more energy,” to “enhance energy efficiency.” These are actions, whereas what we should expect from governments are policies that will produce actions by others. Governments can actually do very little, beyond changing their own operations. Rather, it’s on the effectiveness of their policy options and choices that they should be judged. Rhetoric is easy and cheap, and Canada has certainly had plenty of rhetoric on the subject of climate change. What’s needed instead now is some cool thinking about hot air, starting with the four major categories of action that government is trying to promote through better policies: land use, energy conservation, energy substitution, and GHG capture.
The first option requires fresh thinking and action about land use, especially management of soils, their vegetative cover, and even animal husbandry practices. Non-energy-related GHG emissions from agriculture and forestry are estimated to be about 10 per cent of Canada’s total emissions, with agriculture alone accounting for about 9 per cent.
Different land uses absorb or emit different amounts of carbon, the bad stuff that would otherwise be in the atmosphere. Agricultural land converted to forest is more likely to store or absorb more carbon. Some forests sequester more carbon than others. Some cropping and soil management practices do better at sequestering carbon. Studies have shown that reconverting significant sections of the northern Canadian prairies back to their forested state would store a lot of carbon. The trouble is that while some of this land is currently of marginal quality because of temperature constraints, its agricultural value could increase significantly if a warming climate improves growing conditions for crops.
Animal husbandry – the raising of cows, pigs, sheep, all of them – generates nitrous oxide as well as methane. Such emissions might be reduced with different feeding and grazing practices and by control of manure to reduce methane release. When decomposing in an enclosed pile, manure emits methane. One possibility is to capture the methane and use it for energy, as they do in China, India, and other developing countries. Burning this form of biomass lowers methane emissions and produces energy to reduce the combustion of fossil fuels – a double benefit. Low-till farming keeps more carbon in the soil, and organic farming uses less commercially manufactured fertilizer.
Another kind of land use – urban and industrial landfills – also produces GHGS that can be curbed. Biomass and some other materials emit methane as they decompose in these landfills. As with manure in agriculture, these methane emissions can be captured and combusted to produce electricity and heat, as is done in some Scandinavian countries. Some municipalities or independent electricity companies are already starting to pursue this option in Canada, which is profitable under certain conditions.
The second option requires decreasing energy use, just about everybody’s politically favourite option, especially among environmentalists. But businesses like this option, too, because it incorporates their demand for recognition of their “intensity” improvements while focusing attention on what consumers of energy must do. Decreasing energy use can be accomplished through “energy efficiency” – using more efficient technologies in buildings, factories, vehicles, appliances – and “energy conservation,” which means changing behaviour so that these devices are used less frequently. Purchasing a more efficient light bulb (and remembering to install it!) represents an improvement in energy efficiency; turning the lights off when not in a room represents energy conservation. In a home, a standard incandescent light bulb uses 60 watts of electricity to produce 740 lumens of light energy, whereas a compact fluorescent light bulb might use about 15 watts to produce the same 740 lumens. One device is therefore four times more energy-efficient than the other. Buying a car that uses less fuel would be energy-efficient; driving it less would be energy conservation.
When people speak about an improvement in energy use, they usually mean both changes in conservation behaviour and advances in technology efficiency. A really determined effort to decrease energy use would lead to a multiplicity of changes including, to name a few, more efficient buildings and devices, expanded public transportation or more use of existing systems, co-generation of electricity and heat in industrial plants and buildings, and urban planning that increases density to reduce the distance travelled for work, shopping, or leisure.
In industry, firms have become generally more efficient at using energy to keep costs down. They can buy more energy-efficient machines – electric motors, boilers, conveyers, or whatever – or they can get greater efficiency when converting energy.
For example, co-generation involves a combustion system that produces both electricity and heat that can be useful for industrial or other purposes, like heating commercial and residential buildings. The high-quality heat from burning fossil fuels or biomass (wood or straw) in a boiler produces steam that spins an electricity-generating steam turbine. Although much of the steam energy is lost – it is converted into electricity – there is still some heat from steam exiting the turbine. In industry, this can provide a thermal energy service, like cooking wood chips into pulp in a pulp mill. This combined production of electricity and heat can achieve an energy conversion efficiency of 90 per cent – in other words, 90 per cent of the energy used (the fuel burned in the boiler) is converted to energy output (the electricity and heat). This kind of co-generation is often called “combined heat and power.” There are some places in Canada, but many more in northern Europe, where town and city developments have been deliberately designed so that electricity can be generated locally while the lower-temperature waste heat is used to provide space heating or water heating in surrounding buildings.
Energy conservation comes in many forms. We could set the thermostat to a slightly lower temperature in winter during the day, or when we sleep. We could turn off lights in unused rooms. We could wash our clothes in cold water. We could cycle or walk more, and use the car less. These reductions in energy use do not involve buying more efficient devices; they mean using existing devices less, or changing behaviour patterns, without diminishing our quality of life. These are the kind of changes various Canadian programs of public information and exhortation have tried to impress upon Canadians, with minimal results thus far.
Obviously, the potential for adopting a conserver lifestyle is enhanced if urban areas are developed wisely, with conservation in mind. If streets are people-and-bicycle-friendly, if commercial and retail establishments are within walking and cycling distance, the chances rise that society’s overall energy use will decline through energy conservation in addition to acquiring more efficient devices.
Energy efficiency improvements could also come from reduced flows of goods and services. Using less fertilizer in agriculture reduces its industrial production and therefore the associated energy use. Consumers who purchase fewer or lighter material objects reduce industrial energy requirements for the production and transport of goods. More recycling helps, too, because recycled materials require less energy to convert into usable products than do new materials.
Energy efficiency advocates can be found along a spectrum. Some advocates are technically minded, focusing on designing and distributing more efficient products and services; others reject in whole or in part our material-intensive lifestyle and yearn for a return to the lower energy demands of an earlier, simpler era. Regardless of where they line up, most people intuitively believe enhanced energy efficiency to be a highly desirable way of reducing GHG emissions. Energy efficiency seems like the obvious choice – the least painful choice, anyway – for curbing GHG emissions. The greater the energy efficiency, the fewer difficult debates we will have about nuclear power and where to dam rivers for hydroelectricity, the less vulnerable we are to oil and natural gas prices, the lighter the impacts on land and water from coal and uranium mining, oil and gas development, and oil sands production. And, at first glance, energy efficiency potential appears enormous. Some people suggest that society could easily, even profitably, reduce energy use by 25 to 50 per cent. Amory Lovins, perhaps the best-known energy efficiency advocate, sometimes asserts that energy use can be lowered by 75 per cent – profitably!
Looks, alas, can be deceiving. Increasing energy efficiency enough to lead to falling energy use can be difficult. We have been earnestly trying to reduce energy use for more than two decades with little success. Governments, for example, have offered financial incentives to buyers of hybrid cars, and consumers have been told that they will do the environment a favour by selecting models with lower greenhouse gas emissions. The actual evidence is so counterintuitive, however, that many energy efficiency advocates, along with politicians, journalists, and members of the general public, cannot seem to accept it. They often do not want to hear it. This reluctance is one of the biggest challenges to the design and implementation of effective policies to reduce GHG emissions. This same reluctance has also played a role in explaining the failure of policy efforts in Canada, a point we have already described and will explore further later.
The third option – after land use changes and energy efficiency improvements – is “fuel switching,” which encourages households and businesses to switch away from fuels and technologies that cause GHGS. Renewable forms of energy, in contrast to fossil fuels, are seen as GHG-free, including solar power, generating electricity from photovoltaic arrays, and heating domestic hot water with rooftop panels. Wind power produces electricity from massive turbines hooked to grids, an upgrade on the old wind-driven waterpumps that once dotted the rural landscape. Hydro power is found in abundance throughout most of Canada. Geothermal energy can be useful, where it is available, as in Iceland or New Zealand. Oceans are receiving more research attention, as scientists wrestle with getting energy from tidal movements, waves, and currents, or from heat gradients between the surface and the deep ocean.
The renewable stable also includes biomass, such as wood waste from forestry or residual crop waste from agriculture. This form of renewable energy is not considered a net emitter of carbon dioxide when combusted raw or after being converted to liquid fuels such as biodiesel or ethanol. This is because the carbon released from biomass when it is used is presumed to be re-extracted from the atmosphere by future biomass growth, in the form of more trees or grain crops, a virtuous closed loop with useful energy for humans but no net increase in atmospheric carbon.
Finally, and controversially, there is nuclear energy, essentially free of GHG emissions but never free from political controversy, in North America and Europe especially.
Fuel switching does not just mean moving away from fossil fuels; it can sometimes mean switching among them. Refined petroleum products such as gasoline, diesel, jet fuel, propane, butane, bunker fuel, and heating oil emit less CO2 than coal. Natural gas emits even less. Switching an electricity plant from coal to natural gas would decrease GHG emissions. One of the ironies of modern times is how Britain made a dramatic reduction in GHG emissions under Prime Minister Margaret Thatcher, not a renowned environmentalist. In order to shatter the strength of the coal miners’ unions, she allowed privatized utilities and their subsidiaries to build new electricity generation plants fuelled by North Sea natural gas. Any such switch anywhere would make excellent sense from a climate change perspective, but since natural gas prices have risen more than coal prices in recent years, price changes can unfortunately reverse the benefits of fuel switching.
Companies can also switch industrial processes to reduce GHG emissions without changing fuels, although sometimes this switch can be costly. For example, the conventional procedures involved in making cement, aluminum, and chemicals emit substantial GHGS, but different processes can, in some cases, save energy and produce lower emissions. Indeed, this is happening in the aluminum and chemical industries. GHGS also result from leaks of methane from gas lines, and from venting and flaring of gases in oil and gas extraction. These emissions can often be reduced with slight changes in practice, detecting and preventing leaks, and eliminating flaring. No fuel switching results from these changes, just better procedures that restrict emissions. And the oil and gas industry, to its credit, has been reducing flaring.
Not all countries have the same opportunities for fuel switching. Most countries use refined petroleum products for fuelling the transportation sector, so they are all in roughly the same situation, although many, including Canada, are racing to increase the use of biofuels in vehicles. When it comes to electricity generation, however, some countries (such as France) depend on nuclear power, others on coal, natural gas, or some combination of these. Canada, because of its geography, already generates more than 60 per cent of its electricity from hydro. The federal government’s post-war efforts to develop and market its own nuclear technology (the CANDU reactor) led to some nuclear power generation in Canada. As a result, only 27 per cent of Canadian electrical power is generated from fossil fuels, especially coal. Other countries that are far more reliant on fossil fuels of one kind or another than Canada have greater possibilities for fuel switching. If countries are asked to reduce emissions by similar percentages, it could be more costly for the Canadian economy to achieve the same percentage reduction; it must soon pursue emissions reductions in transportation, which are comparatively more costly than reductions in the electricity generation sector.
Electricity Generation by Source, G7 Countries, 2002
Source: United States Department of Energy.
Finally, the fourth option for reducing GHGS is emissions capture and storage, an approach akin to past efforts to use fossil fuels more cleanly. Emissions reduction and capture technologies have been developed for almost all fossil fuel combustion, including different burner technologies to reduce emissions of soot and nitrous oxides, which contribute to air pollution and acid rain. Catalytic converters are now common to virtually all internal combustion engines. Major industries such as coal-fired electricity generating plants apply smokestack scrubbers and chemical processes to capture particulates and sulphur dioxides that would otherwise contribute to acid rain.
The shift in scientific and public opinion against climate-unfriendly co2 emissions caught the fossil fuel industry and other industries by surprise. Many responded with denial; others fought for delay in taking action. Recently, companies have begun to study technologies – some already in use – that capture co2 emissions and store them safely away from the atmosphere in underground sedimentary layers. This promising avenue for preventing emissions does not represent a huge conceptual leap from other efforts to prevent pollution from fossil fuels, although business is eager to offload as many of the development costs as possible on government.
The option of capture and storage of GHGS bothers some environmentalists. They oppose this approach, or at least play down its importance, because these technologies accept, rather than challenge, the high-emissions character of our energy and economic systems. Environmental purists argue that a sustainable economy depends on humanity reorganizing itself so that no pollution is generated, and that any by-products created by human activity are completely harmless to the environment; as an example, they point to biodegradable wastes being easily assimilated by natural systems. They prefer energy efficiency and fuel switching, from fossil fuels to renewables. They press governments to encourage these changes, while being less receptive to end-of-pipe responses that contemplate the continued use of fossil fuels.
As for the hydrogen dream, we should pay no attention when advocates insist that the hydrogen age will replace the fossil fuel age. Some writers tout hydrogen as the world’s long-term answer to climate change, but these books cause confusion. Hydrogen, like electricity, is a “secondary energy” – that is, produced from one of the three primary sources: fossil fuels, nuclear power, and renewables. Portraying hydrogen as a saviour is like describing electricity as a saviour. They are both zero-emissions secondary sources of energy, but something has to be used to make them. We could use fossil fuels, or nuclear power, or renewable energy. Will hydrogen become a partner with electricity in a clean future? No one is sure, so great are the uncertainties surrounding hydrogen. We should be happy either way. If we are going to reduce our GHG emissions dramatically, the most likely long-term scenario is that most of our end-use devices will run on a variety of electricity, hydrogen, biofuels (like ethanol, biodiesel, and biogases), and heat (like steam and hot water distributed to buildings for space heating).
The technological and economic prospects for carbon capture and storage in the fossil fuel supply industry, including electricity generation and enhanced oil recovery, are quite good. Fossil fuels now provide about 85 per cent of global energy needs. Coal is the most plentiful and the dirtiest fossil fuel but will be extensively used around the world for decades to come. About 40 per cent of global electricity production comes from coal-fired plants. These plants account for about 30 per cent of energy-related GHG emissions. Gradually converting the world’s coal-fired electricity generation to carbon capture-and-storage technologies is by far the most promising avenue for GHG emissions prevention.
One option would be to continue burning coal but to extract co2 from the power plant’s smokestack. This “scrubbing technique” can be integrated into new coal-fired power plants and perhaps eventually retrofitted into existing plants. A variation on this option involves introducing pure oxygen into the combustion chamber, increasing the concentration of co2 in the smokestack and thus reducing the costs of extracting it, but requiring more energy to produce the oxygen.
A different technology would convert coal into a synthetic gas, which is separated into a hydrogen-rich fuel to generate electricity and a stream of co2. Other undesired by-products (particulates, nitrogen oxides) are ruled out by virtue of the process or captured at some point, too (sulphur dioxide, which contributes to acid rain, and mercury, which can be toxic in certain chemical forms and concentrations). Variants of this gasification process have been used for some time in oil refineries and fertilizer plants, and in the conversion of coal to synthetic gasoline and diesels, which was developed commercially in South Africa under the boycott caused by the regime’s apartheid policy and is still done today.
Oil and natural gas could also be used in this way. They have higher hydrogen content and great energy density, so they can be converted into hydrogen and electricity more efficiently than coal – but they are more expensive fuels. Coal, being low-cost, is so plentiful and so widely distributed around the world that it has received the most attention.
What is especially interesting about zero-emissions coal-fired generation of electricity is that the technologies have been used individually in other commercial applications for decades, but they have not been put together before. That explains why the U.S. government has set up its “FutureGen” initiative, a $1-billion coal gasification plant that would generate 275 megawatts of electricity and also serve as a laboratory for producing hydrogen from coal and for co2 capture and storage. Several other governments have launched initiatives to build demonstration plants; some major electricity companies have announced plans to build larger, commercial-scale plants.
Zero-emissions use of fossil fuels depends on GHGS being permanently and safely prevented from reaching the atmosphere. Here, too, we have a great deal of experience, because some industries have been required to store various solid and gaseous wastes safely or convert them into marketable products.
Carbon can be stored in various ways: as a solid on the surface of the earth, as a liquid deep in the floor of the ocean, or in geological formations as gas, liquid, or solid forms after a chemical reaction. Storage in these geological formations is the most likely option, since we already have technological, commercial, and regulatory experience with this approach. For several decades, the oil and gas industry has transported co2 and injected it into underground geological structures. In more than 70 sites worldwide, co2 is injected into oil reservoirs to increase pressure to enhance oil recovery. co2 injection is also a means for enhanced natural gas recovery and for dislodging methane from deep coal deposits as part of coal-bed methane production. Finally, co2 can be injected into saline aquifers deep in the earth. In Canada, co2 is already disposed of in this way along with hydrogen sulphide in order to produce marketable natural gas; there are more than 50 sites using this acid gas injection technique in Canada today. Thus, all three forms of fossil fuels can be converted to clean energy, with the co2 by-product stored deep underground.
Conversion of Fossil Fuels into Clean Energy with Carbon Capture and Storage
A commercial demonstration of world-scale significance for the capture-and-storage option already exists in Canada. Since 2000, a plant in North Dakota has been shipping co2 by pipeline to Weyburn, Saskatchewan. (There are more than 3,000 kilometres of pipelines safely carrying co2 from various sources around North America to enhanced oil recovery projects.) There, the co2 is injected into an aging oil field whose yield has been increased in this manner by 30 per cent. The North Dakota plant happens to be a coal gasification facility that produces a hydrogen-rich gas for industrial uses and a stream of co2 as a by-product. Instead of being released into the atmosphere, 20 million tonnes of co2 is being shipped over the next 30 years to Weyburn. Industry, governments, and researchers are closely monitoring the project because it integrates all of the essential components of a zero-emissions fossil fuel system: coal gasification, production of a hydrogen-rich fuel, capture of pure co2, a long co2 pipeline, and geological storage of co2.
This project and other economically attractive ones indicate the feasibility of a concerted effort to sequester co2 in depleted oil and gas reservoirs. Promising as this form of carbon storage is, current and future depleted reservoirs have a combined carbon capacity of only 300 billion to 600 billion tonnes of carbon, which may seem like a lot but is not nearly enough to contain all carbon from fossil fuels if oil, coal, and natural gas continue to dominate global energy through this century and beyond.
Researchers and some practical experiences suggest other possibilities. Much more plentiful and suitable storage sites are to be found in deep saline aquifers, which lie under certain rock formations at depths greater than 800 metres – deeper than the typical freshwater aquifers found at 300 metres or less. Saline aquifers, contrary to a common misperception of the word aquifer, are not underground pools of water. Rather, they consist of porous rock infiltrated with highly saline water. Depending on pressure, porosity, and other conditions, these sponge-like deep saline aquifers could absorb large quantities of co2, which would be condensed into a liquid-like form.
Efforts to estimate the total co2 storage capacity of deep saline aquifers are still crude, but the capacity is known to be large. Initial estimates of such aquifers – two-thirds are onshore, one-third offshore – suggest the possibility of their holding all of the planet’s estimated carbon endowment in fossil fuels. Western Canada has many of these deep aquifers. Ontario’s geology is less promising, but there is some capacity under the floor of Lake Erie that is now being studied by businesses and academics.
The petroleum industry knows about saline aquifers and the dynamic properties of injected co2. But until concerns developed recently about climate change, little interest was shown in co2 sequestration in saline aquifers – for the simple reason that nobody cared much, if at all, about GHGS. Then Norway shook things up with a carbon tax of $30 to $35 per tonne in the early 1990s ($75 in some sectors), and this motivated the Sleipner project in 1996. This project involved injection of co2 into a deep saline aquifer below the North Sea, not for enhanced oil or gas recovery but to avoid the carbon tax. (By contrast, the Liberal government in Canada, under pressure from the oil and gas industry, had promised that if a price were placed on carbon, it would be only $15 per tonne.)
At the Sleipner project, the co2 source is a reservoir of natural gas about 300 metres below the sea floor whose high co2 content must be reduced to meet market specifications. A chemical solvent is used to separate co2 from the natural gas and then inject it into a saline aquifer 1,000 metres below the sea floor. The solvent is continuously recycled in the process, and the cleaned natural gas is shipped by pipeline along the sea floor to northern Europe. It works well. Several new projects are in the planning stages or under development in Norway, Algeria, Australia, Britain, and the United States.
The scale of the challenge and of the possibilities for the United States – and, by extension, for other countries with abundant coal reserves such as Canada – was underlined by an interdisciplinary study by professors at the Massachusetts Institute of Technology in early 2007. They noted that the 50 per cent of America’s electricity that is generated by coal-fired plants produces 1.5 billion tonnes of co2, whereas the Sleipner project, the largest sequestration project in the world, buries 1 million tonnes a year. Coal, being plentiful and cheap, will continue to be used massively, so that “carbon capture and storage is the critical enabling technology that would reduce co2 emissions significantly while also allowing coal to meet the world’s pressing energy needs.” Governments have to work urgently with industry to finance demonstration projects beyond FutureGen, and not just in the United States, because geological formations vary widely. The MIT team took note of the Weyburn project in Canada as demonstrating that large-scale co2 injection could operate safely, but it said that many more demonstration projects were needed to work through the many technical and regulatory issues surrounding carbon capture and storage. The sooner the United States and other industrialized countries master these issues, the faster the technology can be adopted by developing countries such as India and China. Carbon capture and storage is critical for marrying the need for energy from coal with the need to combat global warming.
As always, there are risks involved in carbon storage, but preliminary work suggests that these are unlikely to be deal-breakers for the public. There are costs, too, and companies have been wary of incurring them, as long as public policy did not require them to act. They preferred voluntarism and moving at their own speed. And environmental purists often criticize carbon storage because it accepts that fossil fuels will be a mainstay of economies for many decades to come, whereas they want a much faster move away from these fuels than most Canadians. The resistance, or at least lack of enthusiasm, from environmentalists and business, coupled with government timidity, has left Canada behind in exploring carbon capture and storage possibilities that are fruitful solutions to the GHG challenge.
We should not close our eyes to this potential, because if we are to reduce GHGS to the extent that scientists say we must, we will need to move from combustion of gasoline and diesel for cars or natural gas for homes to using only electricity and hydrogen, some of which might be produced from coal, oil, or natural gas in conversion processes that capture and store all of the carbon in these source fuels. In theory, we could think of technologies that capture co2 wherever it is produced, whether at an oil sands plant or in a personal car or a home furnace. In practice, the costs of capturing, collecting, and disposing of co2 from smaller end-use devices are expected to be very large – at least until a technological breakthrough occurs.
Industry is therefore focusing initially on carbon capture and storage at large facilities. Only a few experts were thinking and talking about carbon capture and storage a decade ago; now, companies are working on the technology, politicians are floating the idea, and bureaucrats are studying the technological and legal issues. Carbon capture and storage may well be a major part of any national attack on GHG emissions.
Canadian governments, in making international commitments about global warming and climate change, considered all four types of actions when drafting domestic policies – land use changes, energy efficiency, fuel switching, and controlling emissions. Conceptually, governments understood the options, but when it came to adopting policies that would produce useful actions by companies, other governments, or individuals, the policies were ineffective.
Right now, GHG emissions do not carry a price. Unlike many European governments, the Canadian government imposes no fee in the form, say, of a tax on emissions. The atmosphere is therefore considered a free trash bin into which we can dump GHGS. The result has been the classic tragedy of the commons, when everyone contributes to common degradation, but since no one action has been decisive in creating the problem, no one feels responsible for past or future action. Nothing is therefore done. In the case of climate change, no direct benefit accrues to individuals or companies from reduced emissions. So without strong government policy, such as putting a price on emissions or restraining them by regulation – policies that mandate action – very little will happen. This has been the Canadian climate change story thus far.
Action involves changes, sometimes dramatic, to infrastructure, buildings, industrial plant, equipment, and land use practices. These capital stocks develop over many years, sometimes many decades. They do not turn over quickly. Cars in Canada last about 13 years; electric power plants last about 50 years; buildings even longer. It would be enormously expensive, and usually impossible, for governments to dictate that equipment be retired before the end of its natural life. Cities have grown over decades into their current configuration, with their downtowns surrounded by massive urban sprawl. Their fundamental shape is set, and will be changed only incrementally, for better or worse, with each planning decision.
Significantly reducing GHGS under these circumstances will demand decades of effort. These days, plenty of policy snake oil salesmen are around peddling short-term fixes. Everybody seems to have a solution to offer. Meanwhile, Canadians, like the rest of humanity, continue to use more energy because they continue to value the comfort, entertainment, mobility, and status that greater energy use can bring. Environmental purists don’t like to admit – indeed, they fight against – the observable fact that Canadians, like other humans, continue to extract, process, and consume more fossil fuels because these fuels can bring high-quality energy at the lowest-cost option, and we will do so for a very long time. The problem, given this certainty, is that as long as GHG emissions are free, humans will keep dumping them in the trash bin of the environment.
How to stop or substantially reduce that dumping is the core of the challenge. Thus far, Canadian governments have mostly talked about “targets,” “time frames,” and “action plans.” Governments have excelled at setting targets but failed at getting results.
Now that climate change has become central to public discussion in Canada, citizens should evaluate what policies are on offer by using four criteria: effectiveness at achieving environmental targets, economic efficiency, administrative feasibility, and political acceptability.
Ideally, all four criteria should be considered together. A policy might be politically acceptable but relatively ineffective in achieving an environmental target, as most of those so far introduced in Canada have been. Or a policy might be effective, as a cap-and-trade emissions system would be, but administratively unfeasible, if poorly designed. Or a policy might be economically efficient and environmentally effective, like a GHG tax, but politically unacceptable depending on the design. Moreover, Canada’s federal system complicates both the development and the implementation of any policy. But Canadian policies are helped by moving in concert with those of other countries, because international pressures or obligations spur domestic action. Finally, GHG reduction policy requires making decisions in an area filled with uncertainties. If perfect certainty is any policy’s first requirement, we can forget about accomplishing anything.
With the four evaluation criteria in mind, and remembering the Canada-specific constraints on action, think about the broad options available to governments. There are actually a limited number of broad options, although many variations within each. Think of a spectrum of options: compulsory at one end, voluntary at the other.
“Command-and-control regulations” are technology or performance standards enforced through stringent financial or legal penalties. This approach, the most compulsory of the options, dominated environmental policy in the 1970s. Economists criticize command-and-control regulations because they impose uniform solutions on different situations: for instance, requiring identical equipment for all emitters, although the costs of emissions reduction might differ for each firm or individual. This approach also penalizes, or at least does not encourage, companies that want to go beyond the regulations. But regulations can eliminate bad choices, averting the high cost of learning about poor technologies the hard way. A company can hire consultants to identify options, and presumably the consultants will weed out the poor technology. A consumer whose fridge or furnace breaks does not have this luxury or information. Regulations banning poor technology can be a consumer’s best friend.
“Market-oriented regulations” set an aggregate regulatory requirement on an entire economy or sector. This approach allows choice. Companies can choose whether to act according to the regulation or pay others to act on their behalf. This choice is exercised through the freedom to exceed or fall below a GHG reduction standard. Exceed the standard and be in a position to sell the excess; fall below and be forced to buy an excess. This kind of regulation greatly improves upon the command-and-control approach because it allows for flexibility and encourages economic efficiency. If the objective is to reduce GHG emissions over an entire sector or a large geographic territory, market-oriented regulations can work well. Something mandatory for individual firms is required, however, if the environmental problem is limited to one place or caused by one firm.
Market-oriented regulations for GHGS can be of two kinds. Under a system of emissions caps with tradable permits, the government allocates permits so that the total of all permits equals the government’s emissions targets – the cap. Government targets have meaning under this system – as long as the penalties for not holding permits are strong enough to ensure compliance. Permit-holders are free to choose between reducing emissions to comply with their permits, and purchasing surplus permits from those who have exceeded their past required reductions. Governments can allocate the permits initially either by auction or by free distribution to emitters based on their past record of emissions. This latter approach compensates a region for its historical dependency on fossil fuel exploitation. If a region such as Alberta were granted permits in line with its historical emissions, and if it turned out that costs of reduction were cheaper there, Alberta could end up selling permits to other parts of Canada so that its share of Canadian costs would be comparable to those of other regions.
Another form of market-oriented regulation is “obligation with tradable certificates.” Under this system, the government sets obligations for manufacturers or retailers. The government wants certain results, such as sales of low-emissions technologies or non-carbon forms of energy. Each desired kind of sale is awarded a certificate. These certificates must then equal the manufacturer’s or retailer’s obligations in order to avoid government-imposed penalties. Sales above obligations earn excess certificates. These can then be sold to those who have not fulfilled their obligations. For example, a renewable portfolio standard is used for the electricity industry in about half the U.S. states and many European countries. Sellers must ensure that a minimum share of the electricity they market is from renewables. If they fall short, sellers pay a penalty or buy renewable energy certificates from sellers with excess.
California’s vehicle emissions standard is also a system of obligation with tradable certificates. This widely heralded (and criticized, at least by auto manufacturers) policy requires automobile sellers to ensure that a minimum share of their vehicles are low-emissions or zero-emissions. If not, sellers must make up for falling short by purchasing certificates from others who have exceeded their obligations.
These regulatory policies have not been favoured in Canada, even though they are essential for improving Canada’s emissions record. Similarly, Canadian governments have shied away from taxes on emissions as too politically controversial. Polls still show a majority of Canadians opposed to taxes on such items as gasoline, and politicians of all stripes know it. On the spectrum of policies running from compulsory to voluntary, taxes are close to market-oriented regulations. They are compulsory in the sense that the emitter must pay a tax, or pay for other actions that reduce emissions, thereby avoiding the tax. They are non-compulsory in the sense that the emitters have flexibility to decide whether to pay the tax or invest money to reduce their GHG emissions and pay less tax.
Several European countries use GHG taxes. Unlike an emissions cap with tradable permits, an emissions tax does not guarantee a particular level of emissions, because no one knows how many, or which, emitters will change their behaviour to avoid or minimize the tax. A tax provides certainty to business and consumers about costs, but not about environmental effectiveness. GHG tax revenues can be used in various ways, such as reducing other taxes so that the net effect is revenue-neutral, or investing in clean technologies, or any other purpose deemed fit and politically saleable by the government.
Then there are subsidies, the Canadian standby in climate change policy and many other fields of economic activity. Subsidies come in all forms: rebates, grants, low-interest loans, so-called tax exemptions. Subsidies in theory are designed to improve financial returns and thereby provide incentives to businesses and consumers to reduce emissions. This approach always appears non-compulsory, but the funds have to come from compulsory sources of taxation. That is what subsidies are all about. They take revenues from compulsory revenue sources and spread them via government discretion for social, economic, regional, or political purposes.
The fifth policy option available to government, and politically the easiest, is disseminating information. Governments can encourage, exhort, or shame firms and households to reduce GHG emissions. Information campaigns can appeal to self-interest, morality, global obligations, and even intergenerational fairness. They can be of widespread applicability or be targeted through energy efficiency or emissions labelling. If you go shopping for a fridge or stove these days, labels will help tell you which product is most energy-efficient. On a government website, you can learn about all the things you can do to reduce your own output of GHG emissions.
Thus far, Canadian governments have preferred the last two options: subsidies and information, the options at the non-compulsory or voluntary end of the spectrum of choices. They have their place, but they are addendums or supplements to what Europeans have done. They are useful only if you combine them with compulsory policies such as command-and-control regulations, GHG taxes, and market-oriented regulations. Effective action against climate change must deploy these policies to be effective.
Canada’s almost total reliance on non-compulsory policies is the main reason why the country has failed to limit the increase of emissions, let alone start reducing them. The ineffectiveness of subsidies and information alone, however, is not just the Canadian experience. A growing number of studies conducted by some of the world’s most respected energy experts draw the same conclusions about the experience elsewhere. Paul Joskow of MIT showed that efficiency subsidy programs by electric utilities were not nearly as effective as utilities and efficiency advocates claimed. Robert Stavins of Harvard has found evidence of similar problems, as has Kenneth Train of Berkeley. What lessons can be learned from these experiences?
One lesson, arguably the most important for Canadian purposes, is about the “free rider.” Free riders are firms and households that receive subsidies for doing things they would have done anyway. Say a firm or household was going to make an investment in energy efficiency. It has decided for whatever reason – cost-benefit analysis, moral concerns – to make the investment. Firms do this all the time: they study their costs and try to reduce where they can; they lower their energy costs as an input to production. Now along comes a government program offering a subsidy for what the firm or household planned or has even already done. The result is wonderful for the recipient: unexpected money. For government policy, the result is a bust. The subsidy program costs money but has not produced a change in behaviour. When governments or utility companies offer subsidies to those who claim to be improving energy efficiency, there is no easy way of ensuring that the money is being given only to those who were not already planning or implementing improvements. The money gets distributed, and free riders benefit.
Who knows how many free riders exist in a large subsidy program? Short of insisting on every recipient taking a lie-detector test, it’s impossible to discern intentions. But the independent researchers noted above have examined this phenomenon, using a control group not subject to the policy and comparing the results with those from a group of subsidy recipients. Some of these studies estimate free ridership of at least 60 per cent.
Here’s an everyday example of free ridership. A typical new fridge consumes about 500 kilowatts a year. A new energy-efficient fridge (suitably labelled, of course) consumes only 400 kilowatts, a savings of 20 per cent. If a government could only encourage consumers to choose the more energy-efficient fridge, it would appear that the energy and GHG savings would be substantial, at least in areas where electricity comes from burning fossil fuels.
Suppose that the government provides a rebate of $50 on purchases of the energy-efficient fridges in an effort to increase their market share. What would be likely to happen? First, as in all subsidy programs, the government’s budget for the program will be limited. It cannot subsidize all fridge purchases, as this would be exorbitant. So it provides only enough money for perhaps 20 per cent of new fridge purchases. But fridges that are considered high-efficiency by government (Energy Star rated) already capture over 40 per cent of the sales in the market for new fridges, and this amount will grow over time, just as it did in previous decades. Almost all of the rebate could be captured by the people who would have bought efficient fridges anyway. The customers who would have bought the energy-efficient fridge anyway are free riders. The result for overall government policy of this kind of free ridership is obvious: the cost is very large relative to the effects.
Subsidy advocates insist, however, that each person who acquires that efficient fridge (or some other device) demonstrates to neighbours and friends the benefits of efficiency, creating a spillover effect. Each subsidy thereby hastens the adoption by others of something more efficient. Alas, independent research debunks that appealing idea, because energy efficiency is often more costly than it originally appears, which in turn limits the spillover effect. New technologies almost always have a higher risk of failure. Similarly, investments in more efficient devices require upfront capital expenditures, which can mean a long payback period, varying with the amount of energy savings versus initial investment (and forgone income from that investment).
There is also the cruel but observable tendency for energy efficiency to encourage greater energy use. More efficient technology can induce consumers to believe they are saving more per unit, and therefore to use more units. More efficient lighting, for example, will lower operating costs but can encourage people to leave lights on longer. Hybrid electric-gasoline vehicles encourage the development of vehicles with greater horsepower, thereby offsetting some fuel savings. This syndrome is called the “direct rebound effect.” Although it is likely to be small for many endusers, it can be as high as 10 to 35 per cent in some cases.
Beyond the direct rebound effect lies the “mega-rebound,” the link between energy efficiency innovations and expanded demand for related but new energy services. A recent study by Roger Fouquet and Peter Pearson on the history of lighting services and lighting use in the United Kingdom over several centuries found that efficiency gains in lighting had reduced its cost in 2000 to just 1/3,000 of its 1880 level, but total per capita use of lighting had increased 6,500 times.
Achieving significant reductions of GHGS in Canada will require awareness of the constraints and intelligent, well-crafted policies that will lead to action, real action. For that to occur, we must rethink what Canada has been doing for so many years. It was illusory to imagine – when Jean Chrétien got Canada to ratify the Kyoto Protocol in 2002, merely six years before the beginning of the 2008–12 commitment period – that the country could make the dramatic domestic reductions required with the feeble policies that Liberal governments proposed. Those policies, as Canadians have come to understand, did not produce action, at least not the sort of action that leads to results. The atmosphere, it was decided without anybody in government describing the matter this way, would remain free as a trash bin for all. Targets could be announced and deemed achievable without any significant costs to consumers, taxpayers, or businesses. Having accepted these fundamental propositions, the government was left with only exhortation and subsidies, approaches that quite predictably failed.
Canadians now know, or ought to know, what policies will not work. If governments, environmentalists, and business will recognize that fact, we can finally focus on policies that will.