The cost to Canada’s economy of cutting greenhouse gas emissions under the Kyoto accord will be far less than the annual $23-$40 billion cited by the Alberta government and the Canadian Chamber of Commerce, according to a National Round Table on the Environment and the Economy (NRTEE) report.
Emissions trading can reduce those “worst-case scenario” costs for complying with the Kyoto Protocol on climate change by 52 to 97 per cent, says the report and its author.
Emissions trading is a market where businesses can buy or sell allowances or permits for greenhouse gas emissions, or credits for reducing emissions.
Under Kyoto, reducing emissions blamed for global warming will save Canada $300-$500 million a year by lowering costs from air pollution and its impact on health, says the report, prepared for NRTEE by Margaree Consultants Inc. in Toronto.
NRTEE is an independent federal agency that advises the government on issues affecting the environment and the economy. The net price tag for meeting Canada’s commitment under the Kyoto treaty could be as low as $700 million a year, according to the NRTEE report.
That figure is a far cry from the $23-$40 billion annual cost of Kyoto estimated by the Alberta government, the $30 billion predicted by the Canadian Chamber of Commerce, and the 450,000 lost manufacturing jobs expected by the Canadian Manufacturers and Exporters association.
“I believe that those big numbers are a distortion,” NRTEE chairman Stuart Smith said in an interview.
“I’m not saying that those who use the numbers are deliberately distorting (the situation). The people using them are genuinely frightened” about Kyoto’s potential costs, but their fear is based on misinformation and outdated numbers, he said.
Nancy Hughes Anthony, president of the Canadian Chamber of Commerce, said in Calgary last week that the costs of Kyoto are being “underestimated and glossed over by the (federal) government.
“At the end of the day, because of the fact that over 60 per cent of the emissions are caused on the consumption side of the equation, there has to be a cost for consumers,” she said.
Pierre Alvarez, president of the Canadian Association of Petroleum Producers, joined Hughes Anthony at a news conference to urge Ottawa to delay ratifying the Kyoto accord until more analysis is done.
“This is a massively complex undertaking that will affect every component of the economy,” Alvarez said.
But NRTEE chair Smith said that, based on expert forecasts of prices in an emission-trading market under Kyoto, “the ballpark (cost to Canada’s economy) is nowhere near the costs those other folks are talking about.”
Eric Haites, president of Margaree Consultants which wrote the report for NRTEE, says the $23- to $40-billion cost range doesn’t represent careful or balanced analysis.
“It’s quite clear from how it’s presented that it’s designed to influence the government against the decision to ratify the (Kyoto) protocol,” Haites said.
Such huge figures are based on old mathematical models that assumed the U.S. would ratify the accord, he noted.
That would have driven the price of trading emission allowances and buying emission-reduction credits in the global market to $40 to $150 per tonne of greenhouse gases. But with the U.S. out of Kyoto, most experts predict the price will be only $5 to $30 per tonne.
It’s unlikely that Canada, rather than actually reduce some emissions at the“smokestack,” would opt to buy emission allowances and credits to achieve the country’s entire 200-million-tonne reduction target under Kyoto by 2010.
But even if Canada did reduce all its greenhouse gases this way, the total cost at $5 per tonne would amount to $1 billion. At $30 per tonne, the total cost would be $6 billion by the 2010 Kyoto deadline.
Savings in reduced health care and better air quality would offset those costs, Haites said. “There are ways in which we could have it come close to being zero.”
Getting the cost of Kyoto close to zero would require Ottawa to implement policies such as auctioning all the emission allowances (the maximum permitted emission limits) to every industrial sector. Revenue from the auction would then be recycled through the economy in ways that reduced taxes and stimulated economic growth.
Even though federal policies under Kyoto aren’t expected to go this far, “we’re certainly not” going to see the cost of reducing emissions reach anywhere near $40 billion a year, Haites said.
NRTEE chair Smith acknowledged that Alberta’s energy-based economy will be hardest hit under Kyoto, unless Ottawa’s policies are carefully designed.
“No matter what the numbers are (on costs), Alberta gets hit three ways,” Smith said.
Reducing greenhouse gas emissions may also reduce the demand and lower the price for fossil fuels, which would cut Alberta’s royalties from oil and gas.
Alberta is also the biggest user of coal-fired power in Canada, generating more than 70 per cent of its electricity through coal.
Burning coal produces more greenhouse gas emissions than burning natural gas, so coal is the hardest-hit fossil fuel under Kyoto.
The province’s energy industry will take the third economic blow. “The very production of fossil fuel is itself a very energy-intensive business, and that energy comes almost entirely from fossil fuel,” Smith said.
But any economic hardship to Alberta can be managed if Ottawa’s Kyoto policies are well designed to spread the impact among all provinces and industrial sectors, Smith said. Ottawa, he added, needs to say “we’re not going to allow that load to fall on Alberta to the point of serious pain.”
