9/2007Jaccard-Simon Fraser University1 Mark Jaccard School of Resource and Environmental Management Simon Fraser University September, 2007 Canada’s Failed Greenhouse Gas Reduction Policies

9/2007Jaccard-Simon Fraser University2 Canada’s policy failure Since 1988 Canadian governments have set several targets for reducing future greenhouse gas emissions and have implemented policies to achieve them. But none of the targets have been met. In fact, emissions have continued to rise. In spite of this unequivocal evidence of failure, our governments boldly claim that their new targets will be achieved and their new policies will be successful. Amazingly, much of the media and public still seem to accept these claims, as evidenced by editorials and public opinion polls. As an independent researcher, I have focused for 20 years on assessing policies that seek to influence technological change toward reduced energy use and/or reduced energy-related emissions. I report here on some of the findings of research by myself and others and its relevance for past and future Canadian climate policies.

9/2007Jaccard-Simon Fraser University3 Recent publications

9/2007Jaccard-Simon Fraser University4 Targets, policies, emissions

9/2007Jaccard-Simon Fraser University5 Canada’s Kyoto performance

9/2007Jaccard-Simon Fraser University6 Broad lessons from the evidence Targets are meaningless without the simultaneous implementation of effective policies. The predominant reliance on non-compulsory policies – information programs and subsidies – is the reason why emissions have not declined. This evidence is counterintuitive to some industry experts, government officials, politicians and environmentalists. Subsidies appear to be effective, information programs appear essential. It is highly unlikely that emissions will decline until government policy places a value on using the atmosphere – charging a financial penalty for emissions (a carbon tax) and/or restricting emissions by regulation (an emissions cap with tradable permits). These policies must have economy-wide application to be effective. The latest concern for Canadian climate policy is that government will finally implement taxes and/or emission caps but in a watered-down format that will still produce ineffective outcomes.

9/2007Jaccard-Simon Fraser University7 A quick reminder: actions to reduce greenhouse gases Energy efficiency (if using fossil fuels) Fuel switching (away from carbon-intensive fuels) Pollution control (carbon capture & storage, process changes to reduce emissions, landfill gas recovery) Changes in agriculture and forestry (to prevent emissions and store carbon)

9/2007Jaccard-Simon Fraser University8 A quick reminder: the policy options Information (labeling, ads, awards) Financial carrots – subsidies (tax credits, grants, low-interest loans) Command-and-control regulations Financial sticks – taxes (GHG taxes, equipment levies) Market-oriented regulations (cap and permit trading, niche market regulations)

9/2007Jaccard-Simon Fraser University9 Energy efficiency: the favoured action to reduce emissions “ Focusing on energy efficiency will do more than protect Earth’s climate – it will make businesses and consumers richer – Amory Lovins, Scientific American, Sep. 2005” Problem 1: Global energy use will climb. So energy efficiency effort must not divert from effort toward near-zero emissions energy systems. Problem 2: Strong evidence shows that energy efficiency not as easy to accelerate as its advocates maintain.

9/2007Jaccard-Simon Fraser University10 Full micro-economic costs of energy efficiency Issue #1 – overlooks risks and quality differences in technologies (transit vs. cars, lightbulbs) ignores new tech and long payback risk (option value) ignores consumers’ preferences (consumers’ surplus) as technologies are rarely perfect substitutes If losses of option value and consumers’ surplus are included, efficiency cost can increase significantly.

9/2007Jaccard-Simon Fraser University11 Full macro-economic effects of energy efficiency Issue #2 – misplaced optimism about the aggregate effect of energy efficiency actions rebound effect relates to individual services and may be small in many cases but large in some (air mobility) mega-rebound effect: more generally, gains in energy productivity drive economic growth, spill over to other energy services and foster the creation of new services (decorative lighting, patio heater, desk-top fridge, wine cooler, beer cooler, water cooler) If all rebound factors are included, the net energy reduction is less.

9/2007Jaccard-Simon Fraser University12 The example of lighting services: UK from Year GDPAA x 15 Lighting service cost BB x 1/3,000 Per capita consumption CC x 6,500

9/2007Jaccard-Simon Fraser University13 What limit to energy services?

9/2007Jaccard-Simon Fraser University14 What limit to energy services?

9/2007Jaccard-Simon Fraser University15 Policy challenges to energy efficiency ineffectiveness of information and subsidies information limitations subsidies and free-riders political challenge of higher prices and regulation energy taxes versus emission taxes economy-wide emissions regulations

9/2007Jaccard-Simon Fraser University16 Efficiency advocates and the policy assessment gap

9/2007Jaccard-Simon Fraser University17 Forecasting policy effects Canada and other countries need transparent tools, with independent review, for assessing the effect of emission reduction policies e.g., US EIA with NEMS model In the absence of this, our research group has conducted simulations of Canadian policies using modeling tools and parameters that are internationally recognized.

9/2007Jaccard-Simon Fraser University18 The last Liberal plan: Project Green

9/2007Jaccard-Simon Fraser University19 The Conservatives respond to public pressure to act

9/2007Jaccard-Simon Fraser University20 Latest government policy initiative EcoAction and Regulatory Framework for Air Emissions – to reduce GHG emissions below current levels by 20% in 2020, and on a path for 65% reduction by 2050 Various subsidy and information programs Potential regulation of vehicles Intensity-based cap and trade for large industrial emitters (early action, technology fund, offsets – 10 % overseas, 100% possible domestically)

9/2007Jaccard-Simon Fraser University21 The recent Conservative effort: Eco-energy

9/2007Jaccard-Simon Fraser University22 Our simulated policies Gradually rising greenhouse gas tax with revenues recycled 100% back to regions equal to tax contributions Emission caps on industry combined with either: (1) further caps on small emitters, or (2) GHG tax on small emitters. Market-oriented regulations on emissions and technologies in individual sectors (vehicle performance standards, building performance standards, carbon management standard, etc.)

9/2007Jaccard-Simon Fraser University23 Moderate and more aggressive scenarios

9/2007Jaccard-Simon Fraser University24 Moderate scenario

9/2007Jaccard-Simon Fraser University25 More aggressive GHG price increase

9/2007Jaccard-Simon Fraser University26 Electricity bills in Alberta

9/2007Jaccard-Simon Fraser University27 Policy lessons for the public If politicians set targets, but do not explain how they will be achieved, assume failure. If politicians set targets, and talk of the need for consumers to change behaviour and businesses to invest, assume failure. If politicians set targets, and implement information and subsidy programs, assume failure. If politicians set targets, and implement regulations with large opportunities for those who are regulated to grow their emissions while paying others to do so-called offsets, assume failure. If politicians set targets, and then implement intensity targets with no transition to absolute emission reductions, assume failure.