The two, climate and profit, are very much related. The gains from doing this are “odious profits” that exist only because of massive costs externalized onto third parties (I’m riffing off the term “odious debt” — that incurred by dictators, usually for military hardware, for which the people are forced to pay even after the dictator has been deposed). Anyone who advocates well-functioning markets, as opposed to unbridled capitalism, should see the logic of ensuring that all costs of production are captured in the market price. The huge negative externality associated with fossil fuels is what prompted Nicholas Stern to call climate change the biggest market failure in history.

How much are we talking here? The pipeline itself is a $5 billion investment so it will have to make back a decent annual return. Enbridge’s estimates for toll structure and throughput imply revenues of just under $900 million per year. Based on financial statements in Enbridge’s 2010 Annual Report, profits from pipeline operations (after-tax earnings plus dividends) averaged 34% of revenues over the past three years. At this rate, profits from NGP would be over $300 million per year. These are not trivial amounts, and they do not include “costs” such as lucrative executive compensation – for example, Patrick Daniel, the CEO of Enbridge, made more than $6 million in 2009, and several other executives had more than $1 million in compensation.

Beyond the pipeline itself, we can also include the gain in profits to oil sands producers from higher market prices in Asia, estimated to average $3.6 billion per year by Wright Mansell, a consulting firm whose report is included in the application. So call it $4 billion in annual profits and you can see why a government with no morals would want to cozy up to the pipeline and start calling it ethical oil.

But at what environmental cost? There is a certainty of oil spills from the pipeline itself and tankers on the BC coast. Enbridge pipelines had 800+ oil spills on its pipelines over the past decade and a bit, and the record of other pipeline companies is no better with 5,600 incidencts in the US alone gong back to 1990.

But I’m more interested in the climate impacts. The Northern Gateway Pipeline would transport 525,000 barrels of diluted bitumen per day. The carbon content of this fuel is translates into annual global emissions of approximately 70 Mt CO2e. In addition, there are emissions associated with extraction of the resource (6.5 Mt CO2e, according to Pembina) and emissions associated with the energy needed to run the pipeline and ship bitumen to Asia. Finally, there are emissions from upgrading and refining bitumen into oil and other petroleum products (8-9 Mt CO2e per year, although this emissions-intensive process would happen in the importing country). All in, annual emissions associated with the pipeline could be in the range of 90-100 Mt CO2 per year, and this is not counting emissions associated with construction (manufacturing and transport of steel pipe, and machinery and equipment on-site).

So what is the damage — the negative externality — from all of that carbon? The most credible recent study estimating a range of values for the “social cost of carbon”, with most estimates in the range of $150-500 per tonne of CO2, but possibly as much as $893 per tonne. To put this in more recognizable terms, BC’s $25 per tonne carbon tax translates into less that six cents per litre. Internalizing the external costs of the pipeline into market prices would require a mix of regulation, carbon pricing and removal of any caps on liability in relation to spills. Indeed, the corporate form in practice limits liability to the initial investments made by owners of stock, which could be exceeded in the form of massive clean-up costs for a catastrophic spill.

Based on the numbers above, a low estimate of 80 Mt of CO2 into the atmosphere per year with external costs of $50 per tonne would imply $4 billion per year in externalized costs. Using a higher estimate of 100 Mt at $200 per tonne, external costs reach $20 billion per year. These numbers assume that bitumen would stay in the ground in the absence of the NGP, which may not be realistic given other options, but the point is that the NGP would facilitate the combustion of large volumes of fossil fuel, and doing so imposes very large costs on third parties from future climate impacts.

Bottom line: the Enbridge pipeline makes odious profits and they must be weighed against the costs of GHG emissions and oil spills. Privatize gains, socialize losses. Which is why the industry and their government make no reference to either the profits to be gained or climate change. While there will be some jobs created along the way, they are very small in number. Governments get a cut, too, through royalties and taxes (though the latter are being phased out for people fortunate enough to be corporations), but these are like the royalties on export of blood diamonds.

So thanks to Natural Resources Minister Joe Oliver, who unintentionally shone a massive spotlight on this project. The Conservatives would have been better off had he just shut up (though I’m figuring his letter came from central command and he was forced to sign his name to it). Let’s follow the money and have a real debate about the impacts of this pipeline from Alberta to China.

I’ve been trying to make sense of Canada’s utter intransigence on climate. After all, our Prime Minister has children, too, so what could possibly be going through his head when the science is so clear about our need to act. Perhaps Stephen Harper and the Conservative party are simply climate deniers, who frown on any evidence, no matter what the scientific consensus, that contradicts their worldview of small government and unbridled capitalism. One can also point to the 2011 Crime Bill as another case in point of ideology trumping evidence.

Another factor is that the politics of opposing climate action is just too compelling for a conservative to resist: the oil and gas industry is a fundamental part of Harper’s base, and therefore a key source of political power; plus it is easy to demonize people who want to challenge the status quo in tough economic times, no matter how unsustainable the present course may be.

It is not just about the tar sands of Alberta, either. In BC, the provincial government is narrowly focused on new coal mines and shale gas fracking as the centrepiece of a provincial economic strategy. Since coming to power earlier this year, Premier Christy Clark, also a mother, has shown little interest in pursuing further climate action, leaving BC set to follow in the unfortunate Canadian tradition of reneging on climate commitments. BC cannot meet its legislated targets for GHG reductions by 2020 while pursuing a fossil fuel export strategy.

Coming back to the kids, I think Harper and Clark know very well that climate change is upon us. Reports from the federal government itself, via Environment Canada, pin the blame for freak weather on climate change. The mountain pine beetle infestation has devastated BC’s interior forests, and extreme weather incidents have been widespread. We know climate impacts will continue to get worse, leaving a terrible legacy for our children.

But rather than act, perhaps the Conservatives are making a leap of faith that wealth and technology will spare Canada from the ravages of extreme weather and altered climate patterns. Or at more personal level, wealth and technology will enable their children to maintain a high standard of living.

This is, of course, nonsense. It is like being unconcerned about a plane crash because you are sitting at the back of the plane. And this callous disregard guarantees a massive injustice perpetrated across generations. Failure to act is already condemning millions of people around the world to suffering and death.

But we are rich, so why should we care? Such is the fundamental injustice of climate change: those who have done the most to cause the problem – rich people in rich countries – are not the ones to pay the price. Executives in the oil industry who have gotten rich by externalizing their costs of production are thus in terrific position to seek shelter in fortified compounds, while the poor and innocent, who have not benefitted from fossil fuels, who must live with the consequences.

Climate change embodies injustice: the rich screwing the poor; the old dumping on the young; humans robbing other species. To make it right we need climate justice, and our work at the CCPA has been to develop a vision of what a post-carbon society could look like, and how we get there. But we have to collectively choose that future.

Two other big stories of 2011 may show a glimmer of hope that we have hit bottom, and change is coming. The Occupy movement came out of nowhere to oppose the inequality of savage capitalism. And Big Oil’s push for pipelines to get tar sands crude to market has run into massive opposition in the US, led by red meat states like Nebraska, and in BC, led by a unified wall of First Nations.

We will need new governments, federally and provincially, to spearhead the collective action required for a climate just world, and that will address our ecological deficits with the zeal we have for budget deficits. The wall of denial will come tumbling down in short order, and our Climate Justice Project is preparing us for a rapid transition that is smooth and fair. In the meantime, as our governments have been occupied by fossil fuel industries, take heart in the fact that people can still say no, leaving the carbon bombs held by Alberta and BC trapped underground.

From the outset, the Occupy movement has been united in standing against the massive increase in inequality in our society. That inequality poisons the limited amount of democracy we have, so people increasingly feel they have nothing vote for, and that, in the end, ostensibly progressive, charismatic leaders will only betray those who supported them. On the ground, there is a feeling of despair about the future, while insiders rake in millions if not billions. So is it any surprise that the Occupy movement, while diverse, is rooted in youth who practice consensus-based democracy?

In that spirit, and its origins on Wall St – the epitome of corruption, greed and an unfair economic system – can a deeply democratic spirit be channeled into economic institutions that better meet our needs and don’t destroy the ecosystems that underpin a viable human civilization? Historically, protests against inequality, injustice and a lack of democracy of unfettered capitalism have led to diverse opposition movements: trade unionism, socialism and communism get the most attention, but the cooperative movement is part of that anti-capitalist response as well, and could ultimately be what resonates most as an alternative economic model.

The link between the radical democracy of the Occupy movement and coops is straightforward. Coops are member-owned and more deeply anchored in the local economy. They are a way of doing business that is not capitalist but democratic (though you probably won’t see any hands twinkling in the air at general meetings). There is a rich history of coops around the world, as reviewed by John Restakis of the BC Cooperative Association in his book Humanizing the Economy (reviewed by yours trulyhere). Based on principles of cooperation and reciprocity, the mandate of coops is to serve members, not maximize profits for distant shareholders.

Coming back to finance, credit unions are of great interest, as “banking cooperatives” that are better at the bread-and-butter business of banking than banks themselves. While banks have moved to investment banking, high transaction fees, securitization and “wealth management” to make their money, it is credit unions that focus on the heavily lifting of providing mortgages, personal loans and financing for small and medium sized businesses. Even the rabidly right-wing Canadian Federation of Independent Business notes in a survey of its members that credit unions provide better service than banks, with smaller fees and a lower loan rejection rate.

There is also good evidence that credit unions can play exactly the stabilizing influence on the economy that averts the type of crisis we find ourselves in. Based on some research I’ve seen, bank lending tends to be more volatile, with big surges in loans up to the peak of the economic cycle then crashing when a recession hits (a familiar story for those following the current crisis), while credit union loans tend to be relatively steady. Banks basically tend to take on riskier loans as the business cycle progresses, then have much higher rates of write-offs down the road. A number of structural factors – built-in risk aversion, inability to easily raise equity in the financial markets, and stronger regulatory oversight – mean that credit unions better embody the “public purpose of private banking” than do the big banks.

OK, credit unions are not exactly a rallying cry for revolution. But it is a simple and tangible act to close your bank account and join a credit union. In fact, an action I saw on facebook yesterday asked for this exact thing this November 5.

More support for credit unions and cooperatives is but one piece of a bigger puzzle about how develop and more just and sustainable world. Humanizing the economy and democratizing the production system recognizes that humans need goods and services but not necessarily transnational corporations and banks to provide them.

While the effectiveness of smart metering in BC is yet to be seen, the upfront capital investment for the utility is unquestionably significant. Initial estimates report costs of $660 million for the meters and $270 million for the grid, for a total price tag of just under $1 billion. That does not include a box in your home to give you access to your data — a couple hundred dollars that will come out of your pocket, though BC hydro says it will provide some rebates.

BC Hydro’s “business case” argues that after considering implementation costs, smart meters will provide a net benefit of $3 billion over a two-decade period through to 2033, with 80% of the benefits internally to the utility, and the remainder dependent on uptake of additional in-home tools. The analysis assumes that smart meters will not need to be replaced during this period, and that no other unintended consequences are manifest. The benefits are based on: improvements in safety and reliability, such as real-time information about power outages; enhanced customer service; reductions in electricity theft; and improved operational efficiencies.

About 17% of the “benefit” to BC Hydro of smart meters arises from eliminating jobs for meter readers across the province due to automation. File those 1,200 lost jobs under “BC Jobs Plan”. [Update: COPE 378 informs me that 398 of their members will lose their jobs as meter readers. Another 400 or so are being lost on the admin side via Accenture. And BC Hydro has been ordered to shed another thousand or so.]

The largest source of benefit to BC Hydro (56% of estimated benefits) is reducing the theft of electricity for marijuana grow-ops and other illegal activity. BC Hydro claims theft costs the utility $100 million per year in lost revenue, although it is not obvious that smart meters would convert every kWh of stolen electricity to legitimate revenues. Smart meters may make it easier for criminals to steal electricity by hacking into the smart metering system (Jim Quail makes this case here). This could, in effect, increase the prevalence of power theft as well as give rise to a range of other security concerns.

Beyond eliminating jobs and reducing theft, other gains are small amounts that are difficult to verify, particularly when spread over a two-decade time frame. While I’m inclined to think that there will be some gains, it is not clear whether we can bank on them. I’m betting that there are also costs that are not fully understood right now, and unintended consequences of the move. And some of those benefits hinge on customers buying additional equipment to avail themselves of new information. This will be challenging for many low income households or the 30% of households that are renters.

The other wild card in this has to do with implementing time-of-use (TOU) pricing. While BC Hydro and the government deny that they want to bring in TOU pricing, most experts seem to agree that the whole point of smart meters is to have TOU pricing. So once they are implemented, I’m betting we see TOU within a few years. At any rate, TOU pricing is more of benefit to smoothing and shifting peak load, a benefit in coal or nuclear systems that are hard to ramp up and down; this is less of an issue in BC where we have huge hydro reservoirs that act as batteries for electricity storage.

Overall, smart meters will do little to reduce household energy consumption. So, could almost $1 billion have been better spent to conserve existing power resources? BC Hydro’s 2007 Conservation Potential Review (CPR) was commissioned to identify potential for electricity conservation through demand side measures (DSM) in the residential, commercial and industrial sectors. Over a 20-year study period, the study estimates the total potential electricity savings and peak load reduction from new and emerging energy efficiency technologies, customer-supplied small-scale renewable energy and behavioral change.

The CPR’s estimates of potential savings from conservation are substantial, ranging up to 40% of business-as-usual consumption by 2026. The cost of achieving these reductions is way cheaper than acquiring new expensive electricity, as BC Hydro has been mandated to do by the government. In addition, investment in DSM is more likely to be distributed within the local economy while smart meter installation will likely be contracted out to a single firm. And to add some crony capitalism to the story of smart meters, the announcement the smart meter contract was met with some controversy, as it went to a firm with ties to the BC Liberal party.

Note: This piece was developed as part of our recent Energy Poverty publication, but did not make the final cut. So special thanks to my co-authors Eugene Kung and Jason Owen, whose insights are reflected in the post.

This has been one of the more challenging research projects I’ve engaged in to date. It is the first attempt I have seen anywhere to bring together research in different fields – home energy efficiency, climate change and energy poverty – towards a coherent action plan. In particular, we look at BC Hydro’s pricing policies and model distributional impacts, and we take a closer look at energy efficiency retrofit programs. We then outline a series of next steps for BC that strive for win-win outcomes that reduce energy poverty and create green jobs (about 12,000 direct jobs per year) in the context of aggressive climate action.

I have an oped in today’s Vancouver Sun:

Power policy should protect low-income households

By Marc Lee

If BC is going to meet its climate action targets, the province needs to shift away from natural gas and rely instead on clean electricity. Coupled with aggressive conservation and energy efficiency investments, this transition could be the source of new green jobs, particularly in the residential housing sector.

The challenge is this: while upper-income households tend to consume (and waste) more energy, it is low-income households who spend a larger share of their incomes on energy, and are the most constrained in terms of changing their behaviour.

This means that across-the-board price increases can worsen energy poverty, a condition where a household spends a disproportionate share of their income on energy. Living in energy poverty poses a range of health risks, including respiratory, cardiovascular, and other health problems, as well as preventable winter deaths.

BC Hydro’s proposal earlier this year to dramatically increase electricity rates is a case in point. While a recent review of BC Hydro led to compromise that would slow rate increases for the next couple of years, higher prices are to some extent inevitable due to the higher costs of new electricity supplies, the installation of smart meters, and new capital projects.

More than three-quarters of energy in the home is used for temperature control and hot water. For low-income households – especially ones with electric baseboard heaters – the real issue is keeping the heat on.

Lower-income households already spend a greater share of their income on energy. The bottom 20% of households spent 5% of their total income on energy in 2009, and 3% of income just on electricity. Households in the top 20% spent only 1.5% of their total income on energy, and less than 1% on electricity.

But BC Hydro also shows us what a fairer path could look like. The shift to two-tier pricing in 2008 has moved modestly in this direction, with modest savings for low-income households and increases for higher-income households. The greediest 20% of electricity consumers use up 44% of the residential power, and they should indeed pay more.

If electricity price increases are needed, they should be concentrated on the second tier of rates. Increasing refundable tax credits for low- to middle-income households could also offset price increases. Assessing the impacts of pricing policies across income levels needs to be part of the BC Utilities Commission’s rate approval process.

The BC government can also help by delivering targeted energy efficiency programs for low-income households and multi-unit buildings, including rental units. Low-income households are typically renters. This means they are less likely to have capacity to invest in energy efficiency upgrades.

Currently, the vast majority of public subsidies for retofits (for example, BC’s LiveSmart program) goes to affluent homeowners in single-family dwellings. Existing programs have been criticized for two common problems: free rider effects (public subsidies going to households who would have made investments anyway) and rebound effects (where savings are offset by increased energy use).

In contrast, well-designed programs for energy efficiency for low-income households are “low-hanging fruit” that would dramatically reduce these effects, target some of the province’s least efficient housing stock, and make better use of public dollars.

A danger is that electricity price hikes will create a perverse incentive for people to switch to natural gas for their home heating. In the Lower Mainland, the delivered cost of natural gas is about half the cost of the lower tier electricity rate and 39% of the tier two rate.

But this would add to BC’s greenhouse gas inventory at a time when the province needs to reduce and eventually eliminate those emissions. This should be a key component of a next generation LiveSmart program for BC, and it should also be linked to green job creation and skills development.

We estimate a budget of $220 million per year in support of a decade-long retrofit of BC’s housing stock would lead to substantial reductions in GHG emissions and energy poverty in BC homes. Carbon tax revenues are an ideal source of public subsidies for such a program.

This investment would lead to 12,000 direct green jobs per year (and a total increase in employment of 20,000 jobs if we include indirect and induced job creation).

The challenge of the next generation is to enable a smooth transition to zero-emissions housing, while paying attention to impacts on low-income households and other vulnerable populations, as well as the housing stock where they live.

Rather than trying to sell more polluting fossil fuels to Asia, the BC government should be leading the charge on climate action. A coherent housing strategy could provide win-win opportunities for the province, and is the type of jobs program BC needs.

Creating a new industry with the capacity to export B.C.’s natural gas to overseas markets for the very first time will instantly increase economic prosperity and create jobs. By adopting a more aggressive approach to the development of the natural gas sector, I am confident British Columbia can create a prosperous LNG industry that will bring local jobs to our communities and deliver important dollars into our economy.

A couple months ago I did the math on the greenhouse gas emissions associated with these LNG facilities. Basically, GHG emissions represent a massive carbon bomb:

If we take the 5.5 billion cubic feet per day production number that “could ultimately be much higher”, that adds up to 112 Mt, almost double all of the emissions in BC’s total inventory of GHGs (burning fossil fuels in province and all other sources).

Because the gas will be exported, most of these emissions will count in the GHG inventories of other countries rather than BC. Still, it is our crack they are smoking.

What is the payoff in term of jobs. The press release goes on: ”projects are each expected to create approximately 1,500 person-years of work during construction. The export terminal will create 120-140 permanent positions once it is in operation.” There will be additional jobs from fracking all that land to get at the sweet gas.

But overall, our green jobs and sustainable production paper estimated that mining and oil and gas extraction created 523 tonnes of CO2 per worker per year. That is just emissions in BC from extraction and processing. If we were to count emissions elsewhere due to the carbon content of the fuel that is combusted, that figure would be eight times higher.

If the objective of public policy was to put as much carbon in the atmosphere, as quickly as possible, Day One of the BC Jobs tour would have to be counted as a stunning success. For those of us who want a viable future for our kids, it is a tragedy.

I am in Prince Rupert today because if you are looking at Canada from Asia, with an eye to investing in our country, Canada truly starts here. It is through British Columbia ports where resources are shipped to Asia, and where goods arrive for distribution at home and to the rest of North America. A bright economic future for British Columbians is linked to opening up Asia-Pacific markets to the rest of Canada, and B.C.’s transportation network will be the key to success.

This is some wonderfully fresh thinking about BC’s economy and how government can create new jobs for the future. Oh, wait a sec, expanding exports to Asia has been the status quo for a couple decades now. Extracting resources for foreign markets goes back a century and a half.

But not only is this a replay of Greatest Hits from the 1980s and 1990s, it shows a government totally trapped in a resource extraction mentality, and an utter lack of imagination about developing an industrial strategy for the 21st century. While China has turned itself into an industrial super-power over the past couple decades, BC continues to rely on digging up and shipping out raw materials, then importing finished products. Increasingly, we have been exporting less processed materials like raw logs. If we are harvesting resources, minimally they need to have much more value added to them if we want to create good jobs.

Technically speaking, the government is committing a mere $15 million in support of transportation infrastructure, part of a $90 million project for which $30 million being put in by CN Rail. The Port of Prince Rupert is kicking in another $30 million, and the hope is that the feds will contribute another $15 million, so the full public subsidy is $60 million. A sweet deal for CN, who gets to pay 33 cent dollars on the project. And given the press release’s talk of transporting goods to market, let’s remember that CN is the company that bought BC Rail when it was privatized.

There was a time when the BC Liberals stood in stern opposition to public subsidies to business. But when we look across the resource landscape to private power projects, coal mines, and oil and gas, we see massive public subsidies all over the place.

This plan is predicated on continued expansion of trade to Asia, even as the price of fuel closes in on all-time highs. And that is with a global economy teetering on the brink of recession — if global demand were to pick up in a major way the costs of transportation could escalate even further. It is also trapped in a mindset that says all governments can do is create the conditions for foreign investors to come to BC and create our jobs for us.

In addition, there is also no consideration whatsoever of any environmental consequences in BC or elsewhere of ripping coal and other materials out of the ground for export markets. BC’s environmental assessment is essentially a rubber stamp for whatever big resource companies want to do, and provincial government workers that used to be eyes and ears of British Columbians on the ground have mostly been laid off (the context for the so-called “jobs plan” is a provincial effort to cut even deeper into public sector).

There are both local and global dimensions to environmental problems. The destruction of habitat in BC is just another cost of the resource extraction game that fails to be represented in the price of commodities we sell. Fossil fuel exports like coal also lead to huge greenhouse gas emissions in the Asian locales where they are combusted. Already, the amount of GHG emissions from burning BC coal in other jurisdictions are about the same as all of the fossil fuels we burn in BC each year.

Instead of rebranding the status quo to make it look like a jobs plan, I’d much prefer to see an industrial strategy aimed at weaning ourselves off of fossil fuels by investing in zero-emissions transportation infrastructure, retrofits of homes and buildings, aggressive recycling of materials in BC, and training and education to supply a skilled workforce to take on these green jobs. Phase one of the jobs plan will only lock us further into being a quarry for the rest of the world.

UPDATE: Clark will be expounding on plans for liquid natural gas terminals in Kitimat this afternoon. See this post for a review of this carbon bomb that would put almost twice BC’s current GHG emissions into the atmosphere each year.

****

Gideon Rosenbluth
January 23, 1921 ­ August 8, 2011

Gideon Rosenbluth died suddenly in Vancouver while swimming with a friend on
a sunny day. He had just spent a very happy week with visiting family,
taking long walks in the woods he loved, enjoying family meals and
discussions. He was a model to family and friends of aging with dignity,
wisdom and courage, remaining mentally and physically active until the end.

Born in Berlin, Germany, Gideon was the second of three children. The family
fled Nazi Germany in 1933, moving to England where he went to school. When
the war started, he was part of the group of Jewish refugees interned and
shipped to camps in Canada. That experience made him self-sufficient, strong
and to some degree shaped his politics. He always was on the left,
supporting progressive causes, writing and actively working for social
change.

As a professor of economics at Princeton, Stanford, Queens, and UBC, Gideon
was a distinguished academic who held high standards for himself and his
students. He taught and wrote about economic theory and its application for
the analysis of individual behaviour, corporate organization and government
policy. His rigorous approach to scholarship and community involvement was
guided by his commitment to social justice. At various times, he was
president of the Canadian Association of University Teachers, president of
the Canadian Economics Association, editor of the Canadian Journal of
Economics, an elected member of the UBC Senate and honoured as a member of
the Royal Society of Canada.

Predeceased last year by Mimi, his beloved wife of 66 years, Gideon will be
deeply missed and always remembered with love and laughter by his family:
sister Raja, daughter Vera, son-in-law Robin Hanvelt, son David,
daughter-in-law Molly Moss, grandchildren Marc (Marisa Victor), Jonathan,
Anna (Paul Sheridan), Peter (Milvi Tiislar) and great-grandchildren Gryffin,
Acacia and Alex.

Gideon leaves a rich legacy of values and life wisdom, according to which he
lived. Clothes don¹t make the man. Always have some granola bars in your
backpack. Keep trying for those perfect telemark turns. Don¹t waste time ­
it¹s precious. Don¹t ever be afraid to stand up for your beliefs. His last
great lesson to us was that with time, one can heal from even the greatest
loss.

A memorial gathering with family and friends will be held on Sunday September 25. Messages may be sent to
vrosenbluth@shaw.ca. Donations in Gideon’s name may be made to either of two
organizations close to his heart: the Canadian Centre for Policy
Alternatives, BC Branch, #1400 ­ 207 West Hastings Street, Vancouver BC, V6B
1H7 or  Outlook, Canada¹s Progressive Jewish Magazine, 6184 Ash Street,
Vancouver BC, V5Z 3G9.

In the Lower Mainland, the delivered cost of natural gas is approximately 3.28 cents per kWh, plus 0.45 cents per kWh in carbon tax.  This compares to BC Hydro residential rates of 6.67 cents (tier one) and 9.62 (tier two) per kWh for electricity.  Thus, gas prices are 56% the cost of the tier one electricity rate and 39% of the tier two rate, creating a perverse incentive to use gas as a fuel source instead of electricity.

Unfortunately, prices do not tell the truth. In terms of climate action and economics, there is an externality, or a cost borne by third parties to the market transaction, associated with burning fossil fuels. A recent study put the value of these external costs at up to $900 per tonne of CO2.  While this is the top of the range, it would translate into about 16 cents per kWh, and implies that the price of natural gas is as much as five times lower than it would be if all costs were included in the market price.

Decarbonizing homes requires, minimally, that the gap between current natural gas and electricity prices be eliminated over time through effective carbon pricing. And this must also take into consideration looming increases in electricity prices. The cost of natural gas may rise on its own account, but additional carbon pricing measures may be required to avert a widening gap. Longer-term, making prices tell the truth is needed if BC is to reduce and eventually eliminate fossil fuels like natural gas over the course of the next few decades.

A deeper problem is that the BC government puzzlingly considers natural gas to be a source of clean energy, and often talks about GHG reductions and increased gas production in the same breath. At best, it is merely the cleanest of fossil fuels. In regions where electricity is produced by coal, a switch to natural gas can lower GHG emissions per unit of energy, although in the case of shale gas fracking, natural gas emissions may actually be on par with coal.

From a consumption perspective, space and water heating are the two sources of GHG emissions in homes: space and water heating together comprise 99% of residential emissions (the remaining 1% is from appliances).  Electricity and natural gas are  competing energy technologies for providing these services. Existing homes using natural gas heating/cooling and hot water systems (typically hydronic systems) could be converted to renewable fuel sources such as waste heat, biomass, geo-exchange, and solar thermal. Heap pumps of various types (including ductless models that can replace electric baseboard heaters) are also a very efficient way of providing space heating. Neighbourhood-level or district energy systems (including waste heat recapture) could also play a major role in the transition away from fossil fuels.

BC’s population is expected to increase from about 4.6 million residents to over 6 million by 2036.  New housing and redevelopments should not be adding to BC’s appetite for natural gas, nor should energy efficiency programs subsidize conversion to natural gas. Instead, a slow-and-steady transition off of natural gas toward clean electricity from the grid and other on-site and neighbourhood-scale alternatives is needed, synchronized with energy efficiency gains to avert a major increase in electricity demand that could drive up prices.

The biggest overarching concern is that any such moves would massively increase poverty, or specifically energy poverty, where households spend a disproportionate share of their income on energy. A major plan for retrofit programs aimed at low-income households, and the older housing stock, multi-unit buildings and rental stock where low-income households are more likely to live is needed. Current energy efficiency grant programs are aimed at owners of typical single-family homes, which pretty much makes the irrelevant for low-income households. In addition to this, some form of income transfer (ideally, funded out of growing carbon tax revenues) would likely be needed.

Personally, I frown on offsets most of the time. Some colleagues have tried to make the best of them to use for forest conservation or to fund fuel switching and other desirable practices that move us toward a no carbon economy. I like all of these things but have concerns about how offsets work in the real world, and whether they make sense at all when we need to be at 350 parts per million when we are currently at 390. I can live with some limited and shrinking amount of offsets in the medium-term, but by 2020 or so they should be phased out completely in favour of real reductions in emissions from polluters.

In the case of carbon neutral government, there has been an additional concern cited about public dollars, at $25 a tonne of CO2, being diverted to the Pacific Carbon Trust, a Crown corp created to invest in private sector offset projects, typically by contracting out to private firms like Offsetters. The public sector in BC also pays the carbon tax, recently increased to (also) $25 a tonne as of July 1. (Aside: Happy Belated third birthday carbon tax; you’re getting so big and strong, you worry us that you will inadvertently crush the poor; we’ll have to fix that before we let you get any bigger.)

Offsets are really just another way of pricing carbon emissions, so mandatory offsets in the public sector mean government bodies are currently facing a carbon price of $50 per tonne, or double that of the private sector (school boards get a rebate for carbon tax paid but are still on the hook for PCT contributions). The rub is that PCT only funds projects in the private sector. The Sun reports:

Among the private corporations that benefited from such offset expenditures: Lafarge cement; forest companies Canfor, Interfor and TimberWest; natural gas company Encana; and Kruger Products, a manufacturer of toilet paper and related products. They earned the right to sell offsets to the public sector based on energy-saving initiatives.

Bob Simpson also writes about a particularly perverse case:

In May, the PCT purchased, for an undisclosed amount, 84,000 tonnes of carbon emissions from EnCana, a highly profitable company and one of British Columbia’s largest emitters. EnCana’s greenhouse gas reduction was reportedly obtained between 2008 and 2011 from a technological improvement in its extraction operations.

However, in the same region of the province that this reduction was supposedly achieved, the Horn River basin, EnCana is building its Cabin Gas processing plant without using carbon sequestration as originally promised. At full production, this one plant alone will add 2.2 million tonnes per year of new carbon emissions to the province’s total emissions. This is more than double the greenhouse gas emissions produced by the entire public sector on an annual basis, and represents 6.5 per cent of the emissions reductions needed to meet B.C.’s legislated targets by 2020.

This seems typical of BC’s typical flow of perverse subsidies to businesses – super-cheap green electricity for new coal mines and shale gas fracking; high prices paid to other private companies to generate that electricity; P3 projects for transportation and hospitals. Crony capitalism with a Lotusland twist.

The total bill for carbon neutrality was announced at $18.2 million. Some of the bigger chunks include $1.1 million for Vancouver Coastal Health, $664,000 for BC Housing, $406,ooo for the Vancouver School Board, $1.5 million for UBC, $444,000 for SFU, and $389,000 for UVic. Local governments are not technically part of carbon neutral government, but most have signed on to be so as of 2012 in exchange for rebates on their carbon tax (if they had been part in 2010, they would have kicked in roughly $4 billion extra to PCT).

Given the size of these institutions and a BC public sector of $40 Billion per year, none of these are huge amounts. Relatively clean electricity powers much of the public sector, and over time we need to cut out the gas. And the high carbon price has led to real projects that are reducing emissions. Perhaps the biggest concern to me is for schools, where the overall budget has basically been frozen for years, forcing real cuts in services due to inflation. It would be easy enough to cut school boards a cheque as they do for carbon taxes paid, but this has not been the case.

To be fair, there another side to the story and that is the BC government’s own investments in retrofitting buildings and its efforts to reduce emissions through videoconferencing and reduced travel. These are good things, and $75 million has been spent on such projects over the past three years through the Public Sector Energy Conservation Agreement. The problem is that the program is unfunded as of April 1, and the original one was over-subscribed. So there are projects that could be done if funds were made available, but they are not so the public sector must pay into the PCT, which does not fund projects in the public sector.

There seems to be an increasing recognition that this state of affairs does not make sense. Upon release of the carbon neutral government report, the Sun story adds:

Environment Minister Terry Lake said talks are underway with the Pacific Carbon Trust on how offset funds might be returned to public institutions such as schools. While “people don’t like the thought of public money going to help big organizations,” Lake noted that companies such as Encana also generate revenue for the province that goes back into funding health and education. Non-profits such as the Nature Conservancy of B.C. have also benefited from selling carbon offsets as a result of carbon sequestered in a Kootenay property that was not clearcut.

So we’ll wait and see. I’d much rather see a higher carbon tax applied to both public and private sectors on equal terms – and use some of the proceeds of the tax to fund mitigation projects through the PCT or otherwise. Another possibility is that the public-private carbon price gap be eliminated over a few years – the idea of government taking initiative and leadership on climate action is a good one to preserve. In the meantime, compensation should go to public bodies to ensure services are not adversely affected, and retrofit dollars should flow to create a asset base of low-carbon public buildings. And let’s see some real climate action from big industrial polluters, too, which the government’s right hand seems to be encouraging, just as its left hand is pointing out climate achievements.

[Note: This post builds on analysis on carbon pricing for the Climate Justice Project. See Fair and Effective Carbon Pricing: Lessons from BC.]

Below the radar, however, and not counted in the inventory are all of the emissions from coal and natural gas that come from BC but are exported. I did the math on what this means last year and found that BC exports about 52 million tonnes of CO2 equivalent from natural gas, all to the US and Alberta (and about the same amount from coal). This was in 2008, and together coal and natural gas exports have emissions about double what BC generates internally from combusting fossil fuels. As I say, we are not just an addict, we are a dealer. And a big one at that.

Along comes the prospect of liquid natural gas (LNG) terminals on the north coast, with dreams of shipping to power hungry China. According to this piece in the Sun, quoting Scotia Economics:

“Altogether, four proposed terminal projects could see up to four billion cubic feet of gas exported a day, the lion’s share of the region’s expected daily production of 5.5 billion cubic feet — though production could ultimately be much higher.”

In typical fashion for our mainstream media to deliberately fail to connect the dots, the article contains not a word about greenhouse gases. So I went and did the math, and 4 billion cubic feet of natural gas per day converts to 81.5 Mt per year. That is equivalent to 1.5 times existing BC’s gas footprint associated with exports.

If we take the 5.5 billion cubic feet per day production number that “could ultimately be much higher”, that adds up to 112 Mt, almost double all of the emissions in BC’s total inventory of GHGs (burning fossil fuels in province and all other sources).

This project is therefore a carbon bomb of mammoth proportions, but if it proceeds it will be counted in China’s GHG inventory not BC’s, due to accounting convention. So it is completely plausible that BC would meet its 2020 legislated targets for GHG reductions, and still have massively increased global climate change. Expanding this industry, when it needs to be decommissioned, is deeply wrong — that gas must stay in the ground.

But destroying the future is just so massively profitable that development goes ahead unabated, even as climate change impacts in 2011 are more evident worldwide than ever. Jim Stanford recently estimated that in 2010 Canadian resource industries made $27 billion in after-tax profits. Externalizing costs on other people around the world now and in the future is extremely lucrative.

Note: I have just calculated the emissions associated with the resource itself. There will also be large domestic emissions associated with getting the stuff out of the ground — “fracked” shale gas is equivalent to coal or worse when it comes to lifecycle emissions — which pretty much kills any likelihood that BC would meet its 2020 GHG target.

This project’s massive expansion of the oil and gas industry is a crime against humanity and must be stopped. Obviously the BC government supports it (and former oil and gas exec Gwyn Morgan is one of Premier Clark’s top advisors). NDP energy critic John Horgan has endorsed the project, though it is not entirely clear that Leader Adrian Dix has signed on. Yet.

So like a good action movie, there may still be time to defuse this carbon bomb. But the clock is ticking …

Our BC analysis draws on Statistics Canada’s Social Policy Simulation Database and Model to look at total BC taxes and key subcategories of personal taxes (income tax, commodity tax, property tax, MSP premiums) as a share of total household income, in 2000 and 2010. Results were broken down into deciles, and because so much of the real action is in the top decile it was further broken down into top 1%, next 4% and next 5%.

Unsurprisingly, total BC taxes as a share of income declined for every income group. This has undermined funding for public services, but has also led to a shift in who pays how much. The average tax cut was 2.3% of income, though there were larger gains as income increased. Tax reductions were only worth about 1% of income for the lower-middle deciles, increase to 1.8% of income for the upper-middle, then rise to 3.6% for the top 10%. However, the top 1% got tax cuts worth 5.1% of their income. In dollar terms, that is a gain of $41,000 for the top 1%, while those in the bottom deciles average a tax cut of a couple hundred bucks.

By contrast, in 2000 BC had a relatively flat tax system, with a modest bump in tax rate for the top 1%. By 2010, the tax system as a whole had shifted to become regressive. Income tax cuts, unsurprisingly, were the principal driver of lower taxes. The value of income tax cuts averaged about 0.2% of income for the bottom decile, rising to 5.2% for the top 1%. The provincial income tax system continues to be progressive, but has flattened out over the course of the decade.

Gains from income tax cuts were somewhat offset by increases in MSP premiums for middle-income groups, as much as half of a percent of income. But as “head tax” MSP premiums inevitably shrink as a share of income as income rises. So much so that for the top 1% the difference between 2000 and 2010 is negligible (and rounds to zero). For the bottom two deciles, exemptions based on income mean that the rate is effectively zero in both years; changes to increase the threshold meant reduced payments to a very small share of income (0.1%) for D2.

Bottom line: we need a fair tax system, and recommend a Fair Tax Commission that would engage a conversation with British Columbians about what public services we need, and how to pay for them fairly. A good tax system must also compensate for the tremendous inequality that arises in market incomes, which reiterates the need for progressive income taxes at a time when CEO, bankers and lawyers are making huge gains while middle class households are getting squeezed.

We were pleased to see a positive response from the Premier, who apparently shares our concern about the declining middle class. Alas, her Finance Minister, Kevin Falcon, simply dismissed the study without reading it. He then comments: “They want to go back to a system — tax the rich. They’re talking about the professionals that we’re trying to attract to B.C., the doctors and the nurses. We want them to come to B.C. and we want them to stay. We don’t want to chase them out with a tax system.”

Just to put that comment in perspective, the cut-off for making the top 1% in 2010 was $358,614 with an average income in that group of $825,000. We are not talking middle-class professionals here, though he’s right about the “tax the rich” part. Given what a great place BC is to live I don’t think a tax system that makes the wealthy pay a fair share is too much to ask.

A final note: we have received some criticism from economists that we include tax credits from GST/HST and carbon tax systems as income, rather than deducting them from taxes paid. We discuss this issue in the paper — technically, they are tax benefits, paid out the year after the tax year filed (you actually get a cheque or direct deposit) and by accounting convention they are considered transfer income in the SPSD/M. In a footnote we do some alt calculations that show the treating them as deductions from taxes lowers the bottom decile rate but still does not change the fundamental conclusion about regressivity. In any event, the key points from the analysis are what is happening at the top, not the bottom, as there are other things going in the bottom decile (we also discuss this if you want to get geeky about it).

Despite protestations from Statistics Canada that LICOs are not meant to be used as a measure of poverty, there are many groups that insist on using them for exactly that purpose.

We’ve heard this before from Statscan, it is not a new line. But it  is perhaps the most bogus argument ever. I have no problem with someone criticizing the shortcomings of the LICO, because no measure of a complex phenomenon like poverty is going to be perfect. There are Low Income Measures (LIMs) and Market-Based Measures (MBMs) too, though they tend to draw the same conclusions about the numbers. In the absence of an official poverty line and numbers, these are what academics and NGOs working on poverty issues will use.

What is irksome is someone from a stats agency, in this case working for the BC government, saying that because the official agencies refuse to define a measure of poverty and release the results, we the public cannot talk about how large poverty is. BC Stats released a similar such piece about a year ago so it clearly is a bee in Mr Schrier’s statistical bonnet.

But really, until you (Statscan, BC Stats or Dan Schrier) develop an official measure of poverty, stop the condescending finger-wagging at people who care about poverty and use LICOs.

Can we pin this all on climate change? Some say yes, others are more cautious about how much we can cite human greenhouse gas emissions. But all agree that what we are seeing is consistent with what climate scientists have been predicting for decades. Would those tornadoes have been averted in the absence of too much carbon in the air, or would they have happened anyway but packing an extra punch due to a warmer planet? We can only speak in probabilities not black and white, but there is a high probability that the extremes we have been seeing are part of our new 21st century climate.

Lots of people are connecting these dots. Canada’s mainstream media is an exception that continue to report extreme weather events on one page and oil and gas developments in the business section, as if there is no connection whatsoever. Worse, during the second (or was it the third?) round of tornadoes, the Vancouver Province ran a story, “No Link Between Tornadoes and Climate Change” (which I think ran through the CanWest media empire). It was a puff article quoting one person who made such a comment with no counter-point, but what is interesting is that some editor felt it necessary to make that a banner headline.

I think this wall of denial is about to fall in the next few years, and with it we need to usher in a new era of climate action. Serious climate action, not the slow and gentle first steps we’ve witnessed to date in places like BC and California (whereas other juridictions have done nothing at all). That means shifting to zero fossil fuels in the energy system as soon as possible, aggressively making our society more energy efficient, and redeveloping our urban spaces into complete communities that are substantially more pedestrian and bike-friendly, and with major investments in public transit.

But I think we need to up the ante for those pursuing business as usual, the relentless expansion of oil and gas infrastructure that is causing these problems and guaranteeing that they will be worse in the future. Actions that lead to mass deaths and displacements, either directly due to a weather event or indirectly from impacts on land and livelihoods, beg for some accountability. I’m no international law-talking guy, but I believe that these things can only be called crimes against humanity.

Let’s say that again. Efforts to expand the oil and gas industry, like the Keystone XL and Enbridge pipelines, are crimes against humanity. Expanding the coal industry, like the proposal to export megatonnes of Washington state coal, is not just bad environmental policy, but a crime against humanity.

The Economics of Climate Adaptation Working Group, including Swiss Re and other prominent grey-suited observers, calculate that weather disasters over the past 50 years have led to $1 trillion in losses and 800,000 fatalities. Those human and financial losses are only going to get worse. It is not polar bears and “future generations” we are talking about. It is the current impacts on people around the world who had nothing to do with the problem. It is about Canada’s First Nations, whose constitutional rights have literally been run over by those massive mining trucks that ply the Alberta tar sands.

I may be willing to give a grace period for actions take before 2000 or so, on the grounds that we did not know better (though we actually did). Nor would I punish regular folks (including me) who burn fossil fuels because of the structure of the world we live in and the lack of alternatives. This is about the dealers not the addicts; about the need for urgent change in response to the unfolding crisis.

It matters not whether such actions today are “legal” (almost all genocides were legal at the time) but they are deeply immoral and wrong. Major shareholders and senior executives in big fossil fuel industries – and the politicians that dote on them – need to understand that their profiteering off of destabilizing the climate will pay a price. That’s a little thing we call justice.

The problem arises in the idea that we can sell these good deeds to companies in other parts of Canada or the US who are not reducing their emissions, so that they can claim that they are. That is, BC should engage in conservation to reduce emissions AND those companies should also be reducing their emissions. Furthermore, it is a huge mistake to exchange emissions reductions over a thirty-year period, embodied in forests (which could burn down, be devastated by pine beetles or be clearcut a few decades hence), for current emissions from burning fossil fuels.

The widely-accepted target of 350 parts per million encompasses this debate. We are currently at 390 ppm, and need to get back down to 350. To get there we need to stop burning fossil fuels as quickly as possible, AND we need to engage in tree planting, forest conservation and better management practices to suck up that excess atmospheric carbon. Offsets are basically a sham if we accept this framework because we need to do that stuff anyway. The only true offset would be a new technology that literally did suck carbon dioxide out of the air and bury it underground, forever. Such a technology does not yet exist.

The other projects mentioned include a cement company switching to biomass instead of fossil fuels, and energy efficiency retrofits in trucks. Again, these are projects that should be happening anyway if we are to have a habitable planet a few decades hence. One other project is just plain dubious, an energy company with improved “conservation” of natural gas at drilling sites. In this case, a company that is engaged in putting carbon in the atmosphere could get paid for a change in operational practices that somehow puts slightly less carbon in the atmosphere.

Perhaps more disturbing is that the protagonist of the story is UBC’s James Tansey, Executive Director of the ISIS Research Centre of the Sauder School of Business. That makes it sound like just some interesting academic research being reported. But Tansey is also the ED of Offsetters, a company engaged in developing offset projects of the very type mentioned in the article. It is not necessarily the case that there is a conflict of interest here, but a probing journalist ought to ask what role Offsetters has in these projects, and whether Tansey stands to personally profit from the $1 billion in offsets being “researched”.