Recent Posts

Archive

Tags

No tags yet.

Paris accord not good for Canada

I wrote this back in June, and for some reason it did not upload. Re-reading it, it still seems à propos, particularly with Jagmeet Singh holding the balance of power in Ottawa!

Under the terms of the Paris accord, if Canada buys cars from a country which uses coal-powered electricity generation in the manufacturing process instead of from Ontario, where electricity is relatively clean, this would actually allow Canada to report lower emissions while the world as a whole would experience higher emissions.

Why?

Carbon emissions are reported at the point of generation rather than at the point of consumption. This has wide-ranging implications.

First, let me clarify my own position.

I believe we are on the verge of irreversibly triggering catastrophic climate breakdown and must act urgently. This must be in concert with everyone else to head this off. The last thing I want to do is jeopardise what was certainly a hard-won agreement between 196 countries (now 195 with US on the sidelines, but then they often come in late to major, just conflicts). I believe we need to reduce worldwide use of fossil fuels as quickly as we possibly can.

However, I am very troubled for Canada (and for that matter other resource-dependent economies) at the way we are evaluated on our emissions. This way of measuring is causing dissension in the country.

Under the Paris accord, Canada reports the following:

  • The GHG emissions, if I drive a gasoline powered car in Canada

  • Refining emissions if the gasoline was refined in Canada

  • Extraction emissions if the gasoline was extracted in Canada

However, if the oil was extracted anywhere else, and/or refined anywhere else, the jurisdictions where these processes took place will report the emissions.

What does this mean?

Canada can bring down the emissions it reports and get closer to its Paris targets by surrendering its domestic oil and gas market to other countries. However, our world realizes no environmental benefit.*

Further, if Canada competes successfully against other countries for oil market share outside Canada it will increase the emissions Canada must report. The extraction emissions are to be reported by the country where they occur, rather than by the end-consuming country. So, our environmental interests are diametrically opposed to our commercial ones.

This is a misalignment of interests. Essentially we choose commercial failure in a field that is a Canadian comparative advantage, and in which we have demonstrated ingenuity and deep cumulative knowhow.

In oil, and in mining, Canada should absolutely compete for the biggest possible market share in a market we sincerely hope is shrinking very fast. I think most Canadians realise this apparent contradiction is not one. It is a simple practical reality. It is not much different from Xerox. They must adapt to the digital document age but get as much profit out of printing and copying as it can for as long as it can. The profits finance that transition, so as not to go the way of Kodak.

In Canada’s case, the financial imperative is also to keep social cohesion with education, healthcare and the other services that make the country worth living in and of a mind and with the wherewithal to protect the environment in the first place: wherewithal that comes to a great extent from the extraction industries.

The Paris accord measurement approach pits Canadians against each other.

It is little wonder in this situation that Alberta politicians’ heads are exploding. If they successfully win business for Canadian oil in Asia, they make Canada a climate villain, and

at odds with the rest of us.

Meanwhile, Quebec buys oil from the Middle East, which is actually good for our emissions as they are reported.

Consider the absurdity of Norway, another oil-producing country. By 2030 they expect not to need any oil. Norwegians are paragons of climate virtue. However, if their external customers are not, or if they take market share in those customers away from Iran, for example, they will be charged with the emissions for the production of the oil, and possibly miss their Paris targets.

Simultaneously, oil-importing countries like Germany and France can reduce their carbon footprint by a small percentage shift to electric cars and at the same time improve their balance of trade: an alignment of interests.

The misalignment of interests that Canada is facing is leading to politicians turning themselves into pretzels. They are trying to reconcile the patent contradiction we have negotiated ourselves into between the federal government and the building and worrying levels of Albertans’ anger. A dangerously divisive situation.

Another example is the contortions proposed to get other countries to give Canada credit for the emissions they reduce when they replace coal with our LNG. If emissions were measured at the point of consumption instead, demand for our LNG would increase, and the world would benefit.

Canada and all other resource-dependent nations should be lobbying for a change in the reporting of emissions. The end-consuming country of any product should be charged with the emissions of the full lifecycle from extraction through to delivery to the end-user.

The demand side must be addressed. This change would mean that a signatory to the Paris accord would seek out the lowest carbon way to obtain products, regardless of the country of origin. This would drive a reduction in the total amount of carbon emitted globally, rather than merely shifting it from country to country.

The Chinese would still be motivated to reduce their oil consumption. They would also want to reduce the carbon content of the oil they do use. All suppliers, Alberta included, would still be motivated to reduce the carbon impact of their oil production in order to compete. Similarly, if one cell phone has lower lifecycle carbon content, regardless of where its components are sourced or made, it would be preferred. The carbon footprint should be reported at the end user level for the full lifecycle of the product.

Britain is a good illustration. The current perverse Paris accord incentives mean the British can claim credit for carbon emission reduction they have basically exported to other countries with their manufacturing. Even more paradoxically they can buy offsets overseas and claim credit domestically. The planet’s climate is not benefiting the way it should from what otherwise sounds like an ambitious plan.

https://www.theglobeandmail.com/business/commentary/article-britains-plan-to-go-to-zero-emissions-by-2050-wont-work-but-not/

If carbon emissions were reported for the full lifecycle of a product or service at the point of consumption, these contradictions would be eliminated.

In this scenario, if Alberta can get its oil to the Asian market, the increased emissions in Canada from extraction would be reported by the country that consumes the oil. It would not be reported by the country that meets that demand.

This would be good for Alberta, but also for consuming countries.

All countries would have a new baseline emissions level against which to report emissions only on what they consume, regardless of where the emissions occur. Under such rules, oil-importing countries would get even more benefit from reducing their oil consumption. They would be credited with the reduction of the full lifecycle emissions of the oil and not only for those emanating from the tailpipe. This change should be palatable to everyone. It just makes sense.

Asking any business (let alone a whole province, and thereby a country) to surrender any shrinking market for a legal good to its competition for any reason is bound to provoke vigorous resistance. When there is zero benefit to the global environment in doing so the reaction will rightly be a furious inability to accept that anyone could be so self-destructive.* With emissions caps in Alberta we are essentially handcuffing the industry, capping its market share.

The change I am proposing would allow our businesspeople in the resource sector to get on with doing their jobs as businesspeople in a challenging shrinking market, rather than expecting them to be schizophrenic, trying to satisfy shareholders and yet stop trying to make their companies successful.

We are at odds with each other in a way that is destructive to the Canadian federation, to no benefit to global emissions. Getting this reporting issue changed should be a priority for the Federal government. It is unfair to producing countries and will produce unintended perverse behaviour which will harm the global environment.

*This is predicated on the assumption that incremental oil extraction in Alberta is no more carbon-intensive than in other jurisdictions.

(https://www.nrcan.gc.ca/sites/www.nrcan.gc.ca/files/energy/pdf/eneene/pubpub/pdf/12-0614-OS-GHG%20Emissions_eu-eng.pdf) It is true that average per barrel emissions in Alberta are higher, but newer projects are as I understand it equivalent in impact to conventional oil extraction. In fact, incremental oil from Alberta used in Canada may have a lower per barrel impact globally than oil imported by supertanker.