Category: Economics

Matters of money

‘Shut down the oil sands’ is not an extreme position

Rather, it is the endpoint of joined-up thinking about climate science and energy policy.

On Twitter the other day, Suzy Waldman said: “Trying to envision middle ground between idea coalsands ought 2b shuttered and idea Canada’s economic fate depends on them”.

I think this perspective risks perpetuating one of the big problems in Canadian climate and energy politics – namely, the assumption that the oil sands have a legitimate future part to play in Canada’s economy and that any position that questions that is ‘extreme’ and outside the political middle ground. This may be true in terms of opinion polls and the positions of politicians, but this is because people haven’t really accepted that our current trajectory ends with planetary catastrophe.

We now have very clear and credible evidence that warming the planet by more than 2°C virtually guarantees big trouble for humanity. Crossing that threshold can be achieved by burning a fraction of the conventional oil, gas, and coal available on the planet. In short, then, we have a dangerous amount of fossil fuel available without even tapping unconventional sources like the oil sands.

Stabilizing the climate at any level of temperature increase means cutting greenhouse gas pollution to the point where the amount produced each year is absorbed by natural systems and so there is no net change in the concentration. Achieving that requires very deep cuts – essentially, the global phaseout of fossil fuel use. Stabilizing below the 2°C limit requires that all this happen extremely quickly. In such a world, it simply makes no sense to be building bitumen mining and in situ extraction facilities intended to operate for decades. Nor does it make sense to keep building pipelines to export fuels that we cannot afford to burn, if we wish to maintain a livable planet capable of sustaining human prosperity indefinitely.

This connects to the biggest problem with the oil sands: the way in which they contribute to a vicious cycle. We build more fossil fuel production capacity, so naturally we need to have transport and export capacity to serve it. The availability of fossil fuels then encourages people to keep investing in vehicles, power plants, and other facilities and equipment that require them. And so fossil fuel dependence is perpetuated.

If we are to avoid catastrophic climate change, we need to rapidly reverse that cycle. We need to be shutting down production capacity, and transport capacity, and facilities and equipment that depend on fossil fuels. That will probably make some things a lot more expensive and change the ways in which people live, but the alternative of a planet with a permanently hostile climate is clearly much worse.

Shutting down the oil sands is an extreme idea politically in Canada, but that is simply evidence of how poor the scientific basis for Canada’s energy politics is.

Tim DeChristopher’s expectations about the future

Orion Magazine has posted the transcript of a highly interesting conversation between Tim DeChristopher and Terry Tempest Williams:

[T]here’s no hope in avoiding collapse. If you look at the worst-case consequences of climate change, those pretty much mean the collapse of our industrial civilization. But that doesn’t mean the end of everything. It means that we’re going to be living through the most rapid and intense period of change that humanity has ever faced. And that’s certainly not hopeless. It means we’re going to have to build another world in the ashes of this one. And it could very easily be a better world. I have a lot of hope in my generation’s ability to build a better world in the ashes of this one. And I have very little doubt that we’ll have to. The nice thing about that is that this culture hasn’t led to happiness anyway, it hasn’t satisfied our human needs. So there’s a lot of room for improvement.

We are in the process of committing the world to a terrifying amount of climate change. It seems plausible that as it gets worse, people will eventually become less willing to work together to deal with it. Hopefully the next few years will see the emergence of a movement strong enough to close off the worst possibilities of extreme warming, and capable of adapting to keep humanity on a comparatively sane and cooperative path in the future.

Toronto350 letter on Line 9

Toronto350.org has submitted a letter of comment on the proposed reversal of the Enbridge Line 9 pipeline.

Given the unwillingness of the Alberta and federal governments to take climate change seriously, the best strategy open to us at this stage seems to be doing what we can to reduce the scale of fossil fuel exports, particularly by stopping oil pipelines and coal export infrastructure.

Federalism and the French Canadians

As part of my preparation for my August comprehensive exam, I read Pierre Trudeau’s 1968 collection of essays: Federalism and the French Canadians. Compared to the other texts on the list, it is short, clear, and accessible. While some of the controversies addressed are too obscure to be intelligible to someone who has never closely studied the politics of Quebec at the time, the book does set out the general thrust of Trudeau’s thinking in areas ranging from the shortcomings of ethnic nationalism to the importance of bilingualism and federalism in Canada.

Written during the middle of what has subsequently been called Quebec’s ‘Quiet Revolution‘, Trudeau’s book argues that the constitutional structure of Canada’s federation, encompassing Quebec, arose appropriately from the historical circumstances of Canada’s founding. (197) Regarding the future of that province, he describes two alternatives: one in which isolation and ethnic nationalism lead to stagnation and an economy and society falling ever-farther below the world standard, and another in which federalism is renewed, particularly through the universal application of bilingualism across Canada. (32, 48)

Trudeau does an acute job of identifying the shortcomings in an ‘asymmetric’ approach to federalism, in which some provinces are granted special privileges or substantially more power than others. For one, how can provinces granted such rights be appropriately accorded equal influence within the federal government to provinces with lesser powers? Trudeau also discusses the contradictions involved in asserting national self-determination for Quebec. If it is a ‘people’ that holds the right to declare political independence, how can they bring with them an Anglophone minority that doesn’t want to come, or indigenous groups that would choose to remain part of the rest of Canada. Similarly, how can they leave behind Francophones in other provinces? (153) He concludes that a modern state must be polyethnic and that such a character actually empowers and enriches a society through openness, diversity, and tolerance. (156-8, 165)

Trudeau stresses the importance of the division of powers to democratic legitimacy – describing the importance of the electorate being able to identify which level of government bears responsibility for a particular policy. The book also describes Trudeau’s perspective on equalization payments as an essential part of a federation in Canada, justified on the basis that they will allow all provinces – regardless of economic circumstances – to provide the same basic standard of social support. (27, 72)

In one long chapter, Trudeau describes what he perceives as the obstacles to democracy in Quebec. These are chiefly the things which the Quiet Revolution arose against: an overmighty Catholic church, restrictions in speech and education, a parochial elite dominating society, and lingering feelings of historical inferiority and exploitation. (106) He highlights, for instance, the enduring alliance that emerged between the English Canadian elite that played a large role in the Quebecois economy and the Catholic Church which was permitted to operate largely unchanged after the Seven Years’ War and 1774 Quebec Act.

Trudeau frequently expounds on the importance of reason and the allure and inadequacy of emotion for making political arguments or justifying political institutions. He is largely dismissive of nationalism as a force for unity in Canada. He also refers frequently to the importance of expanding individual liberty, using this as the criteria for distinguishing between ‘genuine’ revolutionaries and counter-revolutionaries. Trudeau’s view of constitutional politics is remarkably Burkean, with an emphasis on the idea that Canada’s constitution doesn’t merely reside in one or more constitutional documents, but also in precedents and traditions, and that the fact of standing the test of time is an endorsement of their merit. (20)

In places, the book seems to fall into some of the traps of which the author is wary. In particular, there are segments where close logical argument is abandoned in favour of something more like emotional or rhetorical hand-waving. Nonetheless this is an unusually interesting book. Indeed, it is probably a unique one in Canadian history insofar as it shows the thinking of a politically-minded academic who actually went on to make singular changes to how Canada is governed, via the patriation of the constitution and the Charter.

The difficulty of assessing the cost of nuclear power

This post includes some interesting information:

In the EIA’s analysis, which leaves out all incentives, the average cost of “advanced nuclear” or “next-generation nuclear” plants entering service in 2018—long lead times associated with these technologies will make it difficult to open any early—would be $108.40 per megawatt-hour (MWh), equivalent to $0.1084 per kilowatt-hour (kWh), in 2011 dollars. This seems in the right ballpark, as the estimated cost of power from the new nuclear plant under construction in the Kaliningrad region of Russia is around $0.10/kWh, a German lawmaker said in April.

For reference, the 2012 average retail price of electricity in the US was $0.1153/kWh. So the cost of new advanced nuclear power would be just barely below the retail price of electricity—power sold to you and me at home. (Commercial, industrial, and transportation customers all buy power for less than the LCOE cost for advanced nuclear power.)

In other words, it would be very difficult for a utility to make money selling power generated by advanced nuclear plants, if they had to shoulder the entire cost themselves. But they don’t.

Not included in the LCOE analysis is the cost of decommissioning nuclear plants, which is often externalized and pushed onto ratepayers through surcharges on their utility bills, or the cost of managing nuclear waste for decades, which is generally pushed onto taxpayers through the Department of Energy budget. And these are not trivial costs: Edison International estimates that decommissioning its San Onofre Nuclear Generating Station near San Diego, which it permanently retired last week, will cost around $3 billion. So the LCOE analysis actually understates the true, all-in cost of nuclear power.

Related:

Business and job creation

Nick Hanauer on ‘job creation’:

“So when businesspeople like me take credit for creating jobs, it’s a little like squirrels taking credit for creating evolution. In fact, it’s the other way around. Anyone who’s ever run a business knows that hiring
more people is a capitalist’s course of last resort, something we do if and only if increasing customer demand requires it.

Further, that the goal of every business – profit – is largely a measure of our relative ability to not create jobs compared to our competitors. In this sense, calling ourselves job creators isn’t just inaccurate, it’s disingenuous.”

Related: Voting based on the economy is dumb

More on climate change and capitalism

My friend Stuart on climate change and capitalism: How to Change the Future — and Why We Need To!

Personally, I can see why the argument that capitalism and sustainability are incompatible is convincing to a lot of people. At the same time, I think we have enough of a project on our hands just in replacing the global energy system with a climate-friendly alternative. Replacing capitalism at the same time may well be impractical – and there is no way of being sure that any system with which we replace it will do any better. To me, the liberal economic solution of internalizing externalities through regulation and tools like carbon pricing seems like the most promising path for checking humanity’s more self-destructive impulses. Admittedly, success will require that governments and citizens take a longer-term view of their own interests and develop a greater ability to resist the influence of fossil fuel companies and the short-term temptations associated with excessive fossil fuel use.

Also, I think there is a critical role that capitalist finance will play in driving the global clean-energy transformation. Right now, the plan is to spend trillions of dollars during the next century extracting and processing the world’s remaining fossil fuels. If we are going to build things like country-sized renewable energy facilities (which we will need for everyone on the planet to develop or maintain lifestyles that will probably be acceptable to them), that massive investment will need to be re-directed and the capitalist mechanisms of innovation, deployment, and return-on-investment will likely be necessary.

There was a discussion about this here before: Climate change and capitalism

Divest McGill arguments rejected

A committee formed by the administration of McGill University has rejected the argument from Divest McGill that the school should sell its stock in “corporations involved with the production, refining, transport and sale of fossil fuels” and “financial institutions which have not adopted a policy of making no further loans to corporations that produce, refine, transport of sell fossil fuels”.

Rather startlingly, the committee concluded that: “Since the Committee is not satisfied that ‘social injury’ has occurred, no action was considered or is recommended.”

Given that climate change is the ‘greatest market failure the world has ever seen’ the case that fossil fuel companies are doing social harm is very strong. While the committee’s decision is disappointing, it is useful for Toronto350.org insofar as it shows what sort of things the committee that will eventually be formed here is likely to focus on. For instance, no discussion of science and a strong emphasis on law. Knowledge that we derive from this response will help us make our own brief stronger.

We are also calling for a different set of actions from the University of Toronto, which I think will make it easier to establish our case. Specifically:

  • Make an immediate statement of principle, expressing its intention to divest its holdings in fossil fuel companies within five years,
  • Immediately stop making new investments in the industry,
  • Instruct its investment managers to wind down the university’s existing holdings in the fossil fuel industry over five years, and
  • Divest from Royal Dutch Shell by the end of 2013.

This seems easier than asking a Canadian university to divest from all financial institutions which invest in fossil fuel companies, which probably includes all those in Canada.

The McGill committee never got to questions of practicality or financial impact on the university, since they rejected the basic claim that fossil fuel companies are doing social harm. If we are able to establish the second point to the satisfaction of the University of Toronto, we will still need to address concerns in the first two areas.

Our brief still requires a lot of work, so if you know anyone in Toronto who would be willing to help, please encourage them to get in touch with us. We could especially benefit from anyone with expertise in law or finance.