Rational vs. “Feel-Good” Carbon Policy – Transferability, Subsidiarity and Separation

Introduction1

Public policy on decarbonisation is driven to a large degree by specific carbon targets put forth by politicians and policy makers. In Western economies, this often involves targeted reductions of total output of atmospheric carbon, though such reductions are often delayed. Implementation usually involves a menu of approaches. Some are relatively decentralized, such as putting a price on carbon through taxes or emissions permits.  Others, are more centralized, such as subsidies for non-carbon technologies (e.g., wind and solar). Still others seek to promote more efficient use of energy through conservation and demand side management.

The usual assessment criteria include: whether the scheme is likely to achieve carbon goals (efficacy); is it cost effective (static efficiency); can adverse impacts on jobs and industries be mitigated and is there potential for job creation (macroeconomic effects); does it promote innovation (dynamic efficiency); is it politically feasible and sustainable (public support).2 Within this grouping, usually the first and the last i.e., efficacy and public support, are dominant in determining the choices. Public support is sometimes elicited through claims of job creation. The costs of achieving targets are often excessive, and resources specifically devoted to innovation are small compared to the costs of, for example, subsidies to existing technologies.

This paper has three central messages. First, costly carbon reduction initiatives that cannot be readily transferred (especially to the developing world) do not represent a rational allocation of climate change combatting resources, though they might make us feel good if we believe that we are doing our share. We argue that an increased focus on technological innovation is essential if the recently agreed global goals of “holding the increase in the global average temperature to well below 2° C above pre-industrial levels” are to be achievable.3 Second, a better balance between decentralized and centralized tools and approaches needs to be struck. This balance can be informed by the principle of subsidiarity. Third, the efficacy, efficiency and sustainability of decarbonisation programs would be improved if there is a clearer separation and an arms-length relationship between policy makers and regulators.

Stylized Facts

Of the many considerations that could conceivably be taken into account when formulating Federal, Provincial and Territorial carbon policies and regulations, we isolate a handful that we believe are especially important for our arguments.

First, worldwide demand for energy continues to grow strongly. This demand is driven by both population growth and increases in per capita GDP, particularly in developing countries. Energy demand and GDP are highly correlated: the more successful we are at reducing world poverty, the more voluminous the injection of carbon into the atmosphere, in turn leading to environmental impoverishment.

Second, hydrocarbon supplies are bountiful and prices are likely to remain low for the foreseeable future. The shale revolution has fundamentally altered oil markets.4 Low or moderate hydrocarbon prices reduce the economic incentives to switch to alternative fuels. Canada is well endowed with vast reserves of unconventional oil resources, particularly bitumen. World-wide natural gas supplies are expanding (China is now investing in shale development) and coal supply is in effect unlimited.

Third, history teaches us that energy transitions take many decades. The prediction is that the transition from 80 per cent hydrocarbons (where we are today) to 20 per cent hydrocarbons will also extend over many years. The transition from biomass to coal took about 60 years (1840-1900). The transition away from coal to oil and natural gas, spanned 70 years (1900-1970).

Fourth, the need for innovation can drive technological change. Historical examples abound supporting the aphorism “necessity is the mother of invention.” The Newcomen Engine, which was originally designed to allow pumping of water from coal mines, led to the Industrial Revolution; this is a particularly prominent example of economic motives driving innovation. On the other hand, the Manhattan Project was driven by security imperatives, the fear that the Nazis would develop devastating atomic weapons first.5

Historical Context

To situate our discussion of carbon policy in a broader political context, it is helpful to appreciate the historical perspective. During much of the 20th century, energy policy and regulation followed the overarching trajectories of societal views on the proper role of government. The Great Depression of the 1930’s represented to many the ultimate market failure as markets, left to their own devices, were unable to provide sufficient employment. During the ensuing decades, the proverbial political pendulum swung to the left with ever increasing roles for governments at various levels, including in energy industries.

However, the stagflation of the 1970’s constituted a major government failure — macroeconomic policies could not resolve the twin scourges of inflation and unemployment, which had been exacerbated by oil price shocks.6 This was not entirely, or perhaps even primarily a failure of macroeconomic monetary and fiscal policy. Regulatory burden had risen dramatically over the preceding decades, to the point where many industries were highly regulated. Growing evidence that regulation and government intervention had over-reached resulted in calls for reducing the role of government.  The political pendulum began to swing to the right with the election of Margaret Thatcher, then Ronald Reagan, and in Canada, Brian Mulroney. Various industries experienced deregulation, some with stunning success – for example, the telecommunications industry. There was increased reliance on market forces and privatization. The economic growth experienced in the ensuing decades was very much related to the deregulation that had occurred.

In energy, perhaps the most salient example is the shale revolution, which arguably would not have occurred in the absence of North American deregulation of natural gas. The spread of horizontal drilling and hydraulic fracturing (fracking) subsequently led to a momentous shift in oil markets, as we have argued earlier.

In areas where regulation continued to be required, forward thinking regulators shifted from comprehensive approaches to light-handed variants – “Competition where possible, regulation where necessary”, as it were.  In energy, the traditional “cost-of-service” regulatory model shifted to “incentive regulation”, the most common variant of the latter being “price-cap regulation.”

The verdict of the 20th century ideological drama that pitted societies based on market models against those based on central planning came out unequivocally in favour of the former.7 The fundamental message of this competition of ideas was that market deficiencies merited correction and not replacement with bureaucratic central planning.

By the 21st century, it appeared that in some areas, deregulation had gone too far. The failure of Enron in 2001 was small in comparison to the financial precipice of 2008.

Today, energy industries face what some have argued is the ultimate market failure – the externalities caused by the combustion of hydrocarbons, which are the source of about 80 per cent of energy world-wide.  Decarbonisation has become an increasingly prominent objective of policy makers, often with greater rather than lesser reliance on market forces. Cap-and-trade is an especially salient example whereby property rights in the form of emission permits are created and traded to reduce the costs of decarbonisation.8  

Climate related imperatives may lead to a new era of increasing regulation. This path must not ignore the lessons of the previous century – regulation may be required, but it should be relied upon where it is necessary, and implemented in sensible ways.

A Balancing Act

In arriving at carbon policies, decision makers evaluate the economic, environmental and security consequences of a particular path, balancing considerations in each area against the others, the so-called “energy trilemma.” (For the moment we will delay discussion of equity issues.)

Economic considerations, at a minimum, should involve a cost-benefit analysis to determine which policies and programs are the most cost effective in achieving objectives. There are also often broader economic issues to be considered, for example, impacts on job losses, job creation and overall economic growth.

Environmental considerations vary based on specific elements of a policy and they can be local, regional or national; they can also span multiple levels. For example, wind farms may have an adverse local environmental impact on inhabitants, but provide a clean and carbon-free supply of energy which benefit all.

Security considerations, in the first instance, usually refer to a reliable supply of energy, availability of infrastructure and protection thereof. (Intermittent renewable energy sources, for example, have resulted in a host of challenging but not unmanageable system control issues.) Furthermore, energy security can also play an important role in promoting national security.9

There are also interactions amongst the three elements of the trilemma. Access to energy promotes economic growth and prosperity. Economic strength has been, and continues to be essential to maintaining national security. Today, climate change itself is seen increasingly as a security issue, especially if changing local climates lead to droughts, food and water shortages, or rising sea levels lead to flooding of heavily populated regions with consequent migration of peoples.

Once a certain level of economic prosperity is achieved, increased attention is devoted to environmental matters.10 A country that finds it difficult to meet the basic needs of its population is not likely to devote major resources to switching from relatively cheap coal to more expensive but cleaner fuels, such as natural gas or renewables. Even advanced economies struggle to balance environmental goals against the economic needs and desires of their populations.

It is a fundamental tenet of economics that pricing mechanisms which reflect underlying costs lead to rational, socially optimal allocations of resources. Relatively efficient markets, with limited price distortions are socially desirable. Well-functioning markets also require sustained investment in capital assets, and in research and development to drive innovation. Recognizing that carbon policy follows an evolutionary path, predictable government decision-making with reasonable implementation lead times, efficient and efficacious regulatory processes, and simple protections that allow firms to conduct their business without undue obstruction, are all important contributory elements to economic efficiency and prosperity.

At the same time, carbon policies and the related energy decisions, with few exceptions, have differential impacts across various segments of the population. They are rarely Pareto-improving; in most circumstances there are individuals and groups that are adversely affected, and others who benefit. How does one deal with these distributional and equity impacts?

Conceptually, it is important to separate economic productivity and efficiency from distributional consequences. While suitable compensation may be appropriate for affected parties, one wants to achieve this with minimum price distortion or impact on productivity.11 Mitigation of impacts is often a complex and delicate matter, and may involve political compromise. 12 Economists would argue that, to the extent possible, market mechanisms should not be distorted in order to deal with distributional impacts, particularly if the latter can be addressed through other mechanisms.13

Subsidiarity and Separation

How does one who is not an expert in economics, political theory and government begin thinking in a sensible way about the proper division and allocation of roles when it comes to rational carbon policy?  As a departure point, consider the principle of subsidiarity: Decisions should be taken and tasks should be performed at the lowest level at which they can competently be decided and completed. The government should undertake responsibilities only if individuals or groups of individuals cannot fulfill them competently on their own.

There is great room for debate on the meaning and precision of this statement, but the general thrust favours decentralization which promotes a variety of approaches to problem solving and hence innovation. It also suggests citizens should, as far as possible, take responsibility for themselves, lest their ability to do so in a ‘nanny state’ declines over time.14 Centralization of control and decision-making concentrates power, which may require checks and balances to ensure that it is not abused. Unnecessary centralization can also lead to inefficient resource allocation.

The principle may be used to justify markets and to think rationally about regulatory boundaries. It is useful in delineating boundaries between local, provincial and federal government responsibilities.  (Why is defense a federal responsibility while garbage collection is at the municipal level?) In a different variant, it is a cornerstone of the Maastricht Treaty which establishes the European Union – there, the principle limits infringement of national sovereignty.

On the heels of the “government failures” of the 1970’s and the ensuing movement towards deregulation, a succinct dictum which echoed this principle was articulated as “competition where possible, regulation where necessary.” This slogan, which is closely related to the idea of subsidiarity, is repeated in many settings, but particularly during deregulation of various industries in the United Kingdom.

A second and related concept is that of “separation” which is central in political science as a bedrock device that, inter alia, limits the concentration of power, improves transparency and potentially increases public confidence in decision-making.15 In the context of energy and the environment, it can be used to inform the relationship between policy makers and regulators. 16

How do these principles apply to decarbonisation policy? 

As a first example, consider carbon pricing vs. feed-in-tariff programs. Carbon taxes and cap-and-trade approaches seek to restrict the production of carbon, but leave the choice of technology to individuals, firms and markets. For example, an electricity company seeking to reduce its cost of carbon might switch from coal to natural gas, hydraulic, wind or solar generation. This represents a relatively decentralized approach. Feed-in-tariff programs, as implemented to date, have typically required the government, through the regulator, to select the technologies it prefers, and to set prices and contractual terms for the electricity generated therefrom. This approach is more centralized. Are governments better qualified to place bets on technologies than firms? The principle of subsidiarity would suggest otherwise. Feed-in-tariffs may be justified if a more decentralized approach is politically infeasible, administratively too costly, or if there is some other market failure that cannot be readily overcome.

As a second example, consider innovation policies. Current technologies remain too expensive to address climate change. Developing economies are unlikely to adopt them in sufficient scale to reduce carbon injections to levels that would stabilize concentrations. Major breakthroughs (e.g., in electricity storage) and continued incremental improvements (e.g., in solar and wind technologies) are required.  Should these be left to the marketplace, or should the approach be more centralized? Innovations that can be monetized in a relatively short period of time, through patents and the creation of intellectual property, and through growth in sales and profits, are probably best left to company level decision making. On the other hand, basic research which does not directly lead to financial benefits (for example, because the results are not patentable) needs to be promoted and funded by governments.  Firms cannot be expected to devote major resources to programs that are unlikely to bring profits, even if there are potentially very broad societal benefits. In this case, subsidiarity is helpful in determining the roles of markets and decentralization on the one hand, and governments and centralization.

As a third example, consider the distinction between policy and regulation. Assets in energy industries are long-lived. On the other hand, governments face election pressures which can result in policies that are sometimes driven more by short-term political realities than by longer term societal objectives.  Difficult as it may be, this tension can be mitigated by a clear separation between policy-making and regulation.17

Visualizing the Challenge

Rational carbon policy requires an understanding of the sources and uses of energy, and the resulting carbon flows. Especially useful visual representations are contained in Energy Flow and Carbon Flow diagrams, such as those in Figures 1 and 2 (See pages 39 and 40). “Pipe” diameters are intended to be roughly proportional to energy and carbon flows. Even a cursory examination is fruitful.18

Total 2014 primary energy (at the top of the diagram) approaches 21,000 petajoules (PJ) but roughly half is exported (oil and natural gas). Somewhat less than 80 per cent of this consists of hydrocarbons (coal, oil and natural gas). Coal is predominantly used in the generation of electricity and represents less than 10 per cent of total domestic primary energy. Natural gas and petroleum shares each exceed 30 per cent of domestic energy. Renewable sources – hydraulic, wind, solar, geothermal — comprise about 13 per cent of the total. The remaining 10 per cent is produced from nuclear sources.

Next, consider the demand side which is divided into residential, commercial, industrial and transportation uses. The energy in each sector either produces “energy services” or is lost in the form of “rejected energy,” the latter comprising roughly 50 per cent of total energy. The least efficient sector is transportation where about 75 per cent of the energy is “rejected.” The most efficient is the industrial sector where only 20 per cent is ‘rejected’. Overall, it might appear that humans are woefully inefficient, “wasting” well over half of the energy we produce, but this is primarily a reflection of the state of technology and the Second Law of Thermodynamics which states that whenever energy is transformed from one form to another, some of it is dissipated. In fact, we have already come a long way. Fires used to heat and cook in the pre-industrial era “wasted” 95 per cent or more of the energy embodied in the wood they burned.

Figure 2 illustrates the levels of carbon dioxide emissions arising from the various energy sources depicted in Figure 1. One might think of the two diagrams as fraternal twins – the first mapping supply and demand in Canadian energy markets, the second illustrating an important corresponding  externality. The twins reveal important information about each other.19

Compare coal and natural gas. Although considerably more natural gas is used than coal, natural gas produces much less carbon dioxide per unit of energy.20  In fact natural gas has about half the carbon footprint of coal. Petroleum has about two thirds the carbon footprint of coal.

These figures suggest that switching from coal to natural gas in electricity generation can have a material, perhaps dramatic impact on CO2 emissions. Even switching from oil to natural gas in transportation may provide some carbon relief. The availability of shale gas, exploitable at low production costs, combined with its carbon advantage, would seem to herald a “golden age of gas.”  Some argue that natural gas is the bridge fuel that will take us from the hydrocarbon era to a future low-carbon world.21

The switch from coal to natural gas and renewables has taken place in the Ontario electricity industry and is in the planning framework for Alberta. In the U.S., the availability of cheap natural gas as well as government initiatives have led to a major shift from coal to gas in electricity generation.22

On a global scale, the picture is not encouraging. The coal share of global emissions from combustion is just below 50 per cent, oil is at about 30 per cent and natural gas is 20 per cent.23 One would think that a large migration from coal to natural gas would dramatically slow emissions growth, but this would not be a long term solution as natural gas is of course a hydrocarbon. Furthermore, in China, where coal is abundant and cheaper than natural gas, the use of the former fuel dominates the latter by an order of magnitude;24 a new coal-fired generation station is being completed every few weeks. As per capita Chinese incomes rise, hydrocarbon use in transportation will continue to grow rapidly.

Conclusions

Historians advise us that we suffer from “presentism,” a condition where current events, circumstances and attitudes are paramount in shaping our views. Instead, they counsel an historical perspective. In the formulation of rational carbon policy, two critical lessons are ignored at our peril.  The first is that energy transitions take many years. Thus, if decarbonisation is critical, then we need to be realistic about time-frames. Accelerated transition can occur, but it would be most likely driven by technological innovation. The second lesson is that markets and incentives can provide very powerful mechanisms for bringing about the transition.

Scientists and engineers typically have a different conception of what constitutes rational policy from those held by economists. For the former, expediency through problem solving is typically the focal point. Economists, often teased for assuming away the problem,25 focus first and foremost on creating incentives that are compatible with socially desirable outcomes. Political scientists, recognizing that politics is the “art of the possible” constrain recommendations of economists and scientists by focussing on that which is feasible. Politicians, regulators and lawyers, must of course put the ideas into practice.

Given their scarcity, it is essential that resources — whether they are channeled through subsidies, taxes, foregone economic productivity or other mechanisms — be expended prudently. Prudence requires not just a local but a global perspective. Transferability to other jurisdictions is key and should be a part of the policy evaluation mechanism. A multi-billion dollar expenditure in Canada which reduces carbon output domestically but is not transferable needs to be weighed against the expenditure of these funds on research and development of technologies that are more likely to be adopted elsewhere, particularly in developing economies where energy demand is growing voraciously.26

The architecture of our policy and regulatory structures, and their relationship to markets is critical. We suggest that subsidiarity is a useful departure point for assessing suitable roles and responsibilities, and determining which decisions should be centralized and which should be decentralized. In addition, subsidiarity is helpful in the articulation and evolution of rational innovation policy, most importantly, in determining what we might expect markets to generate and what requires government support and resources. We also suggest that a sharper separation between policy-setting and regulation would reduce adverse aspects of politicized decision-making.

Surprisingly, Provincial and Federal energy and carbon flow charts are not available on a common and comparable basis. Their wide availability would inform and facilitate public debate, discussion and policy development. “Feel-good” strategies that need rationalization include: those that are particularly costly; those that are likely to export domestic carbon production to other jurisdictions (so-called carbon leakage);27 and those that are unlikely to be transferable elsewhere, or adopted on a large scale.

The carbon challenge places greater pressure on liberal democracies. We have already observed polarizing and potentially destabilizing political trends, mostly of a populist nature. Conventional wisdom suggests that these movements have their roots in globalization, or more accurately in the distribution of its fruits. If growth slows because of the carbon constraint, social tensions in liberal democracies are likely to increase with greater competition for the “economic pie.”28 Innovation, which is at the heart of the prosperity of liberal democracies, provides the most promising route to the ultimate resolution of the carbon challenge.

Figure 1 – Canada Energy Flow

Figure 2 – Carbon Flow Emissions

*Department of Economics, University of Toronto, 150 St. George Street, Toronto, Ontario, M5S 3G7, Canada; [email protected] This paper is based on a presentation at the Canadian Energy Law Forum, May 18-20, 2016, Montebello, Quebec. The author is grateful to Gordon Kaiser and to participants of the Forum for helpful comments. The support of the Social Sciences and Humanities Research Council of Canada is gratefully acknowledged. All errors that remain are the author’s. Please do not quote without written permission.

  1. Portions of this paper draw directly and heavily on previous writings of the author, in particular Adonis Yatchew, “Economics of Energy:  Big Ideas for the Non-Economist” (2014)1:1 Energy Research and Social Science at 74-82 and the concluding section of “Energy Projects, Social Licence, Public Acceptance and Regulatory Systems In Canada: A White Paper” by John Colton, Kenneth Corscadden, Stewart Fast, Monica Gattinger, Joel Gehman, Martha Hall Findlay, Dylan Morgan, Judith Sayers, Jennifer Winter and Adonis Yatchew, University of Calgary, School of Public Policy May 2016.
  2. See, e.g., Richard Green and Adonis Yatchew, “Support Schemes for Renewable Energy: An Economic Analysis” (2012) 1 Economics of Energy & Environmental Policy at 83-98. For a recent evaluation of renewable electricity programs in Ontario, see Brian Rivard and Adonis Yatchew, “Integration of Renewables into the Ontario Electricity System”, The Energy Journal [forthcoming in 2016].
  3. Paris Agreement, UNFCCCOR, 21st Sess, Annex, Agenda Item 4(b), UN Doc CP/2015/L.9/ Rev.1 (December 2015), online: UNFCCC <http://unfccc.int/resource/docs/2015/cop21/eng/l09r01.pdf>.
  4. OPEC’s ability to exercise market power has been seriously undermined. In perhaps the most profound change in oil markets since 1973, extraction of unconventional oil has upturned oil markets not just because it provides a new source of supply, but more importantly because it is scalable. The cost of a shale well is a few million dollars (in comparison to billions for undersea fields). Saudi Arabia has altered its strategy to focus on market share rather than trying to influence market price. See, e.g., Adonis Yatchew, “Discerning Trends in Commodity Prices”, Macroeconomic Dynamics [forthcoming in 2016].
  5. Economists have developed a large literature along these lines under the rubric “endogenous technological change”.
  6. Inflation was eventually curbed quickly in the U.S. through the actions of an independent and credible monetary authority under the direction of Paul Volcker. Economic growth returned shortly after. If energy and climate policy are of such paramount importance, then greater independence of relevant regulators would be warranted.
  7. Liberalization, marketization and privatization were not limited to Western democracies.China’s strong growth in this century can be traced to modest liberalization policies begun in the late 1970’s. The dissolution of the Soviet Union resulted in a shift to market economics and multi-party democracy in a number of the previous Soviet satellites and republics. Certain South American countries also engaged the deregulation agenda, with varying degrees of success. This period of deregulation in less developed economies led not only to growth, but by many measures, to a reduction in global inequality as hundreds of millions were lifted out of the most extreme forms of poverty. See, e.g., Kenneth Rogoff, “Inequality, Immigration and Hypocrisy” (May 8 2015) Project Syndicate.
  8. Cap-and-trade is based on the work of Nobel Prize winning economist, Ronald Coase. The Coase Theorem proposes that property rights to an externality be created, and shows that regardless of their distribution, optimal social benefits are achieved.
  9. There are many instances throughout history where a reliable supply of energy has been paramount in considerations of national security. The West’s interests in ensuring the free flow of oil through the Straits of Hormuz, and European dependency on Russian natural gas comprise two contemporary examples with wide geopolitical ramifications. During the Cold War, the world was divided into spheres of influence. Following the collapse of the Soviet Union, there was a brief respite from this model of world order. But recently an expansionist China and resurgent Russia have created new ideological fault lines. Just as many argue that Canada has a responsibility to do its share in mitigating climate change, and alleviating global poverty, it could also be argued that it has a duty to protect the ideals of liberal democracy upon which it is founded, and to support allies and similarly minded nascent democratic movements. Its ability to do so depends on its prosperity and energy independence.
  10. The so-called ‘Environmental Kuznets Curve’.
  11. For example, increasing energy prices in a decarbonising world (e.g., as a result of higher costs of renewables or the pricing of carbon) can have significant impacts on lower income families, the so-called ‘energy poverty’ effect. Such circumstances, however, do not justify reducing electricity prices to all users. Instead, redistribution mechanisms which do not distort price signals, such as tax relief or direct transfers, are preferred to simply lowering prices for all consumers, regardless of income levels.
  12. See, e.g., Michael J. Trebilcock, “Dealing with Losers: The Political Economy of Policy Transitions” (2014) Oxford University Press.
  13. More recently, the idea of “social licence” has gained some currency. Amorphous as it is, the idea entails ongoing community support for projects, be they pipelines, transmission corridors, mines or other infrastructure.  Social licence, on balance, would likely make rational carbon policy even more difficult, a tyranny of the minority, as it were. First, there are likely to be increased incentives for “rent-seeking behaviour.” The threat of veto, or even obstruction, endows the affected group with leverage which can result in extraction of rents that are disproportionate to impacts. Second, a requirement of social licence increases regulatory and political uncertainty associated with a given project, discouraging investment, or requiring returns higher than are merited by the inherent riskiness of the proposed undertaking. In this case, prices in capital markets are distorted. Third, it has the potential for weakening property rights, thereby undermining the functioning of the marketplace. In this connection, the pursuit of environmental objectives, protection of the commons, can in important instances, be enhanced by strengthening rather than weakening property rights. The idea of social license has also been linked to notions of equity and social justice in the marketplace, in some cases rhetorically, in other cases substantively.
  14. In an unrelated setting, ‘helicopter parents’ are criticised for micro-managing their children’s lives, thus thwarting normal development.
  15. Think separation of powers, separation of “church and state” and separation of government from the economy (i.e., private ownership).
  16. Contrast energy regulation to the regulation of the money supply. Central banks in Western democracies are largely immune to political pressure because voters correctly understand that their elected representatives cannot effectively influence monetary policy. On the other hand, fiscal policy, such as taxation and government expenditures, are under the control of elected governments; initiatives in these areas are often the very focal point of political contests.
  17. See, e.g., Adonis Yatchew, “How to redeem Ontario’s electricity industry”, The Globe and Mail (15 December 2015).
  18. Such diagrams have come to be known as Sankey diagrams. See in particular, those produced by Lawrence Livermore National Laboratories in the US, online: LLNL <https://flowcharts.llnl.gov/>.
  19. The distribution of energy sources varies significantly by Province and Territory. Quebec, Manitoba and British Columbia are generously endowed with hydraulic resources. Alberta, on the other hand, has massive hydrocarbon resources, and unsurprisingly has relied on these resources not only for its own energy supply but for jobs and exports. Similar diagrams may be prepared for each Province and Territory, but do not appear to be available from public sources.
  20. These figures do not incorporate the release of greenhouse gases during the extraction process. Methane molecules have over 20 times the greenhouse impact of carbon dioxide and methane which escapes into the atmosphere (so called fugitive methane) may substantially increase the overall carbon footprint of methane.
  21. See, e.g., MIT Energy Initiative, The Future of Natural Gas, (Cambridge: June 2011).
  22. The fuel cost of gas-fired generation has at times fallen below the coal cost on an equivalent BTU basis. See, e.g., US Energy Information Administration, Electricity Monthly Update, (26 July 2016) , online:  <https://www.eia.gov/electricity/monthly/update/resource_use.cfm#tabs_spot-2 >.
  23. International Energy Agency, CO2 Emissions from Fuel Combustion (2015), online: <https://www.iea.org/publications/freepublications/publication/CO2EmissionsFromFuelCombustionHighlights2015.pdf >.
  24. Accurate data on Chinese emissions is difficult to obtain. In 2012, 68 per cent of energy consumed was from coal and 90 per cent was from hydrocarbons. Zhu Liu, China’s Carbon Emissions Report 2015, (Cambridge: Harvard Kennedy School Belfer Center, May 2015).
  25. “Assume you have a can opener” is a well-known quip about an economist’s solution to being marooned on an island with skids of canned food and no tools.
  26. Solar costs have dropped very dramatically, but are not yet at the point where they are widely affordable in the developing world. Some argue that in the absence of tax credits, residential solar power residential solar power will remain “far above grid parity in most American states for years to come”, (David Rotman,“Paying for Solar Power”, MIT Technology Review, 17 August 2015). Prices of Tesla battery packs have also dropped significantly, at the same time that storage capacity has increased. (Kevin Bullis, “Why We Don’t Have Battery Breakthroughs”, MIT Technology Review, 10 February 2015.) But they are still too expensive for widespread residential use.
  27. For example, carbon constraints that result in the migration of manufacturing from Canada, which relies relatively little on coal, to say China where coal is the dominant fuel source, may increase global carbon output.
  28. Separately, liberal democracies are likely to come under greater pressure from so-called illiberal democracies (a problematic term, in and of itself), but that discussion and its relationship to carbon and energy policies merits a separate paper.

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