The Horse and the Cart: On the NDP Carbon Plan

“Alberta’s plan to reduce greenhouse gases includes an economy wide carbon tax of $20 per tonne of carbon-dioxide emissions starting in 2017, rising to $30 in 2018. For average Albertans, that translates into an extra $900 in household costs by 2030, including hikes at the gas pump and higher prices for natural gas to heat homes. Groceries and other secondary costs are also expected to rise because of added transportation costs.

Notley said she hopes a rebate program for 60 per cent of lower-income households will kick in and refund people before they even start paying the carbon taxes. She said she’s hopeful current government resources can be reorganized to roll out and administer new programs that will encourage individuals, municipalities, communities and industry to bring in renewable energy sources, such as solar, or make their homes and businesses more energy efficient. As all 18 coal plants in Alberta are phased out by 2030, two-thirds of electricity is expected to be produced by wind power, with natural gas supplying a solid base.”

 

  • Alberta Premier Rachel Notley says most Albertans won’t feel the pinch with new carbon tax, by JODIE SINNEMA, Edmonton Journal, Last Updated: November 24, 2015 3:26 PM

So, before I begin, I have to make a couple things clear. Firstly, I always approach any policy questions through a reason-based, evidenced-based lens. With such an approach, one must listen to experts. Those experts must come to their conclusions through analysis, experimentation and cataloguing the natural world. It is an old approach but undoubtedly the most unbiased one we have. As such, when

Climate Scientists throughout the world come up with a theory it is important, nay essential, to listen to their conclusions. The US Armed Forces has started to change their plans based on the conclusions of those scientists. Property Insurance underwriters have told Property Insurance Companies to change their models based on this advice. In fact, most money managers on Wall Street and Bay Street are also starting to change their models because they feel Climate Change is a real thing. So why doesn’t every politician do the same thing?

While, it is my belief that governments should act on facts that are supplied by pure research scientists and then ask other professionals on approaches as to how to solve the problems raised, History tells us that this approach has also been the most successful. The British Empire surpassed the French, Spanish and Portuguese because of this approach. Unlike so many of our colonial compatriots, Canada has become a world leader, not because of our population or might, but because of our grit, determination and our unflinching use of science, reason and knowledge. For example, the Canadian Officials knew about the Athabascan Oils Sands since the 1890s; however, it took until the 1960s until our companies could extract its full potential. We were the first in the world to be able to extract the bitumen from oil sands. Through grit, determination and unflinching use of science, reason and knowledge, we have become more.

With all this being said, there are also circumstances, in which Government has to act before all the facts become as clear as a scientist or other professional would like. Thus, governing is as much about understanding facts as it is about the estimation or interpolation of end results. As a result, Governing can be as much about its art as it is about understanding Science.

Given that one has seen my governing “creed” or “statement of beliefs”, one can understand that I can both want clear action on Climate Change and disagree with Premier Notley’s Climate Change Plan. For

Premier Notley’s plan puts the cart before the horse. Let me illustrate. The day after Premier Notley’s Presentation, I drove my wife to work and then drove my daughter and myself to the doctor. From there, my daughter was dropped off at her pre-school and then I went off to meet with a client. I eventually picked up my daughter so I could take her to soccer and after that picked up my wife.

During all that driving, I did wonder: would I have changed my behaviour if there were higher taxes? The simple answer is no. Having lived in Toronto, spending short stints in Ottawa and Moscow and travelling to various other places, I have had to change my travel habits many times. Each time, I change my habits two things come to mind: one, how can I get to a particular place; and two, what are the costs. 

For example, for the most part, when I am in Toronto, I try to use their public transportation service – the Toronto Transit Commission (TTC). In fact, I still have TTC tokens from my last trip. I do that because it is cheaper than renting a car and much easier than driving. Or put differently, given that the city of Toronto has twice the population, more visitors and almost 200 km² less of geography that Calgary; travel by the TTC in Toronto is easier than car. So, in Toronto, I use public transportation as much as I can.

While, my individual reactions don’t necessarily reflect the rest of society, one thing is clear: transportation calculations come not just from cost but from necessity. If I have to go to the doctor, I will get there. The only question is: “how will I get there?”.  In Calgary and Edmonton, for most people, public transportation is not an option. I know this from anecdotes and experience.

Calgary has a number of transportations issues. Firstly, a number of people commute into the city. Consequently, many people who live outside of the city barriers actually work in the city. Airdrie, Okotoks, Strathmore, Langdon, Chestermere and Cochrane are all just a few of the communities outside of the 825.3 km² jurisdictional authority of the city of Calgary but very clearly provide services and personnel to the city. Given that there is no public transportation between those cities; people tend to have to drive into the city.

But it doesn’t end there. Back in the 1940’s, the city of Calgary chose to get rid of its streetcar system. That momentous decision led to the spreading of the city. No longer were the residents tied to the quality of the public transportation system. With the advent of cars and the suburban lifestyle, Calgarians were content to annex nearby communities and spread. Montgomery lost its independence in 1963, while Bowness was annexed in 1964. Unlike, Toronto, Montreal or other cities, when Calgary’s population jumped from 100,000 in 1947 to 325,000 in 1965, Calgary reduced its public transportation system in favour of the car. The city of Calgary, subsequently, became a geographically large municipality with a low population density: a city whose citizens almost require cars to get around.

Furthermore, Calgary’s suburban nature and poor public transportation infrastructure is not helped by the structure of the labour market. In fact, it likely compounds the problem. Or put differently market, Albertans own trucks for professional reasons. Many Albertans are employed in the agricultural, construction or oilfield service industry. According to Statistics Canada, Alberta has the second highest concentration of farms as of 2011 (20%). While, the 2008 Statistics Canada Labour Force Survey Review noted that 17.2% of working Albertans were self-employed as compared with only 15.4% of employed Canadians in the rest of the country.

The same trend holds true in our Aboriginal communities. According to the 2006 Census, while Self-Employed Aboriginal people can be found in all parts of the country, the highest concentrations can be found in Ontario (23%), British Columbia (22%) and Alberta (18%). With this type of employment structure, one can understand why Alberta might have a disproportionately high rate of truck ownership. Given that self-employed people use their trucks for work, one cannot just ask them to switch to using public transportation to do their job. Thus, a carbon tax that costs them $800/year would not likely change the behaviour of these entrepreneurs. I know this because, as an independent financial planner, I am in the same boat. I am stuck with the tax and have few ways to change that reality.

This is not to say that many people –including myself – cannot change. As a self-employed individual, I constantly look at new ways of improving my bottom line. As such, it is not surprising that recently, I have made an effort to use the C-Train when I have to go downtown. From my home office, a round trip on the Calgary’s LRT system is $6.30. Compare that to the $20/hr price of parking in downtown Calgary and all of the other costs of a trip downtown; and one can see why I try to use the C-Train. However, in saying that, the C-Train has an obvious problem: limited service. At present, it is only good to get to a few places.

Or put in other words, if one could change their habits, they are not supported by the existing public transportation infrastructure. Thus, additionally taxes don’t make up for the lack of public transportation capacity in Alberta; and, additional taxes won’t cause someone to use a service that doesn’t exist. Thus, getting back to my original point, Calgary’s two biggest cities have an insufficient LRT network. To make matters worse, there is no rail service (i.e. a low carbon connection) between Fort McMurray, Edmonton, Red Deer, Calgary, Lethbridge and/or Medicine Hat. Consequently, there are few ways in which people can change their behaviour. If Premier Notley was serious about dealing with Climate Change, her solution would have been one that shifted the carbon footprint of Alberta’s housing and transportation sectors as well as any other areas within the provincial sphere of influence.

However, before one says that solutions don’t exist, I can assure you that the solutions are ever present. When my wife travelled in Italy last year, we were amazed by one simple aspect: the “electrical keys” in each house or hotel we stayed in. Simply put, in most hotel rooms, you had to place a “key” in the wall outlet for most appliances and lights to turn on. To have your TV on, you had to put the “key” in. If you wanted to have lights beyond the foyer; you had to have the “key” in. The “Key” was essentially a fuse which kept small amounts of power from being used when a person was not around.

While it drove me insane at the beginning, I thought about the potential savings. According to one article in Forbes Magazine, this type of simple solution could save lots of power. Or as their author put it: “An individual product draws relatively little standby power, but a typical U.S. home has forty products constantly drawing power. Together these amount to almost 10% of residential electricity use. Altogether, standby power use is roughly responsible for 1% of global CO2 emissions.” (Top 26 Stealth Home Energy Hogs, SEP 3, 2011 @ 06:59 PM, William Pentland, Forbes.com).

According to the Alberta Electricity System Operator (AESO), in 2014, we had a Summer Peak of 10,419 MW and a Winter Peak of 11,169 MW. There was 1,599 MW of new generation capacity added; and to the province’s credit, “2014 was the first year total installed capacity of gas-fired generation exceeded coal generation”. However, imagine if we had actually reversed that number without changing our lifestyle. Imagine if we had sensors that lite up a hallway only when someone was about to walk through it; or imagine we all had “electrical keys” to help us save energy. All of this is possible because I have seen it in other places. In fact, other places in the world have had this technology for years. According to Forbes, these changes could reduce the electrical needs of houses by 10 to 30%. Given Alberta’s high use of coal for electrical power – relative to the US examples Forbes Magazine was using – I would argue that we could drive down our greenhouse gases by more than the 3-5% suggested by models presented by the American magazine. By mandating these changes in new homes and requiring old homes to be retrofitted during renovations, one could see that a fine regulatory approach could pay off more than a carbon tax.

However, a simple analysis doesn’t stop there. Let’s talk about the issue of “home batteries”. Telsa is one of a number of companies that is building a “home battery”. The idea is simple. As we move toward a world of green power, we will have to begin to use more solar and wind based electrical generating solutions. The only impasse comes from the fact that the wind doesn’t always blow and the sun doesn’t always shine. Accordingly, if we want to wean ourselves off of fossil fuels, society needs “batteries” to store energy when it is produced.  The Danes and Dutch have proposed that electric cars be that solution. The problem with that idea is that the social transformation to make that possible is years away.

Thus, Telsa and a number of other companies have proposed a different solution: “home batteries”. While, each company has a different brand name, the concept is humble: provide each home with a battery that can take up extra capacity. When the wind is blowing, the “home batteries” take up the power. When the wind is not blowing, the batteries sell the power back to the grid. While, this too requires a new smart gird, it is possible today. Given that the batteries are less than $4,000 USD; and that as of the 2011 census ,there are 1,390,275 households in Alberta, the Government could have provided every Alberta household with a Battery for $5.6 Billion USD.

If Rick Bell is right and the NDP Carbon Tax is “3 Billion dollars a year” (Premier Notley says those not up for a carbon tax rebate can ‘reduce their use’ if they don’t want to pay as much tax, By Rick Bell, Calgary Sun, Nov 25, 2015), then a suggestion that has a one-time payment of $5.6 Billion USD (about $7.48 Billion CAD at today’s foreign exchange rate) is a bargain.

But it doesn’t have to end there. For, water heaters are the second highest source of energy usage in many homes. Imagine if the NDP had just mandated a move to more energy efficient heaters over a 5 to 10 year period. On the market today, there are water heaters which are 14 to 50% more efficient than the minimum standards required in Canada or the US. Even more astounding is that fact that solar hot water heaters are being used throughout Canada today. The NDP could have either funded, provided tax credits or required Albertans to use high efficiency furnaces, upgrade windows and doors, improve insulation standards or mandated the insulation of motion detectors for lights and heats in apartment buildings, hotels and large commercial offices. In less than a decade, if these measures where implemented in aggregate, they could likely have halved the 17% of carbon emissions that don’t come from the fossil fuel recovery. However, the NDP did not take the harder route.

Instead, the NDP decided to tax 40% of Albertans in a way that won’t push them to a new green energy future. For, many of us have already faced bigger price increases on our fossil fuel bills and have not changed our behaviour. Accordingly to Gasbuddy.com, in 2006, I would have paid just over 86.9 cents/L. Today, while, the average price paid for a litre of gas is now 100.9 cents. However, in the interim, gas prices have been pretty close to 142 cents/L. Yet, many people – myself included – have not changed our automotive habits. In fact, the changes in pricing required to upgrade homes, cars and other parts of our society would need to be more than the proposed $900 dollars a year tax for many people to act. Accordingly, the tax will not be effective.

Thus, the proposed carbon tax proposal is ineffectual and likely won’t get the desired result. While, the proposed carbon scheme protects the most vulnerable in our society, the tax doesn’t provide society with the tools required to make the necessary change. Or put differently, unlike other parts of the world, our government did not provide the investment or infrastructure necessary to switch us to a low carbon economy. The NDP has not given Albertans any real choice(s). Rather, what the NDP has suggested is that a tax will drive people to change. The only problem is that the tax is not high enough to drive that change. Accordingly, while the NDP’s Climate Change plan is by far better than the plan but forth by the Alberta Party, the NDP has not acknowledged the real problem. The NDP has not recognized that the problem is one of market failure. In 1840, 1867, 1933, 1975 and 2006, different Market Failures caused Canadian Governments to act. It is a shame that the NDP hasn’t recognized this one. For, as a Liberal – an Alberta Liberal – it is clear that we should act to protect the interests of all of us.  This means we need a real carbon plan.


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  • published this page in Blog 2015-12-11 17:46:00 -0700