A Billion Here, and a Billion There...

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Appeared in the Toronto Star, August 27, 2003

Nearly a year after signing the Kyoto Protocol, the federal government has taken concrete actions that let us put a price tag on that signature. The Chrétien government has said it plans to “invest” $1 billion on Kyoto in this year’s budget, to meet 8 percent of Canada’s commitment to reduce greenhouse gas emissions.

Let’s set aside the debate over whether climate change really poses a threat to humanity or the environment for the moment, and just do some calculations. Last year, it cost Environment Canada about $150 million to administer a budget of $841 million. That’s about an 18 percent administration fee. So Chrétien’s pledged $1 billion for greenhouse gas reduction is really likely to cost $1.18 billion.

But it also costs money to raise money. According to the federal ministry of finance, the lowest cost way to raise taxes is through the sales tax, through which costs about 17 cents to extract $1 in tax revenues from the public. So to raise and spend Chrétien’s $1 billion will cost at least $1.35 billion.

Now, if it’s going to take $1.35 billion to meet 8 percent of the Kyoto target, then a fairly simple calculation tells us that achieving 100% is going to cost at least $16.88 billion.

But that’s just the tip of the iceberg. Studies suggest that for every dollar the government spends on a regulatory initiative in the US or Canada, the private sector spends at least 20 times as much in order to comply. Adding private sector spending to the government spending, that would bring the full societal price tag for Kyoto compliance in Canada to about $354 billion.

And that $354 billion, if it’s to have any effect, will have to be spent before 2008, since the 2008-2012 time period is the one by which Canadian greenhouse gas emissions are supposed to have been reduced to 6% below those of 1990.

So, spreading $354 billion out over 5 years, that’s about $71 billion per year taken out of a GDP that’s about $1.14 trillion, for about a 6% annual reduction in GDP. Presuming all costs flow down to the roughly 15 million taxpayers in Canada, it’s about $4,700 per taxpayer per year for the next 5 years!

Of course, that’s probably a lowball estimate, since some studies suggest even higher compliance costs for industry; other forms of taxation raise the cost of raising money; and it’s likely to cost more for each succeeding set of reductions, hence while the first 8% might cost $1 billion, the next 8% is likely to cost a bit more, and so on with each succeeding step toward the target.

And for what, you might ask? Even those who believe that global warming is currently happening and poses future threats admit that Kyoto itself will buy precious little safety.

For example, Jerry Mahlman, Director of the Geophysical Fluid Dynamics Laboratory at Princeton University, told the Washington Post that, “The best Kyoto can do is to produce a small decrease in the rate of increase.” And in a post-Kyoto Science news brief, Mahlman admitted that “it might take another 30 Kyotos over the next century” to cut alarmist predictions of global warming down to size.

And Bert Bolin, the outgoing chairman of the United Nations Intergovernmental Panel on Climate Change, assessed the impact of Kyoto as a 0.4 percent reduction in greenhouse gas emissions compared to a no-protocol alternative, and concluded: “The Kyoto conference did not achieve much with regard to limiting the buildup of greenhouse gases in the atmosphere.”

But other economic benefits gained from avoiding predicted global warming make up for the spending we do today? Not according to respected Yale economist William Nordhaus. In a study on the cost and benefit of implementing the Kyoto Protocol, Nordhaus found the benefit-cost ratio of the Kyoto Protocol is 1/7. That’s right, even if global warming is really happening we stand to gain $1 in benefits for every $7 we spend.

In the run up to the Kyoto ratification, the Chrétien government downplayed estimates of the likely cost of Kyoto compliance. In the federal action plan, they claimed that Kyoto compliance would at the most, only slightly slow the growth of Canada’s economy and job creation. They scoffed at Alberta’s cost estimates that put the Kyoto price tag at $40 billion. Well, they were right in that at least: compared to the spending trajectory the Chrétien government has put us on, $40 billion was a gross underestimate. As the saying goes, “A billion here, and a billion there, and soon you’re talking about real money.”

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