Save Money, Ditch Kyoto

As the Martin government’s first throne speech approaches, there is much talk of fiscal responsibility. Finance Minister Ralph Goodale has ruled out raising taxes to address a shrinking government surplus. The Minister argues, We need to identify some additional savings in the current fiscal year to make sure that we stay fully in balance, and, at the same time, have the money for health care. Mr. Goodale also says that it is important to make sure that we [the government] does things that contribute to economic growth, and thereby make the pie [the economy] bigger for everyone and give us the flexibility to achieve our social objectives. So I’d like to point to something that Minister Goodale can do that would serve all of the important goals he’s raised: get his boss to ditch Kyoto.

First, there’s simply no real benefit, health, environmental, or otherwise to implementing the Kyoto protocol. Even scientists who tend to sound the alarm about global warming acknowledge that meeting the goals of the treaty would provide no significant environmental benefit. Fully implementing Kyoto, according to Tom Wigley, a leading climate scientist, would prevent a warming of the atmosphere amounting to 0.07 °C by the year 2050. Given that the yearly average temperature fluctuates randomly by 0.10 °C, this averted warming would not even be measurable.

Second, there is plenty of waste to cut: the federal government has pledged to spend $2 billion over the next five years to combat global warming by subsidizing dubious alternate-energy schemes, and offering people subsidies to insulate their homes. That’s on top of $1.7 billion that’s been committed (but not necessarily spent yet!) on global warming since 1997. Rescuing a couple billion of that would buy a lot of medical devices and doctor visits!

Third, there are the economic impacts. Even prior to ratification of the protocol, Simon Fraser University economist Mark Jaccard estimated that Kyoto compliance would cost 3 percent of the economic productivity generated between now and 2010; reduce incomes permanently by 4 percent compared to what they’d otherwise be after 2010; hike electricity prices by up to 80 percent; hike natural gas prices by 40 percent to 90 percent; and hike gasoline prices by 50 percent. None of those are compatible with Mr. Goodale’s desire to stimulate the economy.

But Jaccard’s estimate is looking lower all the time. The federal government recently announced that it was going to spend $1 billion to meet 8 percent of Canada’s commitment to reduce greenhouse gas emissions. As I’ve shown elsewhere, that’s just the barest tip of the iceberg. When you look at how much it has cost to raise revenue and administer environmental programs, that $1 billion becomes $1.35 billion. Now, if it’s going to take $1.35 billion to meet 8 percent of our Kyoto target, then a fairly simple calculation tells us that achieving 100 percent is going to cost at least $16.88 billion.
But even that’s just the beginning.

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 at least $354 billion (more, if later reductions are more expensive, as they probably will be). 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 percent below those of 1990. Spreading $354 billion out over 5 years, that’s about $71 billion per year taken out of a GDP of about $1.14 trillion, for about a 6 percent annual reduction in GDP.

Minister Goodale has some good ideas: control taxes, cut waste, and foster economic growth. If Minister Goodale is serious about his fiscal conservatism, and he wants to expand the pie of prosperity so that we can better finance our social goals, a good place for him to start would be to convince Prime Minister Martin to back Canada out of Kyoto.