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We have no idea of what the actual ‘full costs’ of climate change might be

That “conservatism” covers an awful lot of divergent — even subversive and contradictory — ideas will be evident this weekend in Ottawa, where the annual Manning Networking Conference takes place. Among the more wonky notions presented will be that of “full-cost pricing,” one of the central planks of Sustainable Development. SD embodies the notion that markets take no, or at least insufficient, account of resource depletion and future generations, and leave us perpetually open to nasty externalities, which are now grown gargantuan in the form of catastrophic man-made climate change.

The concept will be presented at a session titled Energy Development Through Smart Regulation by Nancy Olewiler, director of the School of Public Policy at Simon Fraser University. Ms. Olewiler’s views were outlined in a paper, Smart Environmental Policy with Full-Cost Pricing, released on Thursday by the School of Public Policy at the University of Calgary.

Ms. Olewiler claims that she and much of Canadian industry are on the same page because they both support carbon taxes. In fact, industry only supports carbon taxes as a least-bad alternative in addressing a poisoned policy issue, not, like Ms. Olewiler, as part of a grand utopian scheme to fine-tune markets for a brighter, carbon-constrained future.

Her paper is not all bad. Indeed, in suggesting that subsidies be phased out, it starts well. She identifies ethanol handouts as a loser, and electric car and hybrid support as misguided. One delicious calculation is that the ecoAUTO rebate program reduced carbon dioxide emissions at a cost of $4,541.57 per tonne (Ms. Olewiler recommends a national carbon tax be set at $30 a tonne, the level imposed by B.C.)

The report also acknowledges that: “The market is generating better, more energy-efficient products without the need for subsidies, as producers take advantage of new technologies and materials to cut their costs of production. Homes built after 2000 are about 35% more energy efficient than ones built in the 1970s. Household appliances consume substantially less electricity per hour of use now than 20 years ago. Refrigerators are more than twice as efficient, washing machines almost three times and dishwashers more than three times as efficient, comparing 1990 to 2005.”

But the private sector, like Boxer in George Orwell’s Animal Farm, can never do enough.

When it gets to pricing “natural capital,” the report starts going downhill fast. The first problem with trying to address climate change with full-cost pricing is that climate change isn’t an externality; it’s an apocalyptic projection of an externality. We have no idea of what its “full costs” might be, if any. Moreover, in the absence of concerted and draconian action at an international level — whose “full costs” are highly likely to be worse than the alleged problem — for Canada to go it alone would be suicidal. Even if the science were solid, which it isn’t, the fact the Kyoto process has collapsed and climate policy is in universal disarray should be sufficient to give pause to those who think Canada might help save the world by damaging its own economy. Carbon taxes are a burden on industrial activity, and thus destroy jobs. The idea that these jobs might be replaced by government-promoted “technologies of the future” has gone up in heavily-subsidized smoke.

In her paper, Ms. Olewiler castigates the Conservatives for their lack of “innovative” policy. Admittedly, Ottawa has outlined a dog’s breakfast of regulatory proposals, but we have to remember that the Conservative government’s primary objectives are not to be sideswiped (further) by U.S. climate policy insanity, while simultaneously cranking up oil sands production and infrastructure to diversify its export.

The federal government’s idea of smart regulation is less radicalism and less red tape, which seems to put Ms. Olewiler on the outside looking in. She is on an advisory board of Tides Canada, which has been fingered for funding green radicals, and on the steering committee of Sustainable Prosperity, a government-funded sleeper lobby group that promotes eco red tape.

Ms. Olewiler’s ideas get wonkier as the paper proceeds. She recommends a national system of “payments for ecosystem services,” under which Ottawa would pay private landowners to do what they already do best, which is preserve and enhance their property. She describes this as an “exciting initiative.” It would turn into a boondoggle.

Her proposals ultimately deteriorate into a kind of ecoGosplan when she suggests that major projects be required to submit “full cost” estimates to “independent” verifiers such as the Commissioner for the Environment and Sustainable Development, no doubt ably assisted by the Suzuki Foundation and the Pembina Institute. She also suggests posting refundable environmental bonds, presumably to cover the full costs of environmentalists’ worst nightmares. These would potentially tie up massive amounts of capital, with a corresponding further loss of investment and jobs.

A report in Thursday’s Globe and Mail suggested there might be some sort of smackdown Friday between Ms. Olewiler and Natural Resources Minister Joe Oliver, who are to appear at the same Manning session. However, Mr. Oliver is there to give a speech on “The government’s plans for streamlining the approval process for large-scale energy and resource-related projects.” He’s not there to receive advice on how to make the process even more burdensome.

Financial Post, 9 March 2012