A physicist, a chemist, and an economist are stranded on a desert island. They’re starving. When a can of soup washes ashore, our lost professors are jubilant, until they realize they don’t have a can opener. What now? “We could drop it repeatedly from a tree until the impact forces it open,” suggests the physicist. “Or we could build a fire and heat the can until it bursts open,” offers the chemist.
“No, no, no,” counters the economist, that’s too inefficient. “Instead, let’s assume a can opener.”
Get it? Assume it’s funny, and read on.
University of Calgary economist Trevor Tombe argued recently that we can build new oil pipelines and still meet our climate goals under the Paris climate agreement by relying on carbon pricing alone, which he argues is cheaper than blocking new pipelines. However, Tombe’s thoughtful and good-intentioned economic model rests on a number of critical—and highly questionable—assumptions which, once brought out into the open, can’t be sustained or relied on.
Before critically examining Tombe’s assumptions and then setting out a proposed path to Paris without new pipelines, a brief word of clarification is in order. I’m not against economic models per se. But as Harvard economist Dani Rodrik explains, “it is perfectly legitimate, indeed necessary, to question a model’s efficacy when its critical assumptions are patently counterfactual.”
Tombe’s first critical assumption is that the implied opportunity costs of oil producers—which are purely notional, and not actually borne by anyone—can fairly and meaningfully be compared to the very real costs of carbon pollution and climate change that we’ll all pay—and pay dearly—if we make the wrong climate policy choices. When the oil and gas industry’s foregone opportunity costs are included in the policy mix, blocking new pipelines certainly appears expensive. But major oil producers can and should look after themselves by mitigating their potential losses in a carbon-neutral future. Say, by investing in alternatives to fossil fuels. Yes, costs matter in policy-making, but not all costs matter equally. When it comes to crafting a Canadian climate policy in the public interest, the public’s real costs matter. The oil and gas industry’s hypothetical costs due to foregone opportunities and imprudent investments do not.
Tombe next assumes that whatever carbon price is actually required to shift production and consumption away from fossil fuels to renewable energy (Tombe doesn’t say what he thinks that price is, he merely cites some “random numbers”), political leadership will be sufficient to implement it. This assumption flies in the face, however, of decades of woefully insufficient political leadership on the environment in Canada. This problem has been firmly established, time and again.
Tombe’s suggestion that Conservative leadership candidate Michael Chong’s advocacy of a carbon price of $130 per tonne (likely still too low) is evidence of sufficient political leadership isn’t especially compelling. Ask Liberal supporters what campaign promises are worth, or Trump supporters in the United States, who are about to find out. We can’t simply assume a high enough carbon price in Canada any more than we can assume a can opener on a desert island.
Tombe further assumes that without a new pipeline to tidewater, the climate-friendly Alberta NDP government will fall to its anti-climate rivals. But what does this say about Tombe’s faith in the sufficiency of political leadership to implement an efficient carbon price? And what are we to make of the fact that even the federal Minister of the Environment and Climate Change doesn’t think a carbon price alone makes sense? Our governments are more likely to pretend their policies are sufficient than confront what’s really required. They will have to be compelled to do what’s necessary. Unfortunately, that’s easier assumed than done.
Tombe proceeds to effectively assume that the Paris climate agreement will fail—that’s the only way to make sense of his claim that all forecasts “point to substantial increases in Western Canadian [oil] production.” But this simply isn’t true. The International Energy Agency (IEA) models the global oil market under a number of conditions, including the scenario in which governments implement policies consistent with the Paris agreement’s objective of keeping global warming below 2° C above the pre-industrial average and stabilizing the atmospheric concentration of carbon at 450 parts per million. In this “450 Scenario,” the IEA forecasts a peak in oil demand as soon as 2020 and a permanent decline thereafter, in which case we’ll have little need for new pipelines.
Finally, Tombe rightly acknowledges that climate change “is a problem.” But he maintains that blocking pipelines is not the solution. “Such efforts,” he argues, “may distract from good policy at best, and jeopardize it at worst.” Like most economists, Tombe assumes that “good policy” is ideal, efficient policy. But climate change is not merely a problem, it’s “a global emergency.” In an emergency where we have little-to-no margin of error, and where ideal solutions are not realistic, we have to pursue a precautionary mix of second-best policies whose goal is not economic efficiency, but real-world effectiveness (more on this below). The second-best solution to the can of soup problem, after all, is not the most efficient, but it nonetheless succeeded in actually opening the can.
The path to Paris without pipelines
Okay, then, what is the path to Paris if we say no to new pipelines—including Kinder Morgan’s Trans Mountain pipeline—and thereby imperil the political life of Alberta’s climate-friendly NDP government? The following five steps will be critical.
First, per article 4.4 of the Paris agreement, we have to undertake “economy-wide absolute emission reduction targets” by imposing a moratorium on new pipelines while implementing a national carbon price and a suite of flexible, clean energy regulations of the sort adopted with success in jurisdictions like California and Norway as convincingly advocated for by economist Mark Jaccard. This is far preferable to an incoherent sector-by-sector approach to implementing Paris that allows Alberta’s oil sands production and GHG emissions to expand while saddling the rest of the economy with making drastic, unrealistic emissions cuts.
Second, we must convince our political leaders to explain to Canadians once and for all that we have to phase out fossil fuels, but also make it perfectly clear that while this does not mean going off oil overnight, it does mean that we can no longer afford to build—and lock-in for decades to come—new oil pipelines.
Third, we must also compel our political leaders to make it clear to Canadians that just as municipalities and First Nations do not have a veto over particular natural resources projects, neither do provinces have a veto over national climate change policies. Whether Alberta’s climate-friendly NDP government survives the next election is of no moment. Even if an anti-climate provincial government emerges in Alberta, it won’t be able to prevent the federal government from moving forward on this file. As University of Ottawa law professor Nathalie Chalifour’s clear and comprehensive legal analysis shows, the federal government has ample authority under the Constitution to pursue pan-Canadian climate change policies, with or without the provinces’ consent.
Fourth, we must immediately make good on our 2009 G20 commitment to eliminate subsidies to the fossil fuels industry, which exceed $3 billion annually in Canada and which surpass subsidies to the renewable energy industry by a perverse ratio of four to one. This is critical to jump-starting the transition to a decarbonized future, and would create the kinds of good, green middle-class jobs that will be key to winning elections, particularly if this reinvestment strategy were paired with a comprehensive federal strategy aimed at achieving sustainability.
Finally, we need to heed the cool-headed advice of The Economist, which in its latest special report on oil argued that “the world needs to face the prospect of an end to the oil era.” To do so, we will have to answer The Economist’s existential question: will we “deal with climate change by researching and investing in alternatives to fossil fuels,” or will we “fight with gritted teeth for an oil-based future?”
Jason MacLean is an assistant professor at the Bora Laskin Faculty of Law at Lakehead University.