Ready! Fire! Aim!: Cost-benefit analyses should determine strength of emissions control measures before implementation

Canada’s Parliamentary Budget Officer recently concluded that the carbon tax is not proving, on balance, to be revenue neutral for most Canadians, a study that may lead many to question how cost-benefit analyses are being employed to justify climate policies. Among many initiatives, the federal government has introduced energy policies for a carbon tax, a clean fuel regulation, imminent new regulations for electric vehicle manufacturing, a clean electrical standard, and emissions caps. In the face of the US$390-billion American Inflation Reduction Act, with tax credits and write-offs for clean technologies and energy storage, Canada and the European Union have struggled to address this new competitive international renewable energy environment. Canadian examples include material investments contained in Budget 2023 for additional funding of $20-billion and $15-billion, respectively, for the Canada Infrastructure Bank and the Canada Growth Fund. Given the magnitude and economic significance of these proposed policies, one would think that principles for cost-benefit analyses would first be employed to assess the effectiveness of the proposed emissions control measures prior to implementation. Regrettably, this is appears not to be the case, which probably guarantees that emissions policies will be a source of growing economic and political debates. Ron Wallace is a fellow of the Canadian Global Affairs Institute, and resides in Calgary. Photograph courtesy of Canadian Global Affairs Institute Values for factors such as the “social cost of carbon” assume a disproportionate importance in determining cost-benefit outcomes. Environment Minister Steven Guilbeault admits that his department has yet to complete many of the essential analyses that assess the effectiveness of higher carbon prices, choosing instead to focus on the government's “messaging” around climate change and carbon pricing. So it is not entirely surprising that Parliamentary Budget Officer Yves Giroux may be struggling to understand the true cost implications of federal climate policies. For instance, the “2030 Emissions Reduction Plan” will require 100 per cent of Canadian passenger car and light truck sales to be zero-emission vehicles (ZEVs) by 2035. The cost-benefit statement associated with the ZEV regulation claims a resultant net benefit of $28.6-billion, of which $19.2-billion is attributed to “avoided global damages.” However, as with other Canadian climate legislation, this figure assumes an infinite pool of climate change-related damages—meaning that the avoided global damages used to justify the EV mandate is based on a bottomless pit of economic costs. Environment and Climate Change Canada’s updated use of the “social cost of carbon” has been criticized by Canadian economist Ross McKitrick as “a brand new model that no one has ever seen before, and it’s spit out this completely different social cost of carbon estimate that flies in the face of all the research that’s been done up to this moment.” Worse, the federal government appears to be moving away from market-based approaches to lower greenhouse gas emissions as it opts for ever-more targeted initiatives that entail other, massive subsidies for hydrogen projects, carbon capture and storage, clean electricity generation, and the manufacture of batteries and EV’s. The social cost of carbon dioxide is being used as a “climate calculus” to justify enormous expenditures for emission controls without apparently recognizing that it is a marginal concept that may downplay the true costs and benefits. In a July 2021 report for the Fraser Institute, McKitrick and American economist Robert Murphy noted, “Mainstream economists who follow the scientific literature have shown that the popular 1.5 degrees Celsius policy target will pose costs that far exceed the benefits, and that the emission reductions flowing from strict adherence to the 1.5 degrees Celsius target would be worse for the world than doing nothing at all.” As western nations, including Canada, race to implement policies for energy, there are abundant warning signs emerging that cost-benefit analyses may be used to justify—rather than assess—energy polices that reflect political ideologies, instead of principles for sound energy management. Ron Wallace is a fellow of the Canadian Global Affairs Institute, and resides in Calgary. The Hill Times

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Ready! Fire! Aim!: Cost-benefit analyses should determine strength of emissions control measures before implementation

Values for factors such as the ‘social cost of carbon’ assume too much importance in determining cost-benefit outcomes.

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