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WHAT SHOULD WE PAY TO REDUCE GREENHOUSE GAS EMISSIONS?               Environmental organizations frequently call for Canadians to take expensive measures to reduce greenhouse gas (GHG) emissions that may accumulate in the atmosphere and eventually result in unwanted climate change. Economists have long studied the question of what premium citizens should be asked to pay in order to avoid the adverse environmental effects of climate change. This premium, often referred to as the “social cost of carbon” (SCC) has been variously estimated to fall somewhere between $20 and $85 per tonne, depending upon the inputs and assumptions used in the analysis. The primary tools upon which this analysis is based, however, are sophisticated computer models that attempt to integrate scientific assessments of the atmospheric effects of increasing GHG concentrations on temperature and other aspects of climate and economic assessments of the effects of these climactic changes on people’s incomes and wellbeing.

There are several problems with the analytical approaches that have been taken to date. Collectively, these problems suggest that the estimated values of the SCC are exaggerated. The modelers are free to use arbitrary inputs or ones that are largely unknown concerning climate sensitivity to GHG concentrations, social welfare and the economic effects of rising temperatures. The rate of time preference (i.e., discount rates) is a policy parameter, which reflects the choices of policy makers, not the objective assessment of analysts.

The Intergovernmental Panel on Climate Change (IPCC) considers that the atmospheric concentration of carbon dioxide, now 382 parts per million (ppm), should not be allowed to peak above 450 ppm and should stabilize in the long term at around 380 ppm. However, to achieve this, global emissions would have to decline by 60% by 2050 and emissions from industrialized countries like Canada would have to decline by over 80%. In fact, global emissions are rising, driven by economic development in developing countries and especially in Asia. According to the most recent authoritative forecasts, world energy consumption and related emissions will grow by 56% from 2010 to 2040.

There is no chance of a new climate change agreement before 2016 at the earliest, and that would not come into force before 2020. No progress seems likely on the core issues dividing developed and developing countries.

Canada represents only 1.9 % of global GHG emissions, and global emissions are growing at 1.2% per year. Even if Canada disappeared from the earth, global emissions growth would make up for the loss in 18 months.

Based on this, one should question whether any social premium should be paid for emissions reductions in Canada at all.  To make major costly emissions reductions in the absence of international agreement is to accept major economic harm with no compensating environmental benefits.

Robert Lyman, September, 2013

Robert Lyman is an economist specializing in energy issues; he lives in Ottawa.

Readers may also wish to read Ross McKitrick’s latest article on climate change statistics and forecasts here.