The economy-environment debate is back

In BC, with a Thone Speech next week and the provincial budget the week after, the speculation has been around what additional measures might be announced in relation to BC’s commitment to a one-third reduction in greenhouse gas emissions by 2020 (relative to 2007 levels) and 80% by 2050. A carbon tax figures among that speculation.

Today, just in time for next week’s Throne Speech, CCPA released a climate justice discussion paper, Searching for the Good Life in a Carbon Neutral BC. This release is unauthored, one of the rare publications we put out that is the “voice of the CCPA”. I think it is the first comprehensive document of its kind to step beyond the science and targets to consider the social and economic implications of getting serious about climate change.

At the same time, the push-back from business has begun. They are getting antsy about what a carbon tax or a cap-and-trade system means for their competitive position vis-a-vis countries (and provinces, too, Alberta) who are not getting with the program to keep the planet tolerable for human life.

Ultimately, this should not be framed as environment vs economy. Instead, it is about what type of economy we want. A transition will need to happen to a carbon neutral society and economy. But we need to ensure that transition is fair and equitable.

It is also a transition that is going to happen over several decades not immediately. 2050 is 42 years away, and a lot can happen between now and then. Some 42 years ago was 1966, before I was born. To get a picture of how people back then saw the future, watch an episode of the original Star Trek. Today’s computers and cell phones blow away their equivalents on that show, and they were visioning several hundred years ahead (OK, there is no teleportation and warp drive yet, but we have time).

What we are looking at over the course of the next several decades is essentially an industrial revolution that de-carbonizes the economy. Along the way there will be job losses in some areas but also job gains in others. So we need to ensure that “just transition” programs are available that provide affected workers with income support, mobility allowances, and extensive retraining in order to take advantage of new opportunities. And there is lots of work that needs to be done! Even in the short-term, if the economy does head towards recession the best thing we could do would be to accelerate the build-out of rapid transit and affordable housing. This will absorb employment losses while positioning ourselves for the future.

There are also efficiency gains that can be had by business, by for instance, investing in more energy efficient capital equipment. Such moves can increase their competitiveness. Ditto for value added production in the resource sector. There will also be a growing market for eco-friendly goods and services. By being a leader, we can seize the advantage (… that last sentence reminds me of some of the crap I used to write when I worked for the feds; sorry, let’s try again …) position ourselves as first-movers in the development of new green technologies, power sources and so forth (was that better?).

It is worth remembering that other countries have much lower emissions than ours and still have strong economies. In Europe GHG emissions per capita are one-third lower than BC (that is, BC’s 2020 target is Europe’s current level of emissions); in Sweden they are one-half.

And finally there are costs of inaction. Last year a near-miss of massive spring flooding was estimated by Environment Canada at an averted cost of $6 billion (about 3% of BC’s GDP). Extreme weather also poses growing annual costs for (proactive) adaptation measures and (reactive) cleaning up the ensuing mess.

One comment

  • I think I’ve found a positive-sum idea. Over the past few weeks, when I’ve had internet access, I’ve been researching about the concept of “ethical derivatives”. That is, a derivative contract analogy to SRI/ethical-stock-portfolios.

    To simplify matters I’ve focused upon the added social capital inherent in environment, health-care and human development investments. Some commodities are inherently good or bad in their associated social capital returns. This accounting is the toughest part of the whole idea. For instance, tobacco is bad (health-care), USA corn is bad (perverse biofuels subsidy), coal is bad…

    A voluntary tax, analogous to Green Tags, is far more likely to be accepted by a derivatives exchange. The option to pay a voluntary tax should be mandatorily imposed at every single trade of a targetted contract; the superior number of transactions in derivatives trading as compared to a spot price sale, makes derivative exchanges a more lucrative target than spot markets.

    Where “good”, the tax should be imposed upon the short end of a contract. Where “bad”, upon the long end. The minimum contract uptick or downtick ($2-$10 per contract), seems a reasonable voluntary tax to pay. Additionally, the “Commitment to Development Index” (www.cgdev.org/section/initiatives/_active/cdi/) is the best ranking of foreign development I’ve seen’ pitting about 18 countries against eachother could be used as a proxy to utilize the ethical derivatives tax towards good or bad bonds and currency positions. But this ignores the currencies and bonds of countries not in the index and doing so might be distortive: a country ranked near the bottom of the index might still empart fewer negative externalities in their development aid budget than the majority of traded currencies not in the index.

    How to use the revenue generated in tough. In doesn’t make sense to throw it on the opposite side of the contract, as even a trader having a wicked year is unlikely to send price signals against their current position. But derivative markets are primarily used by traders, not the actual contract instrument buyers (ex. General Mills) or sellers (ex. farmers). Anything that increases the churn, the volume, in the derivative exchange itself, should benefit speculators in the long term. New contracts are always being indroduced via new exchanges in the developing world and new contract instruments.
    Just by virtue of being listed in a given exchange, a stock’s market cap will appreciate, and vice-versa. There are many derivative instruments (indium and gallium are needed for polymer solar cells) that are not presently traded on any exchange. There are many intruments that are, like wheat, that aren’t traded (Ethiopia as of 2005) and could be with underlying investments in a derivatives exchange, grain elevators, roads, etc. So the idea is to take the ethical derivatives tax, and use it to list novel socially responsible derivative instruments. There are variety of the latter: indium, gallium, wheat in Africa, renewable electricty generation, cut flowers in Africa use 6x less GHG than do those grown in Europe (but maybe perishability is an issue). Some commodities have elastic supplies and some don’t…
    Hogs delivered to western markets are probably a healthcare cost, delivered to protein deficient 3rd world markets a net gain. There are also novel pharming and GMO crops capable of unleashing socially responsible derivative contracts.
    Anyway, there is a lot to this idea and I don’t have home internet access, so I’m hoping someone might take the ball and run with it.

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