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Monthly Archives: October 2015

Time to Move Beyond Harper’s Crank Economic Theories

While Conservatives still try to salvage Mr. Harper’s reputation as a competent Prime Minister, it might be useful to remind everyone just how bad an economist he was. Mr Harper went on about the “job-killing carbon tax” that the Liberals would bring in. This was bad economics on every level.

In the area of carbon taxation his advice went against the views of the vast majority of trained economists. He was expressing flaky views analogous to the flat-earthers or the creationists.

The real crime was that he pretended to be a competent economist. Like a quack doctor, he was issuing prescriptions in a field that he was not qualified to work in. It is true that Mr Harper had an MA in economics, and that this impressed many in his party. I have hired people with MAs in economics as research assistants. The fact is that it takes more than a year and a half to make a competent economist.chimneys_heating_plant001

One result was that a minister in his cabinet stated on Quirks and Quarks just before the election that a carbon tax will not reduce CO2 emissions. This is equivalent to saying that the law of demand doesn’t apply. Raising a price will not reduce the amount purchased. Demand curves do not slope down. It is a complete dismissal of economic theory. Mr Harper was responsible for choosing this man and for encouraging his nutty views.

We do know what competent economists are saying: finance ministers need to think about reforms to fiscal systems in order to raise more revenue from taxes on carbon-intensive fuels and less revenue from other taxes that are detrimental to economic performance, such as taxes on labor and capital. We do know that the world is swinging toward carbon taxes.

It may seem ungenerous to attack a man when he has just been humiliated in an general election, but it is important to think clearly about how loony Canadian policy has been on the issue of climate change. To see where the rest of the world is going, consider what World Bank Group President Jim Yong Kim said recently: “There has never been a global movement to put a price on carbon at this level and with this degree of unison. It marks a turning point from the debate on the economic systems needed for low-carbon growth to the implementation of policies and pricing mechanisms to deliver jobs, clean growth and prosperity.”

Canada has also reached a turning point. Our new Prime Minister is promising some action on climate change – vague action, it is true, but action. It may be that we are moving beyond Harper’s crank economic theories.

And if the remaining members of the Conservative Party want to be even remotely relevant in the future they are going to have to abandon more than Mr Harper’s nasty style of doing politics – they will have to give up on his delusional economics.

http://www.brookings.edu/blogs/planetpolicy/posts/2015/10/27-science-climate-policy-morris?utm_campaign=Brookings+Brief&utm_source=hs_email&utm_medium=email&utm_content=23270571&_hsenc=p2ANqtz-9RjDzFmogHz_SJZVAj0mxpdPkbubVSvqqBlZ4fIIAOHJpnZwdad5B1kcQ1Gjr99XKwzRYxkbOTheVyh4NoeIYwWHx7Ow&_hsmi=23270571

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Hey Glen and Glenn: The Ontario Chamber of Commerce is Challenging your Cap and Trade Approach

The Sudbury Chamber of Commerce and the Ontario Chamber have released a report demanding that the Province negotiate with the Chambers to protect its members from any ill effects of the province’s promised cap and trade system.

During the provincial by-election I explained to Liberal candidate Glenn Thibeault that Cap and Trade is very hard to do well. There is a lot of pressure to make exceptions. There is a lot of back room dealing. Everyone has a story about whey they deserve more free credits. Success depends on resisting potentially endless special pleading. I asked Glenn if he was sure he and and all his cabinet colleagues would have the backbone to resist. Once you open the Pandora’s box of special treatment, the only friends you have left are the friends you buy.

That’s what is happening right now, right out in public with the Ontario Chamber of Commerce’s report. They have launched a public relations program to sabotage the cap and trade system. They don’t see it as sabotage – they see it as protecting their members. They want a study, they want to slow down implementation, they want a guarantee that no members will be hurt and that no jobs will be lost.

The government will make concessions, and the wonderful Cap and Trade system will start the long march to 2050 with a broken leg and a driver who can’t see the where we are going because he doesn’t have enough backbone to lift his head.

Even before the by-election I made speeches in which I explained that, even when they do manage to get the caps in place, governments find it almost as hard to keep reducing the caps as it was to negotiate the original levels. Any caps will help a bit, but, to affect climate change, they have to be reduced quickly. It is hard to adjust a complex system, especially when you are dealing with property rights, which is what the tradable caps really are.CapTrade-Report-Thumbnail

After the by-election I wrote an intervention specially for the Minister of the Environment, Glen Murray, explaining in detail the problems with cap and trade and the advantages of a simple carbon tax.

If the two Glen(n)s had listened to me, they could have had a carbon tax in place by the end of August. They would have looked smart and brave.

Instead they are facing a year or two of design and negotiation before they have any effect. They have to create a costly regulatory and monitoring system. The companies that get the carbon credits will also have to create a whole system of lawyers, lobbyists and traders, as well as their own accounting systems. Some of that bureaucracy will be devoted to evading the rules. There will be fraud and constant pressure on the politicians. The waste of resources will be huge.

And the punctured and patched system they end up with will never work as reliably as a simple tax on combustion fuels coming into the province.

Cap and trade can be justified economically, although conditions have to be perfect. The real justification rests on two political realities. First, politicians want to hide behind companies rather than imposing a tax directly. Second, politicians vastly overestimate their own abilities and especially their own backbones.

The Ontario Chamber of Commerce plans to test those backbones.

http://www.cbc.ca/news/canada/sudbury/ndp-s-glenn-thibeault-proud-to-defect-to-ontario-liberals-1.2874576

It Ain’t Easy Being Anti-Green: Gwyn Morgan and the Laws of Thermodynamics

At the rate the technological revolution is moving, even Sesame Street is out of date. The skeptics who keep arguing that renewable power can’t replace fossil fuels seem to get a new hit every day. It gets easier and easier to be Green.

Bloomberg New Energy Finance (BNEF) reports that wind power is now the cheapest electricity to produce in both Germany and the U.K., even without government subsidies.

This has come out just a week after Globe and Mail columnist Gwyn Morgan published a column with the Headline “Drop gwyn-morgan-300x199the `decarbonization’ pipe dream; natural gas is the ticket to reducing emissions.” Morgan goes on about how much more reliable science is than the opinions of the mass of environmentalists. ” As an engineer, …” he writes, ” here is a reality check. The fastest growing source of global greenhouse emissions is the burning of coal to produce electricity.” He is right, and his `solution’ – replacing coal with natural gas – is a sensible short term bridge. It is obviously not a long term solution, since at best, electricity from natural gas cuts CO2 emissions by about 35%. And in fact we release almost as much CO2 burning natural gas to heat our buildings. Natural gas is not so much a friend of the global survival movement as it is an enemy of our enemy.

Morgan thinks he is relying on “science” and possibly even the laws of thermodynamics, but he is actually fighting the laws of economics.

If wind is cheaper than coal, wind will replace coal, not natural gas. In fact there is good reason to think that the exponential growth of wind power will accelerate.

There is a more dramatic story coming to light. The coal-based system in Europe is stating to collapse. Wind power is not just cheaper, but it also undermines the economics of coal.

Once a solar or wind project is built, the marginal cost of the electricity it produces is pretty much zero—free electricity—while coal and gas plants require more fuel for every new watt produced. As the Bloomberg article points out, “If you’re a power company with a choice, you choose the free stuff every time.”

As more renewables are installed, coal and natural gas plants are used less. As coal and gas are used less, the cost of using them to generate electricity goes up. As the cost of coal and gas power rises, more renewables will be installed. A vicious cycle for the fossil fuel. The whale oil industry collapsed the same way when kerosene entered the market – the distribution system actually fell apart well before the supply of whale oil disappeared once there was slightly cheaper competition.

So what will we do with Kermit’s song? Every day it seems to get harder for skeptics like the Globe’s Gwen Morgan. Maybe “Its TOO easy being Green” will give Gwyn the the touch of sadness that made the original so poignant.

So here is a question – should I change the title to “It ain’t easy being GWYN”?

http://www.bloomberg.com/news/articles/2015-10-06/solar-wind-reach-a-big-renewables-turning-point-bnef

The Non-News about TPP

The big MEDIA EVENT of the day is the TPP. In fact there is not much there.

FIRST, world trade was pretty free yesterday and it will be a tiny bit freer if the deal is ratified. Canada had few and generally small tariffs yesterday and some will disappear. The world has been moving toward freer trade for thousands of years. We already enjoy 98% of the benefits of free trade. So cool, it Dudes. not much has really happened.

SECOND, there really isn’t much credit to go around. Mr Harper was on the duty desk when the sun rose this morning. That doesn’t mean he made the sun rise. He didn’t make the tide come in, and he didn’t do anything to make the TPP happen except getting on the bus when he was called.

That doesn’t mean that the TPP won’t be a benefit to many many people. Some Canadian businesses will be better off. At least a few will be worse off. make The world will be a bit wealthier. Part of that wealth will be captured by a handful of big companies that got favourable treatment for their properties built into the deal. The rest will be spread so thinly that most people will probably not even notice.17768469126_cd62f159fc_b

THIRD, all of Canada’s major political parties support trade and approve the principle of freer trade. Whatever government was in power would have gone to the table when the TPP negotiations started. The simple fact is that it didn’t matter who was in power: we would be looking at a version of the TPP around now.

That means Mr Harper only did what anyone would do – Something like the TPP was coming. He can claim that he did something special, but trade deals have been on the agenda all around the world. He doesn’t get much credit for negotiating a deal. He is going to have to show that he got a better deal than other leaders would have.

FOURTH, there is no evidence so far that Mr. Harper’s team got us the best possible deal. We simply have no way of knowing at this stage what has been smuggled in under the pretense of freer trade.

FIFTH, leaked documents make it pretty clear that intellectual property protection, restrictions on labeling, expanded investor rights, longer copyright protection, more power for drug companies, increase government surveillance and other nasty or questionable provisions have been on the table.

The best image I can think of is that the government’s team has bought a truck that we are pretty sure we want, but we still don’t know how much cocaine was strapped to the frame before they brought it across the border. We won’t know what was smuggled in until the document has been released and thousands of Canadians have gone through it with a fine-toothed comb.

The negotiators for the US and Japan wanted expanded copyright terms because they have major companies that own huge collections of song, movie and book rights. EU negotiators are influenced by giant drug companies and want longer patent terms. They also want very strict limitation on sharing copyright materials, possibly even limiting the use in university courses.

Maybe some of these proposed rules are good for creators in the long run. Maybe they will encourage art and invention. The social value of the monopolies that these companies want is debatable. Certainly these provision will make lots of money for the companies. The real point is that Canadians have not discussed the trade-offs. Do we want rules that say we can’t insist on labeling milk products that contain traces of antibiotics? Do we really want unlabelled GMO products on our grocery shelves?

I am not saying I am against GMO’s or that I am convinced US milk inspection is not adequate for Canadian consumption. I am saying that a government that doesn’t listen to scientists and suspends them if they disagree with the Prime Minister probably isn’t qualified to make these decisions for us.

SIXTH, if I had been negotiating for Canada I would have been trying to get strengthened international standards for labour and the right to impose border adjustments on goods from countries with weaker carbon taxes or lower levels of publicly financed social security and healthcare. These are provisions that would raise world standards while giving us some freedom to strengthen our own environmental and social security system. I have no faith that our current government even thought of these demands.

SEVENTH, no matter what government negotiated the deal, Canada was going to be forced to give ground on supply management. Modelling suggests that Canadians would be the big winners form eliminating supply management, but no party has been willing to take on the dairy lobby, and that includes the Green Party.

The indications are that the immediate impact on the dairy industry will be small. On the other hand, Mr Harper has promised $4.3 billion to aid the transition. That suggests very strongly that the agreement includes almost total phasing out of the supply management system over time.

$4.3 billion sounds like a lot, but of course it is an election promise and Mr Harper has broken promises like this in the past. The promise is clearly an attempt to buy off opposition before an election, and it is clearly an example of spending Canadians’ money to buy a few votes.

EIGHTH, other parties have brought in an adjustment program when they gave up some or all of the supply management system. In all probability their plans would include more than just promising to throw money at farmers, but there would have been compensation. Canadian would expect some compensation for the small minority injured on behalf of the far greater majority. But again, this is a matter Canadians would probably like to discuss.

Mr Harper has also promised to spend $100 million a year for ten years to support the auto industry. Again this is the kind of vague budget allocation that he typically cuts back on later. More significantly, a single auto assembly plant will involve an investment in the range of $2 BILLION. The Prime Minister is trying to buy votes with chickenfeed in this case.

Overall, a deal like this was inevitable. The negotiators went home with some kind of proposal as we knew they would. We already knew roughly what would be in the deal and we still don’t know much more. Overall, the TPP is still a pig in a poke.