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Economy

Wanted—a federal leader who will be honest about ‘climate’ policy

Published

2 months ago

7 minute read

From the Fraser Institute

By Ross McKitrick

Poilievre’s anti-carbon tax rallies are popular, but what happens after we axe the tax? If he plans to replace it with regulatory measures aimed at achieving the same emission cuts he should tell his rally-goers that what he has in mind will hit them even harder than the tax they’re so keen to scrap.

Pierre Poilievre is leading anti-carbon tax rallies around the country, ginning up support for an old-fashioned tax revolt. In response, Justin Trudeau went to Calgary and trumpeted—what’s this?—his love of free markets. Contrasting the economic logic of using a carbon tax instead of regulatory approaches for reducing greenhouse gases, the prime minister slammed the latter: “But they all involve the heavy hand of government. I prefer a cleaner solution, a market-based solution and that is, if you’re behaving in a way that causes pollution, you should pay.” He added that the Conservatives would instead rely on the “heavy hand of government through regulation and subsidies to pick winners and losers in the economy as opposed to trusting the market.”

Amen to that. But someone should tell Trudeau that his own government’s Emission Reduction Plan mainly consists of heavy-handed regulations, subsidies, mandates and winner-picking grants. Within its 240 pages one finds, yes, a carbon tax. But also 139 additional policies including Clean Fuels Regulations, an electric vehicle mandate that will ban gasoline cars by 2035, aggressive fuel economy standards that will hike their cost in the meantime, costly new emission targets specifically for the oil and gas, agriculture, heavy industry and waste management sectors, onerous new energy efficiency requirements both for new buildings and renovations of existing buildings, new electricity grid requirements, and page upon page of subsidy funds for “clean technology” firms and other would-be winners in the sunlit uplands of the new green economy.

Does Trudeau oppose any of that? Hardly. But if he does, he could prove his bona fides regarding carbon pricing by admitting that the economic logic only applies to a carbon tax when used on its own. He doesn’t get to boast of the elegance of market mechanisms on behalf of a policy package that starts with a price signal then destroys it with a massive regulatory apparatus.

Trudeau also tried to warm his Alberta audience up to the carbon tax by invoking the menace of mild weather and forest fires. In fairness it was an unusual February in Calgary (which is obviously a sign of the climate emergency because we never used to get those). The month began with a week of above-zero temperatures hitting 5 degrees Celsius at one point, then there was a brief cold snap before Valentine’s Day, then the daytime highs soared to the low teens for nine days and the month finished with soupy above zero conditions. Weird.

Oops, that was 1981.

This year was weirder—February highs were above zero for 25 out of 28 days, 8 of which were even above 10 degrees C.

Oops again, that was 1991. Granted, February 2024 also had its mild patches, but not like the old days.

Of course, back then warm weather was just weather. Now it’s a climate emergency and Canadians demand action. Except they don’t want to pay for it, which is the main problem for politicians when trying to come up with a climate policy that’s both effective and affordable. You only get to pick one, and in practice we typically end up zero for two. You can claim your policy will yield deep decarbonization while boosting the economy, which almost every politician in every western country has spent decades doing, but it’s not true. With current technology, affordable policies yield only small temporary emission reductions. Population and economic growth swamp their effects over time, which is why mainstream economists have long argued that while we can eliminate some low-value emissions, for the most part we will just have to live with climate change because trying to stop it would cost far more than it’s worth.

Meanwhile the policy pantomime continues. Poilievre’s anti-carbon tax rallies are popular, but what happens after we axe the tax? If he plans to replace it with regulatory measures aimed at achieving the same emission cuts he should tell his rally-goers that what he has in mind will hit them even harder than the tax they’re so keen to scrap.

But maybe he has the courage to do the sensible thing and follow the mainstream economics advice. If he wants to be honest with Canadians, he must explain that the affordable options will not get us to the Paris target, let alone net-zero, and even if they did, what Canada does will have no effect on the global climate because we’re such small players. Maybe new technologies will appear over the next decade that change the economics, but until that day we’re better off fixing our growth problems, getting the cost of living down and continuing to be resilient to all the weather variations Canadians have always faced.

Author:

Ross McKitrick
Professor of Economics, University of Guelph
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Economy

‘Gambling With The Grid’: New Data Highlights Achilles’ Heel Of One Of Biden’s Favorite Green Power Sources

Published on May 4, 2024

By

From the Daily Caller News Foundation

By NICK POPE

 

New government data shows that wind power generation fell in 2023 despite the addition of new capacity, a fact that energy sector experts told the Daily Caller News Foundation demonstrates its inherent flaw.

Wind generation fell by about 2.1% in 2023 relative to 2022 generation, despite the 6 gigawatts (GW) of wind power capacity that came online last year, according to data published Tuesday by the U.S. Energy Information Administration (EIA). That wind power output dropped despite new capacity coming online and the availability of government subsidies highlights its intermittency and the problems wind power could pose for grid reliability, energy sector experts told the DCNF.

The decrease in wind generation is the first drop on record with the EIA since the 1990s; the drop was not evenly distributed across all regions of the U.S., and slower wind speeds last year also contributed to the decline, according to EIA. The Biden administration wants to have the American power sector reach carbon neutrality by 2035, a goal that will require a significant shift away from natural gas- and coal-fired power toward wind, solar and other green sources.

A table depicting the decrease of wind power generation in 2023 relative to 2022. (Screenshot via U.S. Energy Information Administration)

“Relying on wind power to meet your peak electricity demands is gambling with the grid,” Isaac Orr, a policy fellow at the Center of the American Experiment who specializes in power grid-related analysis, told the DCNF. “Will the wind blow, or won’t it? This should be a moment where policymakers step back and consider the wisdom of heavily subsidizing intermittent generators and punishing reliable coal and gas plants with onerous regulations.”

Between 2016 and 2022, the wind industry received an estimated $18.6 billion worth of subsidies, about 10% of the total amount of subsidies extended to the energy sector by the U.S. government, according to an August 2023 EIA report. Wind power received more assistance from the government than nuclear power, coal or natural gas over the same period of time.

“This isn’t subsidies per kilowatt hour of generation. It’s raw subsidies. If it were per kilowatt hour of generation, the numbers would be even more extreme,” Paige Lambermont, a research fellow at the Competitive Enterprise Institute, told the DCNF. “This is a massive amount of money. It’s enough to dramatically alter energy investment decisions for the worse. We’re much more heavily subsidizing the sources that don’t provide a significant portion of our electricity than those that do.”

“Policy that just focuses on installed capacity, rather than the reliability of that capacity, fails to understand the real needs of the electrical grid,” Lambermont added. “This recent disparity illustrates that more installed wind capacity does not necessarily correlate with more wind power production. It doesn’t matter how much wind you add to the grid, if the wind isn’t blowing at peak demand time, that capacity will go to waste.”

Wind power’s performance was especially lackluster in the upper midwest, but Texas saw more wind generation in 2023 than it did in 2022, according to EIA. Wind generation in the first half of 2023 was about 14% lower than it was through the first six months of 2022, but generation was higher toward the end of 2023 than it was during the same period in 2022.

In 2023, about 60% of all electricity generated in the U.S. came from fossil fuels, while 10% came from wind power, according to EIA data. Beyond generous subsidies for preferred green energy sources, the Biden administration has also aggressively regulated fossil fuels and American power plants to advance its broad climate agenda.

The Environmental Protection Agency’s (EPA) landmark power plant rules finalized this month will threaten grid reliability if enacted, partially because the regulations are likely to incentivize operators to close plants rather than adopt the costly measures required for compliance, grid experts previously told the DCNF. At the same time that the Biden administration is effectively trying to shift power generation away from fossil fuels, it is also pursuing goals — such as substantially boosting electric vehicle adoption over the next decade and incentivizing construction of energy-intensive computer chip factories — that are driving up projected electricity demand in the future.

“The EIA data proves what we’ve always known about wind power: It is intermittent, unpredictable and unreliable,” David Blackmon, a 40-year veteran of the oil and gas industry who now writes and consults on the energy sector, told the DCNF. “Any power generation source whose output is wholly dependent on equally unpredictable weather conditions should never be presented by power companies and grid managers as safe replacements for abundant, cheap, dispatchable generation fueled with natural gas, coal or nuclear. This is a simple reality that people in charge of our power grids too often forget. Saying that no doubt hurts some people’s feelings, but nature really does not care about our feelings.”

Blackmon also pointed out that, aside from its intermittency, sluggish build-out of the transmission lines and related infrastructure poses a major problem for wind power.

“Wind power is worthless without accompanying transmission, yet the Biden administration continues to pour billions into unreliable wind while ignoring the growing crisis in the transmission sector,” Blackmon told the DCNF.

Another long-term issue that wind power, as well as solar power, faces is the need for a massive expansion in the amount of battery storage available to store and dispatch energy from intermittent sources as market conditions dictate. By some estimates, the U.S. will need about 85 times as much battery storage by 2050 relative to November 2023 in order to fully decarbonize the power grid, according to Alsym Energy, a battery company.

The White House and the Department of Energy did not respond to requests for comment.

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Alberta

Alberta government should eliminate corporate welfare to generate benefits for Albertans

Published on May 2, 2024

By

From the Fraser Institute

By Spencer Gudewill and Tegan Hill

Last November, Premier Danielle Smith announced that her government will give up to $1.8 billion in subsidies to Dow Chemicals, which plans to expand a petrochemical project northeast of Edmonton. In other words, $1.8 billion in corporate welfare.

And this is just one example of corporate welfare paid for by Albertans.

According to a recent study published by the Fraser Institute, from 2007 to 2021, the latest year of available data, the Alberta government spent $31.0 billion (inflation-adjusted) on subsidies (a.k.a. corporate welfare) to select firms and businesses, purportedly to help Albertans. And this number excludes other forms of government handouts such as loan guarantees, direct investment and regulatory or tax privileges for particular firms and industries. So the total cost of corporate welfare in Alberta is likely much higher.

Why should Albertans care?

First off, there’s little evidence that corporate welfare generates widespread economic growth or jobs. In fact, evidence suggests the contrary—that subsidies result in a net loss to the economy by shifting resources to less productive sectors or locations (what economists call the “substitution effect”) and/or by keeping businesses alive that are otherwise economically unviable (i.e. “zombie companies”). This misallocation of resources leads to a less efficient, less productive and less prosperous Alberta.
And there are other costs to corporate welfare.

For example, between 2007 and 2019 (the latest year of pre-COVID data), every year on average the Alberta government spent 35 cents (out of every dollar of business income tax revenue it collected) on corporate welfare. Given that workers bear the burden of more than half of any business income tax indirectly through lower wages, if the government reduced business income taxes rather than spend money on corporate welfare, workers could benefit.

Moreover, Premier Smith failed in last month’s provincial budget to provide promised personal income tax relief and create a lower tax bracket for incomes below $60,000 to provide $760 in annual savings for Albertans (on average). But in 2019, after adjusting for inflation, the Alberta government spent $2.4 billion on corporate welfare—equivalent to $1,034 per tax filer. Clearly, instead of subsidizing select businesses, the Smith government could have kept its promise to lower personal income taxes.

Finally, there’s the Heritage Fund, which the Alberta government created almost 50 years ago to save a share of the province’s resource wealth for the future.

In her 2024 budget, Premier Smith earmarked $2.0 billion for the Heritage Fund this fiscal year—almost the exact amount spent on corporate welfare each year (on average) between 2007 and 2019. Put another way, the Alberta government could save twice as much in the Heritage Fund in 2024/25 if it ended corporate welfare, which would help Premier Smith keep her promise to build up the Heritage Fund to between $250 billion and $400 billion by 2050.

By eliminating corporate welfare, the Smith government can create fiscal room to reduce personal and business income taxes, or save more in the Heritage Fund. Any of these options will benefit Albertans far more than wasteful billion-dollar subsidies to favoured firms.

Authors:

Spencer Gudewill
Policy Analyst, Fraser Institute
and
Tegan Hill
Associate Director, Alberta Policy, Fraser Institute
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