Looking the Other Way on Climate Change

Canada only sees the costs of taking action on the environment, ignoring the opportunity that it presents.

All of the attention climate change and energy policy has recently received in the U.S. stands in stark relief to our more minimalist approach to the issue north of the border. Provincial actions apart, it is fair to say that the debate has never benefited from any “front burner” political consideration in our peaceable kingdom.

Why should that be? After all, as the second largest country in the world, with the world’s longest coastline, and vast amounts of territory in the high northern latitudes where the temperature increases will be most pronounced, we will certainly feel the impacts of climate change very strongly.

The answer, as it usually does, boils down to basic economics. For Canada, the prevailing orthodoxy – at least as it translates into the political dialogue – is that actually dealing with climate change will translate into costs that few other countries face. Those are seen as a function of our small and dispersed population, our large land mass, and our unforgiving winters; all translating into per capita energy use that is well above the global norm. Add to that the fact that a substantial part of our national wealth is generated by energy- (and carbon-) intensive economic sectors like oil and gas, mining, and forestry. We have in Canada a storyline that sees our economy as only “mines, forests, and smokestacks,” and that addressing climate change is pure cost.

What we are missing – or perhaps wilfully avoiding – is the idea that the climate change agenda is fundamentally an affirmative one. What we think of as costs are in fact investments that will yield long-term benefits. What we consider to be economic dislocation has the potential to be an economic transformation that will reshape our society in a positive manner. This tone is certainly how the issue has come to be defined in much of the world, where the assumption that “we need to re-boot our economies, and so we might as well do so in a way that moves us to a low-carbon society” prevails. Public and private investment is following suit, driven by a deliberate choice to think of the climate change agenda as a positive story about economic transformation.

For a concrete example, we need only look at the issue of electricity pricing. Cheap and reliable electricity has for many years been defined as a competitive advantage for Canada – and for the provinces that control it. The massive development of hydroelectricity in Québec not only serves the political imperative to be maîtres chez nous, but also the economic imperative to keep automobile manufacturing, aluminum smelting, and a host of other energy-intensive manufacturing activities in la Belle Province. In Ontario, a drive east from Toronto on the 401 reveals the close proximity of some the largest manufacturing plants in the province to nuclear power plants at Pickering and Darlington, a proximity that underlines the role that cheap electricity plays in the industrial structure of the province.

Electricity pricing, therefore, is seen through the lens of the historical relationship between cheap electricity and industrial development. Any policy that would result in higher electricity prices is seen as a threat to that relationship.

That choice, however, masks two costs: the hidden cost of producing and selling electricity at a price that does not include the environmental and health damages caused by electricity production that society pays for in other ways; and the opportunity cost – in terms of economic activity – that comes from pricing electricity to serve energy-intensive activities. I want to focus on the second cost here.

The old choice was a zero-sum game: if we raise electricity prices, we damage our economic prospects. But what if in raising those prices, we in fact create a whole new type of economic activity? Looking at the experience of other jurisdictions where high-energy prices are the norm, it isn’t hard to see that this is exactly what happens. Not only does manufacturing and industrial activity – and even primary extractive sectors such as we have in abundance in Canada – move up the value chain to capture larger margins for the products they produce, but a whole new type of economic activity arises – in the form of energy services companies (ESCOs), energy efficiency technologies and services, home retrofits, etc. – that is based on making economic activity in all its forms more efficient and productive.

This is the opportunity cost that illustrates the fallacy of our current choice. We choose to see nothing but economic pain in addressing climate change. We choose to ignore a truth that is quickly becoming apparent to the rest of the world: that it is actually an opportunity to make ourselves more efficient, more productive, and richer in the process.

How long can we sustain that choice?