Canada Pays $85 Billion Higher Social Carbon Price Than Oil & Gas Revenues
Canada is a great place in many ways. I mean, we’re the hard-working beaver in bed with the cow bred to be all AAA marbled steaks, so when it rolls over we get squished, but other than that, we have a lot going for us. It’s really hard to find another country with as much empty space per person, or for that matter as many black flies per person. Or snow. Or coastline. Or peace, order, and good governance. Or comedians.
But there’s a bit of a problem with the country. We have an addiction to the black stuff. Yeah. Oil. Not like we mainline it quite as badly as the USA or Saudi Arabia, but we have a problem, and not one that going to a 12-step program will help. You see, oil and the other two fossil fuels make up 5% to 7% of our GDP. Our GDP is about two trillion US dollars, so that’s $100-$140 billion USD, maybe C$165 billion. The fossil fuel industry has our nose open, and we’re snorting the black sludge like it was crystal white powder.
Recently, the Canadian government updated its social cost of carbon (SCC). The social cost of carbon refers to the estimated economic cost of the damages caused by the emission of one additional ton of carbon dioxide into the atmosphere. It takes into account the long-term impacts of climate change, such as increased frequency of extreme weather events, rising sea levels, and reduced agricultural productivity. The SCC is used as a tool to determine the most efficient policy to reduce carbon emissions, by comparing the costs of emissions reduction measures with the projected damages caused by climate change.
The social cost of carbon increases pretty much every year. That’s because every year we keep adding to last year’s emissions, creating more damage. Most every country has been projecting the SCC for a decade or more, because it’s a good thing to do. And oddly, in many countries including Canada, it doesn’t appear to be heavily gamed.
So now Canada officially asserts that every ton of CO2 costs society C$261. That’s an interesting number for a few reasons. For instance, Canada is one of the countries in the world with a carbon price, one that started being applied in 2019. It’s rising year by year, and the current government has fought and won three elections, if not by large margins, with a carbon price as a policy, so Canadians like it well enough. That’s another good thing about Canada, by the way. We may be hypocritical, but at least we are doing something on the positive side of the ledger. Maybe that it’s revenue neutral and most Canadians get a rebate check in the mail every quarter has something to do with it too.
So what’s the current price per ton of CO2 in Canada? C$65. Is that equal to $261? No. Is it anywhere near $261? No. It’s rising, however, so maybe it will be close to $261 next year or maybe by 2030? Well, no. The carbon price is currently expected to stop rising in 2030 at a peak of $170. Hmmm… the social cost of carbon keeps increasing year by year, so what is it currently expected to be? $294. Yeah, still not even close. Oh, and the history of getting our estimates of the social cost of carbon right have shown that we’ve been underestimating it. Every time we, or any other country, updates our numbers, they get bigger than we thought they would be. So it’s likely going to be much higher than $294 in 2030 when we update it.
But at least our social cost of carbon methodology is now aligned with the US EPA, so there’s that. There’s a fairly big and important push to get an integrated methodology across major economies.
Okay, so we aren’t pricing carbon appropriately yet, and it seems as if we won’t be. But at least we must be making a lot more money off of the oil, gas, and coal we are selling than it is costing us in climate damages, right? Anyone? Bueller? Anyone?
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Well, now we go back to that C$165 billion of oil and gas revenues. How many millions of tons of CO2 were emitted full lifecycle by just Canada’s oil, gas, and coal industry? About 950 million tons in 2019. Hmmm… multiply by $261, carry the two… That’s about $250 billion in social costs from CO2. A quarter of a trillion in social damage. From one year of one industry’s emissions in one country.
Well, that’s interesting. It appears Canada is subsidizing its oil and gas industry by around C$85 billion per year, just on the social costs from the CO2 the oil and gas industry emits. Obviously we must be doing something about that, like forcing those emissions down. I mean, if we are causing that much damage to our country and citizens, not to mention other countries and people every year, we must be working to limit emissions from our oil and gas industry, and there should be some results, right?
Well, no. Canada would actually be on track to meet our Paris Accord targets if it weren’t for the oil and gas industry. We have a lot of legacy hydro dams, we’ve shut down a lot of coal generation, we’ve built some wind and solar farms, we’ve made it cheaper to buy electric cars in a lot of provinces, and we like heat pumps well enough.
But the oil and gas industry has increased emissions so much that Canada’s total greenhouse gas emissions have barely budged. We are off a bit by a gamed measure, but that’s mostly COVID-19, not hard-nosed climate policy. In fact, two provinces by themselves, Alberta and Saskatchewan, have consumed virtually all of the good work in decarbonizing of the other eight provinces and three territories. Given that they only have about 14% of our citizens between them, they are sure punching above their climate weight.
As always with greenhouse gas emissions, what year you pick to compare is a wonderful game. Germany picked 1990, because that was the year that most of the world agreed that we should do something about greenhouse gas emissions. Germany is off about 40% since 1990, despite having a higher GDP and population, and last time I checked, a pretty decent standard of living, as long as you avoided lederhosen.
Did Canada pick 1990? No, it picked 2005. In 2021, the country had reduced its greenhouse gas emissions by 8.4%, about 62 megatons. Yay, us! As a note, Ontario intentionally getting rid of its coal generation plants counted for 37 million of those tons, and the current government in that province is on track to add back as much of that as possible in the form of gas plants, because wind turbines are the devil’s pitchforks or some such nonsense. Oh well.
What about 1990? Is Canada down from 1990? Nope. Up by 13.9%, about 82 Mt CO2e. German was down by 40% since 1990. Canada up by almost 14%. Not a good look.
This, by the way, is the same game the USA is playing. The country picked a peak year in the mid-2000s and boasts about how much it is off since then. What about compared to 1990? Well, almost exactly the same as 1990 it seems, which is better than Canada is doing, so there’s that. But when other countries are off 40% since 1990, standing in the same place as the biggest emitter historically and second biggest emitter currently isn’t exactly a good look either. There are apologists talking about GDP and population growth, but the raw numbers are going to leave the atmosphere pretty raw too, so it’s a bit relative.
Assuming the social cost of carbon is C$261 for every country in the world, are current carbon prices and markets keeping track? The EU’s ETS carbon trading price on February 21, 2023 was €100.34 or about C$151. Better than Canada by a lot, but still far short of $261. California’s cap and trade system, which a couple of Canadian provinces participate in instead of aligning with Canadian federal policy, has a price per ton of US$51.92 to $66.71, or maybe C$81. That’s actually heartening, as it’s higher than Canada’s current price, and California’s economy is about 1.7 times bigger than Canada’s, and about 12% of the US economy. Good on California. Oh, that $81 is compared to the $261. Hmmm… not looking so good. China’s carbon market is already much bigger than the EU’s, but the price per ton is a tiny fraction still. Expect that to trend up rapidly.
Thankfully, the EU is exporting its carbon pricing of C$151 or so. How is it doing that? Well, it’s just signed off on its Fit for 55 program, which isn’t a weight loss program for people approaching retirement, but a climate deal. It includes a carbon border adjustment mechanism that means everything imported to the country pays the EU ETS carbon price, whatever that is at the time, unless they have an equivalent carbon price at home. That means that California can export stuff at a minor discount to Europe, but Texas sure can’t. And the EU is about a sixth of the world’s economy, so exports to that set of countries turn into a lot of money very rapidly. Canada, for example, exports about $50 billion in goods annually to the UE, and every one of those dollars is going to be paying a higher carbon price.
Carbon pricing globally is inadequate compared to the cost per ton we are emitting today. Our children and their children and their children’s children will be paying that price. But two steps forward, one step back is still progress.
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