Bizarro World: Taxes to subsidize

pollution elsewhere
Gwyn Morgan – Globe and Mail, December 7, 2009

Gwyn Morgan is the retired founding CEO of EnCana Corp.

After an orchestrated frenzy of warnings about pending environmental

Armageddon, the United Nations summit on climate change starts
today in Copenhagen.

Here at home, Quebec drew applause in the pre-Copenhagen beauty

contest by announcing intentions to reduce greenhouse-gas emissions
to 20 per cent below 1990 levels by 2020 (similar to the European
Union target).

Environmental groups quickly pounced on Quebec's move as evidence

that the federal government's plan to reduce emissions to 3 per cent
below 1990 levels by 2020 is woefully inadequate.

The difference, of course, is that Premier Jean Charest leads a

province literally flooded with zero-emissions hydro power, while Prime
Minister Stephen Harper leads a country that includes nine other less-
well-endowed provinces. And under a national cap-and-trade system
that is likely to follow the Copenhagen meeting, the fossil-fuel-
dependent unfortunates in Alberta, Saskatchewan and Atlantic Canada
would be forced to pay cash for "carbon credits" earned by Quebec's
new hydro projects.

So it's no surprise that Mr. Charest is one of the biggest proponents of

cap-and-trade. If you think that such divisive manoeuvring for
advantage is problematic in Canada, imagine the Machiavellian
schemes that will colour the negotiating positions of countries going to
Copenhagen

Along with electricity, transportation fuel is the other form of energy

crucial to the Western way of life. And as is the case with wind and
solar power, Western governments have implemented costly,
ineffective and even harmful subsidies aimed at replacing gasoline and
diesel fuel.

In North America, grain- and corn-based biofuels require almost as

much hydrocarbon energy to grow and distill as is contained in the
final product, while also encouraging farming practices that harm land
and watersheds. Internationally, biodiesel subsidies have resulted in
the destruction of irreplaceable ancient forests for palm oil plantations.

Meanwhile, high taxes are levied on hydrocarbon-based transportation

fuels. In Canada, provincial and federal taxes add some 50 per cent to
the average price at the pump. The addition of cap-and-trade costs
would add substantially more. Many Canadians feel that their fuel
taxes are already too high. Others will see this action as necessary to
discourage consumption and reduce emissions.

Resolving those different views into anything resembling a national

consensus will require clear and transparent communication of the full
costs; along with who gains, who pays, and how much. But as we
debate how much to add to already high fuel taxes, few Canadians are
aware that the policy dilemma facing governments in much of the
world is how much to subsidize fuel consumption.

The International Energy Agency estimates that developing (non-

OECD) countries are spending $320-billion (U.S.) a year on fuel
subsidies. The top 10 subsidizers in terms of total dollars are Iran,
Russia, China, Saudi Arabia, India, Venezuela, Indonesia, Egypt,
Ukraine and Argentina - a group representing more than half of the
world population. Not surprisingly, they also represent the lion's share
of the growth in hydrocarbon emissions.

At the recent Pittsburgh Group of 20 meeting, leaders called for an end

to fuel subsidies "in the medium term" (whenever that is). But it won't
be easy. For example, even after taking politically painful action to
modestly decrease them, Indonesia's fuel subsidies still amounted to
25 per cent of 2008 government spending.
Governments of countries where many live in poverty, such as India
and Egypt, fear violent responses if they try to make even small
reductions in fuel subsidies. In oil-exporting countries, including Saudi
Arabia, Russia, Iran and Venezuela, fuel prices as low as a few cents
per litre are taken as a birthright. (I vividly recall the smoke-choked
streets of Caracas clogged with old clunkers, each exhausting toxic
gases a hundred times more polluting than any modern Canadian
vehicle.)

Whether it be the poorer countries where people have become

dependent on fuel subsidies as a social program, or the oil-producing
countries where people view cheap fuel as a birthright, there is little
chance that fuel subsidizers will agree to the actions necessary to
reduce, or even constrain, emissions growth.

So the elephant in the room at Copenhagen is this: While the

developed world attempts to reduce hydrocarbon consumption through
taxation, most of the globe's population lives in countries that
subsidize consumption.

And if that weren't problematic enough, the post-Kyoto diehards will

be pushing for developed countries to adopt emissions targets so
stringent that the only way to meet them will be to buy "clean
development" credits, supposedly to help developing countries clean
up their act. The result of such an arrangement would see businesses
and citizens of developing countries paying huge fuel taxes, while
sending money to countries that subsidize fuel prices.

Come to think of it, there will be many elephants in the room at

Copenhagen. Let's hope Prime Minister Harper and Environment
Minister Jim Prentice take along some experienced mahouts to keep
from being trampled.