How Green is Canada's Bail Out?
Soon all eyes will be on the Government’s economic report card. Most will be looking to see if the Government opened the taps fast enough on their promised economic stimulus. Yes we did said Mr. Harper yesterday citing that 80% of this year’s fiscal stimulus was already “set in motion”.
The debate will be about exactly what “set in motion” means. The stakes are high. The spin around that question will justify whether the Liberals will attempt to bring down the Government or not.
But the debate should be about the nature of the stimulus package and what Canada’s economy is going to look like 5-10 years from now. Here’s a chart showing what other countries are thinking about that same question. It shows what percentage of stimulus package spending was directed towards green initiatives:
South Korea 81%
European Union 59%
China 38%
France 21%
Germany 13%
United States 12%
Australia 9%
Canada 8%
United Kingdom 7%
Japan 3%
Italy 1%
HSBC provided the numbers which can be seen in graphical form here on this interactive chart on the Financial Times web site: http://www.ft.com/cms/s/0/cc207678-0738-11de-9294-000077b07658.html?ncli...
Canada’s place on the chart is disconcertingly low and we are missing an opportunity because of it. It’s doubly worrisome because we are already far behind the other countries in greening our economy. Japan for example looks low but it has been driving its economy to first class energy efficiency metrics ever since it was hit hard by the energy crisis of the 1970’s. Germany is already a world leader in its drive to wean its economy off carbon.
Next week the Government will be putting forth arguments that will maximize the fiscal stimulus that they will claim to have “set in motion”. It’s too much to hope for but what the Government should be doing is looking for any uncommitted dollars and diverting them to investments that will green Canada’s economy.
The environmental arguments have never been enough to convince the Conservatives but at least they should realize that the only way we are going to stay competitive and relevant in the world economy is by catching up and greening our own.
- Ard Van Leeuwen's blog
- Login or register to post comments
Recent Comments
- Rick Mitchell |
- Anne Marie Benoit |
- Frances Thauberger |
- Paul Maillet |
- Steve May |
- 1 of 2222
- ››
Comments
Stimulating Consumption is a strategy for losers
I guess the fundamental issue at stake is not overall levels of stimulus, it's the composition of the spending package. Even heavy defecit spending can have a beneficial long term impact if it is primarily made up of new investment as opposed to consumption spending. Conceptually it's simple. If investments in, for example, energy conservation earn a rate of return greater than the interest rates borne by the added debt, the Investment is improving productivity, and improving our future capacity to save, spend, and invest.
Coversely, defecit spending on straightforward consumption subsidies has the opposite effect. Capital is sucked out of the capital market, and spent on one time consumption. Less capital is available for private and public use, and our long term productivity is impaired. Canada's current spending spree is so unbalanced as to be a permanent drain on future generations. Our grandchildren will be making increasingly desperate spending and investment decisions, while still burdened with servicing the debt generated by this fiscally profligate government.
These arguments are meaningless.
It is tenuous at best to argue that conservation spending would have a beneficial economic affect. It would simply migrate labour capital under-performance to the energy sector. I don't like making such arguments.
Increasing energy efficiency is an amicable goal. But since (a) Canada is a net energy exporter and (b) the ratio of energy to labour cost is low, it is a disservice to frame effeciency investment as an economic tool. This is fundamental economics. An increase in energy efficiency standards should simply be framed that it is good business practice, even if it does not create jobs.
It is easy to create jobs that have the highest likelihood of positive returns for the environment: increase science funding or encourage other academic pursuits.
Energy efficiency
Bram, not to put words in your mouth but I take it the thrust of your comments is that when energy costs relatively little it also makes relatively little sense to make investments to become more efficient with it, certainly if those investments would have a better rate of return elsewhere.
Most energy is Canada is still underpriced though. Without a Carbon Tax or Cap and Trade system there’s no cost included for CO2 emissions. Surely the case for investment in energy efficiency improves when the cost of energy goes up due to 1) price of oil increases or 2) polluter pay expenses related to emissions.
I’m not a fan of forcing energy efficiency onto the economy by Government decree but I am a fan of setting the price of energy at its full cost so that business and individuals can then figure out to what extent it makes sense to invest in energy efficiency. This is in large part what happened in Japan. Because the bulk of their energy was imported they were particularly vulnerable to the high energy prices of the 70’s. Energy was relatively expensive so efficiency became a higher priority.
Some people argue that emissions don’t cause economic damage, only environmental damage (and some people would dispute that they cause environmental damage). But when the Obama administration dangles the threat of trade sanctions against Canada because we don't have an adequate national CO2 mitigating strategy, it’s a lot harder to argue that emissions don’t cause economic damage. If energy efficiency is one way to reduce emissions and lower the probability of trade sanctions it sounds to me like another way of strengthening the cost/benefit analysis for energy efficiency.
You mention that Canada is a net energy exporter. There’s a new variable coming into that mix, the fact that the US is becoming less and less keen on buying at least some of our energy, our so called “dirty oil”.
Ard Van Leeuwen (Dufferin-Caledon, ON)
The views I express on this blog are purely my own and should not be construed to represent the official position of the Green Party of Canada.
You've put words in my mouth.
I meant to say that energy costs are low enough and that we are an energy exporter that you cannot argue that energy conservation is good for our economy. I take the statement to mean our economy at a macro level.
Energy conservation is still good for the soul.
My issue was about propagating inherently flawed statements. I believe positioning Greens through flawed or false statements is no better than the government propaganda that was "Reefer Madness".
Energy conservation, or resource conservation in general has several universally beneficial attributes: (a) cost savings may be possible; (b) your impact on the environment is likely to be less; (c) you consume less resources, thus leaving them for future generations to use as needed (and making you feel happier about yourself.)
Energy conservation does have economic impact plus..
No Economic impact?
1) Negative Externalities reduced: There is definitely a coste borne by the commons for externalities like ozone, carbon emmissions, and all the associated nasties from burning fossil fuels. It is unquestionably an economic 'good' to reduce these externalities. THAT's basic economics.
2) Managing risk: In an environment of volatile energy costs, replacing variable energy costs with fixed capital costs has value roughly equivalent to a normal risk premium on any other financial transaction. Saying there is no value is like saying that financial market hedging instruments have no value. The value is significant, and quantifiable.
3) There are many perverse incentives in our tax and regulatory structure that are designed to stimulate consumption over saving. That was actually the thrust of my comment, that with spending skewed towards consumption, at the macro level we are under-investing.
You can make arguments that in an efficient market, there are no opportunities for economic returns at the margin for conservation measures, or indeed for substituting savings for consumption, but clearly the market for these types of investments is not efficient. Many opportunities are being missed by small players without access to expensive information about their options.
All that quibbling aside, I am pretty damned sure that we are not collectively investing enough. I am equally sure that much of the current stimulus spending will have little benefit, and will only serve to promote unsustainable economic behaviour. The cost of these mispent stimulus funds will be borne by future generations in the form of crowded out private investment, and higher capital costs than would otherwise be the case. Again, basic economics.
Economic impact.
I am assuming you are being critical of my reply.
For the record, I was taking issue with Matthew's statement: If investments in, for example, energy conservation earn a rate of return greater than the interest rates borne by the added debt, the Investment is improving productivity, and improving our future capacity to save, spend, and invest.
That statement is not true. Before I address that, let me digress for a moment:
Back to the debate. Because we are an energy exporter, dollars not spent on energy will eventually mean that someone somewhere else in Canada has not earned those dollars. Money just flows around in a circle. Kind of like matter, it isn't created or destroyed.
The ability for an economy to produce is related to the amount of manual labour available, and the industrial capacity available. Axiomatic to Matthew's claim above is that conservation spending is good while indirectly acknowledging that manual labour is abundant -- otherwise why need stimulus at all? Industrial capacity is reduced if the demand for something is decreased. More specifically, the cost to produce something generally decreases the more it is needed (due to volume of production and market competition). Thus energy conservation is likely to reduce industrial capacity while manual labour is already abundant. This will always have a net negative impact on economic flow.
Moreover, it is likely to delay or defer research into making energy extraction more efficient. And in any event, it can really only be a net plus if you create more jobs than offset in the energy sector, otherwise you are overpaying for conservation (from an economic perspective.)
Additionally, it is perfectly possible that a decrease in energy consumption can actually increase environmental damage. Due to the abundance of oil in the tar sands and the current profitability, unless there is resource pressure, there is only limited technological advancement. A fair number of new technologies have been developed specifically because of the environmental problems associated with oil sands development. These technologies were developed entirely outside of environmental protection concerns, but they nonetheless have positive environmental impacts.
Before you get all excited, I realize this is perverse, and I am not advocating for it. It is a consequence of an entire lack of incentives for better energy efficiency. I am certainly not advocating for an economy where new technologies get developed only because we have achieved maximum destruction.
The bottom line is, you can probably create more jobs and have better environmental protection by improving the supply side of the energy equation not the demand side. Conservation is generally intended to apply to the demand side. This is simply a fair assessment of what is happening right now in Alberta. Fooling yourself into believing otherwise garners no sympathies from your political opponents, I assure you.
And finally, people are suspicious when people hear "green means jobs". If and/or when such claims become demonstrably false, we suffer a credibility crisis. Being green does not have to be justified through economics, nor should it be, and I wish environmentalists stopped being ground zero for that trap.
Economic arguments don't diminish the truth
Let me just pick up on your closing notion:
"Being green does not have to be justified through economics"
I suppose not. But, when you are a political party trying to build political support for "green policies" among other things, it certainly helps a whole lot when you can add economic arguments to the mix. Saying as you did elsewhere that "energy conservation is still good for the soul" just doesn't cut it with a lot of people and limits the political support we can build.
Boosting justifciation for green policies with economic arguments or any other kind of arguments for that matter means that we can reach a wider audience, build more political support and increase our odds of implementing green policies. Without taking anything away from the soul.
Ard Van Leeuwen (Dufferin-Caledon, ON)
The views I express on this blog are purely my own and should not be construed to represent the official position of the Green Party of Canada.
Then the message should be modified...
You can state truthfully that energy conservation can save the individual money, excluding any increase in taxes associated with economic reduction. If you buy a well-priced CFL to replace an existing incandescent one, you can save money most of the time.
But it is a dubious assertion that increasing energy efficiency at the user-end is good for the economy in general or even that it is better than simply increasing economic efficiency at the production end. It is also up for debate whether or not short-term environmental gains can be better achieved at the production end.
There are potential long-term benefits associated with reducing energy consumption, and this also would make a good message, but apparently, this is not the message. You are asking people to take it on face value that conservation is good for jobs.
I am against this approach primarily because it is untrue, but also because it reduces the credibility of everyone working toward the adoption of better end-user technologies.
The single largest factor against environmentalists is that the public believes they have little understanding of macro-economics and secondly, they are willing to trade a higher ratio of economic damage for environmental gain.
The consequence is that there is a strong perception that environmentalists make poor economic predictions and moreover that they would not care once their predictions turn sour. This is a reputational problem.
If the GPC was worth its salt, it would encourage our members get some exposure to macro-economic theory (from capitalists).
I believe the head of my EDA is an MBA, he should be in here with his opinion.
Bram Kivenko
Oak Ridges -- Markham