The price of Kyoto

A voting majority of the House of Commons has passed a resolution calling upon the government to "honour the principles and targets of the Kyoto Protocol in their entirety". Now, we already know that Canada cannot and will not reach its target for greenhouse gas emissions. If we go by the - admittedly questionable - hypothesis that the opposition parties have thought through the implications of their resolution, then they must be thinking about complying with the penalties for missing the Kyoto targets:

In the case of compliance with emission targets, Annex I Parties  have 100 days after the expert review of their final annual emissions inventory has finished to make up any shortfall in compliance (e.g. by acquiring AAUs, CERs, ERUs or RMUs through emissions trading).

So we're supposed to buy greenhouse gas emission (GGE) permits. How many? As I noted before, GGEs have been growing at the fairly steady rate of 1.7% a year between 1990 and 2004, a trend that has almost certainly continued to 2007. This means that Canadian GGEs are running around 797mt in 2007. If the trend continues to 2012, they'll be at 866mt, but it will presumably be the case that stronger environmental legislation will be brought in before we get that far. If we can cut the rate of growth of GGE by half over the next 5 years - and this would be quite an achievement - then 2012 emissions would be in the neighbourhood of (say) 825mt. Canada's Kyoto target (96% of 1990 emissions) is 575mt, so we'd be looking to buy emissions for 250mt. How much would it cost?

The short answer is that we don't know: the market hasn't opened yet. But there have been many attempts to predict what will happen when it does. Here is a summary from a recent survey:

If we take the median forecast of $US 19/tonne at 2000 prices, add inflation and convert to CAD at current exchange rates, that works out to about $C 25/tonne. Multiply that by 250mt, and the Kyoto penalty works out to something like $6.25b/yr.

Now if paying $6b a year were the price of actually reducing greenhouse gas emissions to the Kyoto levels, it would be a bargain. But it's not: we'd still be producing greenhouse gases at levels well above the Kyoto targets.

Of course, if the emissions market were to function as it is supposed to, then it would make sense to buy permits from countries that have a comparative advantage in GGE reduction. But without the participation of the US, Canadian purchases of permits would have at best a symbolic value.

$6b/year is a lot to pay for a symbol.

Comments

[lickedcat]

I'm sure the environmental zealots like Suzuki et al don't mind using my tax dollars to pay for the symbolism. In fact his address to the Canadian Club? basically said this outright. I also found it amusing that he was "proud" that Mr.
Chretien signed on to Kyoto not because of any particular cost benefit analysis or evidence but because he believed that signing Kyoto was the right thing to do. I stress "he believed" as in belief. To me a belief in something is something that cannot be proved or quantified. This is acceptable strategy in some areas of life but not when mobilizing a country's resources. I also found it amusing that Mr. Suzuki believes Kyoto is now international law and we as in Canada and our PM in particular are guilty of contempt of law and criminals. The sad part is about a third to half the audience clapped in approval of this statement. And these people are supposed to be the thought leaders of our country. Granted there is evidence of systematic global warming and part or in whole due to our wasteful energy use. But anything Canada does will have no impact. Let's face reality Canada is not the growth pole that it thinks it is . To solve the problem just look at China, India, SE Asia and Eastern Europe. We have to do our part but don't let the zealots force us back to the middle ages.