When in Doubt, Use Caution

When in doubt, proceed with caution! When an input is scarce, use it sparingly! To my way of thinking, these are two core conservative values. I believe in these values, and find it puzzling that these values seem absent from many of the policies and actions of our current conservative government.

Take the promise, in the recent federal budget, to streamline environmental approvals. In general we all agree that streamlining is good thing. It removes unnecessary bureaucratic blockages. But if statements made by Joe Oliver, Minister of Natural Resources, are any indication of government intent, the intent of this streamlining is to not to assess the process. Instead, it seems, the government simply wants to get the environmental review process out of the way as quickly as possible so it can get on with its real agenda. Where is the caution here?

Why the rush? A successful business needs to know when to bring its product onto the market. It is not uncommon for a business enterprise to have to make a choice. It can choose to bring an inadequately developed product onto the market early and capitalize on an “early delivery” premium. Or it can spend more time on product development, sacrifice the “early delivery” premium, but deliver a good product.

I can understand why the oil companies are in a hurry to get things done. Each company wants to get in ahead of the other company because there is a premium in that. I can understand why the oil importing countries are lining up to fund the building of Canada’s pipelines. If they get in early, they have a better chance to get Canada’s oil.

But I can see no reason why Canada needs to be in a hurry. Why the hurry in exporting Canada’s oil resources? Why the desire to shorten the environmental approval process? Why the desire to attract non-Canadians to invest in the extraction of Canada’s oil? Why create jobs in the oil industry, when the jobs need to be filled by attracting immigrants? I could understand the hurry if it would be likely that we would lose if there were a delay in getting our oil onto the market.

But Canada won’t lose if we take our time in getting our oil onto the market, if we “take the time to develop a good product.” As the world oil supplies become harder to get; as the oil the world depends on comes increasingly from sources hard to get at (such a deep sea wells and Alberta’s tar sands), the price of oil will only go in one direction – up. The longer we delay in bringing this resource to the market, the higher will be the price. What’s to lose?

If Canada slows the delivery of tar sand derived oil onto the market, this delay will accelerate the rise in world oil prices. And this will affect what we pay at the pumps. That will hurt. It always does. Be that as it may, a substantial increase in the price of oil is inevitable. If not sooner, then it will be more later. Higher prices mean more pressure to find alternatives. We need that pressure. We need it soon.


By Eric Rempel

The Keystone XL Pipeline is Rejected: So?

So President Obama has rejected the Keystone XL Pipeline. I think the President must feel good since he has finally lived up to the spirit of his election promises, environmentalists in the US are celebrating a victory, the Republicans seem to think they have an issue to take to the fall election, and Canadians, by and large, don’t know what to think.

The stance of our present Conservative government in this respect is puzzling. Apparently it is acceptable to this government (as it has been to previous liberal governments) to treat our oil sands as a renewable resource that will go on yielding oil forever. For a government to take this stance is not new – it seems to have been the government stance of choice all over the world again and again and again. However, such a stance can hardly be considered a conservative approach to resource management.

One hardly needs data to support an argument that all non-renewable resources will diminish and become harder to get if such a resource is consumed in large quantities. Nevertheless, here is some data. The oil Alberta was pumping in the 1930s required the input of one unit of energy to get 100 units of energy [for the powering of cars and the heating of homes]. The oil was close to the surface; easy to get at. Conventional oil in 1970 yielded about 30 units of energy for every unit of energy expended. The oil sands today deliver only five units of energy for every energy unit expended.

Clearly we are witnessing the depletion of a non-renewable resource. Why would a rational, conservative government try to sell this resource as rapidly as possible? It makes no sense to me.

What we are hearing from those touting the merits of the Keystone XL pipeline as well as the Northern Gateway pipeline is that the sale of oil derived from the oil sands will bring jobs to Canadians. That seems likely. However, a pertinent question is whether jobs in the oil patch are indeed the kind of jobs we want if quality of life is our goal.  Furthermore, there are other ways of generating jobs. The easiest way of creating jobs is to move away from a cheap energy policy, to a policy that would reward those with the creativity to find ways of living with less energy. A fee and dividend energy policy would transfer wealth from those intent on consuming energy to those committed to conserving energy, and would put money into the hands of Canada’s true innovators.

Without a strong and deliberate policy to reduce Canada’s dependency on fossil energy and the income derived from energy sales, we will be no better off when the oil deposited in the Athabascan sand is gone. We see feeble attempts with mandates for light bulbs and policies to encourage biofuels, but that is greenwash. As long as the government avoids full cost accounting, and promotes oil sales without considering the cost of those sales to future generations and the environment, Canadians, sadly, will not make a serious move towards renewable energy.

Eric Rempel

We Need a Resource Consumption Tax

Most taxes in Canada do not encourage the right activities. Behavior that should be encouraged is taxed, and behavior that should be discouraged has no tax. That was the assertion I made in last week’s column and applied that thinking to property tax. But this thinking is relevant to other taxes as well.

Most taxes in Canada are based on income earned, both for the corporation and for the individual. The more income the person or company earns, the more taxes are due. But why tax income? So many other things could be taxed: consumption, land, the use of resources, energy use, capital gain, inheritance, to name the most obvious. Of course, to a limited extent, all of these items are being taxed, but the heavy tax remains the income tax.

But why tax income. It only makes sense if there are no better options. But there are many better options. To make my point consider just one simplified example. A factory pays a certain amount of tax. Under today’s tax policy, most of that tax would be based on income. As the company becomes more profitable, it pays more tax; less profitable, less tax. It follows then, that there is only one incentive the tax gives to the company and that is to hire more accountants and lawyers. Their skill lies in finding ways to avoid the payment of tax.

But now assume our tax policy changes. The same amount of tax is paid, but the tax now is based on consumption. The tax could be on overall consumption (like our GST), but better would be a tax on a scarce resource, say oil. Note this tax shift would not affect the disposable return of the factory. The same amount of tax is paid. The firm still has the same freedom to invest and procure, but the more oil it consumes, the more tax it pays; the less oil it consumes, the less tax it pays. This tax shift creates a huge incentive for the factory to reduce its oil consumption and become more energy efficient. Conceivably the incentive would result in more jobs as the company re-focuses from energy efficiency to labour efficiency.

The simple tax shift from income focus to oil focus will result in other beneficial changes over time. Nobody forfeits any freedom. Those who wish to continue to consume oil at a high rate, are free to do so, but it will cost them more. Those who find ways to reduce their oil consumption, save. Obviously, factories become more efficient. Nation-wide, less oil is consumed, so more oil is left for future generations. Pollution generally accompanies oil consumption. There is less pollution. Transportation costs increase, so there is less traffic. Everyone walks and cycles more, with concomitant benefits to physical and mental health. The tax shift has redefined efficiency.

A tax shift away from income tax to a tax based on consumption benefits everyone. It is more fair, encourages more efficiency, and encourages conservation.

Election Timidity

Surely, it is reasonable to ask why it is that those currently vying for political office in Manitoba are studiously avoiding the truly important issues we are facing. The important question any thinking person must be asking is: what leadership is our government giving with respect to our addiction to energy consumption and our oblivion to the pollution we are creating.

In 2008, amidst much fanfare, the then Doer government announced its “Climate Change and Emissions Reduction Act”. The government committed then to reduce greenhouse gas emissions to six percent below 1990 levels by 2012. Well we have not come even close to reaching that target. Doer suggested in 2008 that if we did not reach this target, this would be a good and adequate reason to defeat the NDP at the polls.

But dismally, the only opposition party that has shown any interest in this failure is the Green Party. The other two parties, it seems could not care less. One can only assume that if they form the government, they expect to do even less with respect to greenhouse gas emissions and the squandering of energy.

This is no trivial matter. In spite of windmills and ground source heat pumps, our dependence on fossil fuel in continuing to increase. We do not need statistics to know that. We build more efficient cars, but we drive more. Look at our highways. We have more efficient furnaces, but we build bigger houses. Our grocery shelves continue to burgeon with produce transported from all parts of the world. We mandate biofuels, but do nothing to decrease consumption. A holiday is not holiday if it is not fueled by energy.

Remember, we have already consumed the readily accessible oil. Were this not the case, we would not be extracting oil from the bitumen deposits in Alberta. The bitumen deposits may be vast, but not all the deposits are as easy to get at as the stuff we are extracting now. Inevitably, we will move from the more accessible bitumen to the less accessible stuff. Were the oil found below the shallow waters of the Gulf of Mexico not gone, we would not be drilling for oil deposited one mile below the surface of the ocean. The easy to get oil is gone. Puff! After we have extracted the oil deposited below a mile of ocean, we will drill for oil below two miles of ocean. And this trend will go on until the energy required to extract the oil is equal to the energy available from the oil.

To believe that we can have cheap energy forever is a fantasy. To believe that we are entitled to cheap energy is utterly and disgustingly self-serving.

There is only one policy that will break our addiction to energy, and that is a carbon tax. British Columbia has a carbon tax, although it is a very small tax at this time. BC has taken a small step in the right direction.

Oh, that Manitoba politicians had such courage and vision!

Eric Rempel

It Is Time to “Raid” Manitoba Hydro

Manitoba Hydro is important to Manitobans. It has allowed us to harness the vast energy potential of our rivers, so is a so it is not surprising that the routing of the BiPole III and talk of privatizing Hydro are already significant election issues. The PCs speak to inefficiencies at Manitoba Hydro. Jon Girrard blogs that Manitoba Hydro should not be treated as a “milk cow”.

Unfortunately, what is missing is any discussion as to what role energy, or more precisely cheap energy should have in the development of Manitoba. Because of its many rivers, and because of the infrastructure developed by Manitoba Hydro, Manitobans have access to an incredible amount of electric energy. The question is what how should that energy be used.

Unfortunately, we have all come to believe that we are entitled to cheap energy – yes, cheap gasoline, but also cheap electricity. Note the size of the homes and public edifices we are building, the exorbitant lighting we all take for granted, and our passion for perfect temperature control, both summer and winter. We have come to believe we are entitled to all of this, and that it will be there for us – always.

So we have a cheap energy policy. That is, because the production of hydro electricity is cheap in Manitoba, we believe we should also have low electricity rates. I believe this is unfortunate because it results in an unnecessary, potentially harmful dependency on cheap electricity. Cheap energy encourages the consumption of energy, and then, inadvertently, the wastage of energy.

Manitoba Hydro advocates for more efficient light bulbs, better insulation, and promotes energy efficient appliances, but the economic incentive to follow these recommendations is weak – because of our cheap energy policy.

If we believe that using more efficient light bulbs and more insulation is good, Manitoba needs to change its policy with respect to energy pricing.

Consider that most of us have become quite comfortable with a consumption tax on alcohol and tobacco. We have accepted that income taxes and property taxes are necessary. However, we resist a tax on energy. This makes no sense.

Consider a hypothetical firm paying $1,000 tax on profit and $1,000 for electricity. Now, because of a policy change, the tax on profits becomes $1,500 and the cost of electricity becomes $500. Such a policy change would create an incentive to do what? Hire another accountant to look for ways of reducing the tax. This is hardly desirable behaviour from a social point of view.

Now what if the policy change results in a tax on profits of $500 and the cost of electricity becoming $1,500. The incentive now is to reduce electric consumption. This is desirable behaviour.

Manitoba has an amazing resource in its hydroelectric potential. Manitobans are entitled to benefit from that resource, but that benefit should not be in the form of cheap energy. The benefit should be in the form of lower income and property taxes.

Eric Rempel

Nature’s Phosphate Cycle

Nature moves in cycles. The most common cycles are the carbon, nitrogen and phosphate cycle, but there are others. Plants take their nutrients from the soil and air. Biomass is formed as the plant grows and matures. The plant die or are eaten by animal. The animals defecate and ultimately die. In each case the minerals that were taken up by the plant ultimately return to the soil to be taken up by subsequent plants, and the cycle continues.

Since we depend on nature for our sustenance, we do well to understand that cycle and nurture it. But industrialized agriculture does not do that. It has found very effective ways of circumventing the natural cycle. The result has been phenomenal crop production. But are these results sustainable?

 
For thousands of years, the Chinese and Indian civilizations have mimicked the natural cycle. Each peasant farm was more or less self-contained so that all biological material coming from the farm ultimately was returned to the soil of that farm. Most notably, human waste was returned to agricultural fields, often after careful composting. Using these techniques, they were able to maintain the fertility of their fields for those thousands of years.

In recent years, agriculture in those countries has also industrialized. Here too, this has resulted in phenomenal yield increases.

 
But industrialized agriculture, in significant respects, ignores the natural cycle. Within an industrialized system, a field is tested for available plant nutrients. The interest here is primarily in the macro-nutrients N, P, K, and S. Fertilizer is then blended and applied at the rate that will optimize plant growth. The questions: where does the fertilizer come from, and is the supply reliable, are not asked.

But if we are to build a sustainable, stable society, these questions need to be asked. In Canada, phosphate is mined near Kapuskasing in Ontario and near Radium in BC. But Canada, in spite of its vast geological formations, has not discovered any really good phosphate deposits, and we do not produce world class phosphate. The most readily available phosphate rock has already been utilized, and the phosphate we are going after now requires more energy to extract and is of a lower quality.

Phosphate is essential to crop growth. Unlike petroleum energy, which can, in certain circumstances be replaced with other forms of energy, there are no substitutes for phosphate. There is only one reasonable response to looming phosphate shortages. We need to use the phosphate currently within the food production system more efficiently. This means the more efficient return of livestock manure to growing crops, but also the recycling of human waste, which is rich in phosphate, to agricultural fields.

Currently, there is little incentive to do any of the necessary recycling. Just as a carbon tax is needed if we are all to use energy more efficiently, a resource use tax is needed to get us to change our phosphate use habits before the shortage of phosphate has a catastrophic effect on our food supply.

Eric Rempel

So What About the Bio-diesel Mandate?

Since July 1^st we have had a national bio-diesel mandate. All diesel, whether for transportation, farming or home heating is to include 2% bio-diesel. This new mandate follows a Manitoba mandate already in place since 2009. One needs to wonder what problem our governments are trying to address with this mandate.

One might assume the problem is our dependence on fossil energy. If we can power our diesel engines with bio-diesel rather than fossil-diesel, that would seem to be progressive.

Wishful thinking, perhaps. We cannot reduce our dependence on fossil energy by merely tweaking with the supply. It does not make sense and it does not happen. Remember Jevon’s effect. We have written about this effect in previous columns. Technological progress that increases the efficiency with which a resource is used tends to increase (rather than decrease) the rate of consumption of that resource. Human nature is such that a more efficient light bulb has the effect of encouraging people to use it more, resulting in the end in the greater use of electricity. Adding bio-diesel to available diesel will not result in a reduced consumption of fossil diesel. The bio-diesel mandate will not reduce our consumption of fossil fuel.

It might be thought that regardless of the effect on consumption, consuming bio-diesel is simply more responsible that consuming fossil diesel. Hence the mandate.

But that raises the ethical question. In a world where people are starving, is it morally right to use land that could be used for the production of food for people for the growing of fuel to feed our voracious appetite for energy?

What seems most plausible (however unlikely) is that the government wants to give support to Canada’s canola growers. In effect, a biodiesel mandate is a subsidy to all those involved in the biodiesel industry: farmers who grow canola, suppliers and processors. The mandate will increase the demand for biodiesel, thereby increasing the canola price. The Canadian Canola Growers Association readily acknowledges that this mandate will be good for them.

This is truly unfortunate. This mandate is good neither for the environment we call our home nor the Canadian economy.

This move is bad for the Canadian economy because subsidies distort. There are a host of technologies that could potentially reduce our dependence on fossil fuel. Biodiesel is one of them. By giving this subsidy to the canola industry, government is mitigating against other technologies.

It is by no means clear that the production of diesel from plants is energy efficient. Growing fuel crops takes energy. Fossil fuel is used to power the tractors, to manufacture the necessary fertilizer and to build the necessary equipment. Transforming canola oil to diesel takes energy. Some investigators have concluded that if everything is considered, more energy is used to produce the biodiesel than there is energy in the biodiesel.

However, the biggest deficiency in this new policy mandate is that it does nothing to reduce demand for energy. If we wish to offer a livable planet to our children, we need to find a satisfying way of living that requires less energy. That will only happen if, in addition to the moral incentive, there is also an economic incentive to change our lifestyle.

A simple carbon tax would not only encourage all of us to find ways of living using less energy, it would also stimulate a search for fossil fuel saving technologies.


Eric Rempel