October 24, 2002
Contrary to the naysayers who claim Western countries would face economic ruin in meeting Kyoto’s greenhouse gas targets, three winning models are proven to exist and proven to yield spectacular results.
The first model – the USSR approach – involves privatizing an entire economy. Russia became the world’s greatest greenhouse gas reducer by abandoning its centrally planned economy.
The second model – the German approach – involves privatizing a neighbouring economy. After West Germany absorbed East Germany, and converted the decrepit state-run machinery to modern markets, East Germany’s economic efficiency rose so dramatically that the new, unified Germany today produces 17% fewer greenhouse gases per capita than East and West Germany combined did in 1990.
The third model – the British approach – involves privatizing inefficient government-run sectors and giving competition freer rein. Following the U.K.’s privatization of its energy, transportation, steel and other sectors, greenhouse gases plunged while the country’s economy soared. Today, the U.K. produces 9% fewer emissions per capita than in 1990.
All industrialized countries would benefit by adopting the U.K. model of aggressively privatizing sluggish government sectors and otherwise introducing market-oriented reforms. Instead, countries such as the United States and France have only slowly continued to liberalize their economies, leading to small increases in per capita greenhouse gas emissions since 1990, and Japan and Canada, which lag far behind in modernizing their economies, have racked up double-digit increases.
But while all industrialized countries could reduce their emissions by following the U.K.’s lead – and impressively profit in the process – the one that would profit the most would be Canada, because Canada has the industrialized world’s least efficient resource sector.
Most of Canada’s increase in greenhouse gas production comes from risky investments in our energy sector, where government subsidies have led to a plethora of export projects. Without the past subsidies, the projects – whether Hibernia in the east or tar sands in Alberta – would never have materialized, to the benefit of taxpayers as well as the environment. But these export projects only begin to account for economically uncalled for emissions.
If Canada’s provincial premiers established competitive electricity markets, the way the U.K. did so successfully, the coal plants now on Alberta’s drawing boards would vanish, and many existing coal plants in Alberta, Ontario and the Maritimes would soon be mothballed. The outdated coal technology – one of Canada’s biggest contributors to greenhouse gas emissions – would be replaced partly by high-tech natural gas generators, the technologies of choice in all modern power systems, and partly by the existing hydroelectric generation in B.C., Manitoba and Quebec, provinces whose consumers now overconsume because their non-profit Crown monopolies underprice the power they produce.
Non-profit monopolies also do great damage at the local level, where public transit systems’ failure to modernize encourage more private automobiles to take to the road. If Canada’s mayors privatized public transit systems, as also occurred successfully in the U.K., our public transit vehicles would stop losing market share against the automobile. If Canadian governments at all levels also eliminated free roads – as the U.K. has begun to do through road tolling of various means – the auto’s market share would gear down further.
Even where the private sector owns industries, government interference protects them from more efficient competitors. If yesterday’s steel plants, mines, and pulp and paper mills were allowed to go bankrupt, the more efficient recycled metals and recycled papers industries would gain greatly in market share. But neither mines, mills nor factories offer the greenhouse gas savings offered by one of Canada’s most environmentally and economically ruinous sectors – agriculture.
Canada’s agricultural sector, though it represents a mere 1.5% of GDP, accounts for almost 10% of Canada’s greenhouse gas emissions, more than is produced by all of Canada’s manufacturing industries combined. The 10% figure, however, excludes the fuel used by farm equipment, the energy embedded in fertilizer, and other major sources of greenhouse gases. Once these are calculated, according to Canada’s 1996 Greenhouse Gas Emission Summary, the agriculture sector’s greenhouse gas emissions climb by another 40%.
Yet unlike the manufacturing sector, which turns a handsome profit for society, the agriculture industry – particularly the large-scale, mechanized farms – runs at a loss: For every dollar of profit that the average farmer earns, society provides $3.50 in subsidies. Without subsidies, most if not all of the large farms producing low-value export crops would disappear, many small, labour-intensive farms producing high-value crops for local markets would reappear, the farm sector would become a bigger employer and profitable, and the majority of greenhouse gases from the once oversized farm sector would vanish. The conversion to an economically sized small farm sector has another greenhouse gas bonus, too: Unlike large mechanized farms, whose crude tillers deplete carbon from topsoil, small farmers tend to enrich the land through methods that pack carbon back into the soil.
Because so many of Canada’s greenhouse gas-emitting industries are so inefficient, it’s possible that our governments’ current approach to reducing them – Soviet-style central plans, one for each sector, each plan providing a reduction quota – may succeed in reducing greenhouse gases at little or no economic pain. There’s no reason to think the next central plan won’t improve on the last.
But rather than counteract the failings of the last central plan with those of a new one, we could dispense with the central plans altogether and put our trust in the only greenhouse gas reduction strategy with a proven track record — the competitive marketplace.