Canada is currently in the throes of an election campaign heading towards an October date when a new federal government will be elected to run the country. As things stand, there are only a few platforms that each of the five parties in the race are running on that are important enough to the Canadian people to decide the future of the country. One of these planks is how each contestant will deal with climate change. Under the current government the economy is still weak and verging on recession mainly because the self-serving ruling party has invested so much money in keeping oil prices high by continuing to unevenly leverage the Alberta tar sands while letting the manufacturing sector slip away and ignoring climate change. If the existing government was to hold onto power, it would leave the task of fighting climate change up to the individual provinces, which are already making strides in the fight to save the planet. Real progress can only be achieved if the feds are a working, responsible member of a national team.

But oil prices have fallen – dramatically letting the air out of the government’s hope chest! The much-hoped-for recovery of the one hundred dollar per barrel benchmark isn’t expected to return for some time to come. Because the economy and climate change are inextricably linked, it stands that whichever party can cook up the best of both worlds will very likely see its political opponents going down the road kicking stones.

During a recent interview, Canadian author, economist, and former chief economist at CIBC World Markets Jeff Rubin posed the question. “What does the collapse of oil mean for the future of the Canadian economy and when the carbon bubble bursts, will it be a preview of what’s in store as the world wakes up to the perils of climate change?”

Rubin then went on to answer the following questions:¹

What is a carbon bubble?
The carbon bubble, the subprime mortgage bubble, and the dot-com bubble are all based on a fundamental premise that turns out to be false. In the case of the dot-com bubble, it was that we could have unending exponential growth in IT sales. Regarding the subprime mortgage bubble, it was that securities funded by mortgages of unemployed people should be as credit worthy as government of Canada treasury bonds.

With the carbon bubble, the implicit assumption here is that we can burn and emit as much carbon as we can afford.

That view has become increasingly challenged by the link between what we emit and the impact of climate change we are now seeing.

Has the carbon bubble already burst?
For all intents and purposes, the bubble has burst. If you look at the Blackrock’s iShares Oil Sands Index ETF, which is an exchange-traded fund that covers all of the TSX-listed oilsands producers, it has lost about 70 percent of its value since early 2011.

Not only has this been a huge negative for investors in energy stocks, it’s also been an albatross around the index. It has brought down TSX returns relative to other indices.

What lies ahead for the oilsands?
I think what lies ahead for the oilsands is what’s happened to coal stocks. Three years ago, investors in Peabody Energy (the world’s largest private-sector coal company) would go to sleep every night confident that there would never be a global agreement on carbon emissions. Three years later, they woke up to a nightmare. Even though there was still no global agreement, China and the U.S. – the two largest coal-consuming countries on the planet – both took actions (to curb emissions) that were as devastating to the valuations of coal stocks as a global binding treaty on carbon emissions would be. It’s a small step to go from coal to oil.

What’s in store for Canada as the world moves to limit carbon emissions?
I think that one of Harper’s (current Canadian Prime Minister) greatest failings is his denial of climate change. It turns the blinkers to what could be great economic opportunity in the country.

Climate change is going to have a profound impact on the Canadian Prairies. When you consider the kind of temperature increases being talked about, two or three degrees, that’s going to transform the agriculture potential of the region. Growing grain is going to be a lot more value-added than producing bitumen.

How does that create new opportunities for Canada?
The same climate change that will allow you to grow corn on the Prairies will also make it much more difficult to grow corn in places like Kansas and Iowa. When we had that huge drought in the U.S., which is exactly what climate change models are predicting, we saw corn prices rise by 50 percent.

Climate change is not only going to increase crop yields, it’s going to open the door to growing higher value-added crops. Climate change is likely to push food prices a lot higher than oil prices.

How prepared is Canada for these changes?
We’re not really preparing for the opportunities that climate change is going to bring. We have to start thinking about how our economy is going to operate in the next couple of decades as the climate warms. Water management is going to be our biggest issue. I think we also have to start bulking up in terms of the Arctic and build deep-water facilities and recognize the opportunities there.

I feel, and have often said, that one day in the not-too-distant future, clean water will be more valuable than any oil. As Canada watches and listens to the campaign promises of each political party, it was refreshing to read about how water recycling is gaining momentum in California. Struggling through the fourth year of a severe drought, the state now encourages the reuse of so-called gray water to save gardens. Sources typically include the gently used runoff from bathroom sinks, showers, bathtubs, and washing machines. Once again, many of California’s 38 million people have the option of once-again having a little bit of green to adorn their property. In fact, much new-home construction includes the plumbing necessary to recycle such water. The downside is, however, that many families were ignorant of the pathogens swimming in untreated water and fell ill through consumption. Greywater Action, a group that promotes household water recycling and trains families and installers on the do’s and don’ts estimates that a million Californians had illegal systems before plumbing codes were updated. Interest in doing it the right way has soared – great news!

On August 3, the U.S. announced its Clean Power Plan Rule for existing power plants. It will seek to accelerate the shift to renewable energy while setting tougher goals for slashing carbon emissions. The new plan sets a goal of cutting carbon pollution from power plants by 32 percent by 2030 compared with 2005 levels – a seven percent jump from the previous target. States and utility companies that move quickly to expand their investment in in solar and/or wind power will be rewarded. The revised plan will be farther reaching and many states will face tougher requirements for lowering greenhouse gas emissions. Governments will be given more time to meet their targets and more flexibility in how they achieve their pollution-cutting goals. As a way of avoiding disruptions in the power supply and gain more time to meet commitments, states will be able to buy a ‘reliability safety valve,’ a proposal to ensure that any federal carbon dioxide rule or State Implementation Plan includes a process to assess and, as relevant, mitigate electric system reliability impacts resulting from related environmental safety compliances.

The rule – the first to regulate carbon emissions as a pollutant – may actually face legal challenges and opposition from Congress arguing that the federal overreach could impose costly burdens on energy providers and their customers. Problems or penalties notwithstanding, the new rule, if it stands, should substantially alter the U.S. energy landscape, driving the expanded use of ‘clean’ energy while further reducing coal’s long dominance as a source of power. The upside, of course, is the public will see major gains in improving air quality and fighting climate change.

To bolster the initiative, President Barack Obama visited the Alaskan Arctic to call attention to global warming and in September, Mr. Obama will entertain Pope Francis, an ardent supporter in the fight against climate change. The government’s effort will culminate in December with talks on a proposed international treaty curbing carbon emissions.

In a recorded video message, the president describes the Environmental Protection Agency’s plan to rein in coal burning as “…the biggest, most important step we’ve ever taken to combat climate change. Power plants are the single biggest source of the harmful carbon pollution that contributes to climate change,” Obama said according to the Washington Post. “But until now, there have been no federal limits to the amount of that pollution those plants can dump into the air.”²

Reliance on coal, which produces about 40 percent of the electricity used by Americans, has been falling for several reasons, including government pollution controls and lower prices for solar and wind energy. There has also been a resurgence of cheap natural gas, which during this past spring surpassed coal as the biggest single source of electricity generation.

The Clean Power Plan requires each state to cut carbon emissions from its energy sector over the next 15 years – the exact amount of reduction varies depending on each state’s energy mix – while allowing governments to choose from a menu of options, including closing older coal-burning power plants and increasing reliance on solar and wind energy.

Opponents warned that the regulation would devastate the coal industry and force energy providers to jack-up electricity rates effectively slowing any economic recovery and hurting consumers. Thus far, independent studies on this matter have produced wildly fluctuating bottom-line estimates ranging from onerous to negligible.

Canadian government inaction notwithstanding, my hope is that all of the individual, provincial and state efforts by countless people across our continent will prevail in the fight against climate change and global warming.
 

¹ Madhavi Acharya-Tom Yew, “Canada Loses when the carbon bubble bursts.” Toronto Star (May 16 2015): B1, B6
² Joby Warrick, The Washington Post, “U.S. to establish aggressive emissions targets.” Toronto Star (August 3 2015): A8