Would Reducing Energy Use Yield a Green Dividend?

I'm just a few recent stories together under the theme of the "green dividend".

The Canadian government, forced by law to present a plan that respects the Kyoto Protocol, has instead tabled essentially the same old plan, with a section arguing that respecting the GHG reductions in the protocol would damage the economy and drive up energy costs. They predict that by 2012, GHG emissions will be only slightly less than those of 2005. That is a neat trick, because the trend in GHG emissions 2003-2005 was already down, not up. This means that they believe that their more recent programs will actually reverse that downward trend and bring emissions back up. Sad part is, they may well be right.

"The Government's analysis, broadly endorsed by some of Canada's leading economists, indicates that Canadian Gross Domestic Product (GDP) would decline by more than 6.5% relative to current projections in 2008 as a result of strict adherence to the Kyoto Protocol's emission reduction target for Canada."

However, I think that even the modest 6.5% GDP reduction in the catastrophe scenario is probably off. Economics has trouble predicting the future, it can only use models that account for changes in the past. And in the past, there was a strong correlation between GDP and energy use. But which is the cause and which is the effect? If you have no reduction targets, then an extra unit of production costs an extra unit of energy. And domestic GDP is based on consumption. As Shumacher tells us, GDP is not a measure of how well off we are in the sense of how happy we are with our lives, it is a measure of how much money changes hands. If you consume more, the GDP goes up. Put more gas in your car and GDP rises. But will GDP fall if we consume less energy? Not necessarily. Although rises in GDP usually accompany increases in energy use, many economies including our own have experienced reductions of GHG emissions and of energy use without a decline GDP. The models may very well presume that the two go hand in hand simply because most data point in the past had the two linked, back when reducing production was a major reason for reducing energy use.

A white paper from CEOs for Cities, "Portland's Green Dividend," argues (unfortunately from misleading data, which does not change the value of the qualitative argument) that cities where investments in urban planning may have resulted in less driving, people can simply take the time and money they save by driving less and spend it on things of more benefit to the local economy than foreign oil and foreign cars. An interesting argument. I think it's a metaphor more than the fact that people suddenly find their gas money accumilating in their pocket and decide to spend it on local organic cuisine or other things whose price remains constant.

But these simplistic arguments may well hold when using a more defensible model of the economy. For every economically and environmentally expensive Alberta job lost as a result of this economic shift away from fossil fuels, new jobs will appear in B.C. and Ontario and Quebec who see a benefit in being at the forefront of a greener economy. The cost of energy will go up, yes, but not only will we consume less of it but it makes all sorts of other labour-intensive and knowledge-intensive parts of our economy perform better, and it also insulates them from the inevitable rise in energy prices that will fell economies that did not shift gears soon enough.

So which is right? I suspect that there would indeed be short-term economic disruption. A carbon tax, imposed even on exports, would move money around in the economy and displace some oil workers and truck drivers. However this adjustment would not be as painful as some of the other economic transformations from de-regulation and globalization, since those oil workers and truck drivers were not doing that job a few years ago: they are mobile, enterprising, and had other skills before going there. They won't all be making windmills, but our economy has a range of sectors, some energy intensive and some not. If they were to switch to green construction and transit drivers, the carbon tax could probably make their transition easier than, say, a employee of a suddenly defunct dot com in 2000.

Greenhouse Gas Climate Change Kyoto Protocol Canada Energy Environment

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