A district heating facility in Copenhagen.

District heating facilities, like this one in Copenhagen, mean less waste. (Bill Ebbesen)

World | From Pivot Magazine

The Swede spot

How to fight climate change, without destroying the economy

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Across the country, conservative politicians have been coming to power and prominence advocating a key platform message: cut the carbon tax. 

Carbon taxes and cap-and-trade programs are nothing more than a tax grab, they say. They won’t do much to reduce emissions. Even if they do, Canada’s contribution to global climate change is so nominal in comparison to China, the U.S. and India, that this country would be hurting its own economy for practically no gain. 

A lot of spent taxpayers seem to find the message appealing. 

But if the political antipathy to carbon pricing is genuine, the reasoning is flawed. Several studies are now confirming the standard economist line, albeit with a few caveats. Carbon pricing does work to change behaviour and reduce emissions when that pricing is both sufficiently stringent and part of a well-designed public policy. And given the growing consensus on that fact, companies of all kinds are going to need to consider the impacts of climate change—and of carbon taxes and cap and trade—on their supply chains and bottom lines. 

Brendan Frank is a research associate at the Ecofiscal Commission, a Canadian think tank devoted to finding market-based solutions to environmental issues including climate change. “It’s early days still for carbon prices,” he says. “But in the short term, we are seeing changes in behaviour and changes in investment.” 

The commission studied the effects of carbon pricing in several jurisdictions and found notable results, particularly in Sweden. The chilly Nordic country has taken an aggressive line on carbon pricing, starting in the early ’90s, and has made impressive improvements on its emission trends. 

One of the innovative approaches they have adopted is in “district heating.” Basically, while places like Canada still heat homes by installing individual furnaces in each building or house, Sweden produces much of its heat in central production facilities and then distributes it through insulated pipes to urban and suburban homes. 

A major benefit of this centralized approach is that it can allow the country to capture heat energy that would otherwise be lost through waste—for example, the excess heat that’s created through electricity generation, waste incineration or industrial processes. Sweden has also switched to biofuels from fossil fuels for a substantial portion of its heating needs. 

The approach has allowed the country to make major reductions in emissions. But there had to be significant economic incentives to make such a program viable. Sweden started with a $52-per-tonne carbon tax; it’s now $188 per tonne—the highest rate in the world. 

And Sweden’s case was complicated. The country went full bore on climate change policies that would lead to long-term sustainability, including energy taxes, congestion pricing and mandated efficiency standards. Sweden also invested in public transit, sustainable city planning and renew-able energy; it spends a large percentage of its GDP on research and development, particularly in environmental technology. 

The Swedish example suggests that countries serious about climate change need to think about their policy prescriptions holistically. 

Sweden’s overall emissions did in fact increase through the first half of the ’90s, despite the carbon tax, but they were down significantly from where they would have been without the tax. The country has since witnessed a steady decline as innovation, incentive and policy combine to shift behaviour. 

And despite concerns about how this taxation would affect the economy, Sweden’s growth is exceeding European averages, according to the Ecofiscal Commission. 

It’s true that the country’s contribution to global greenhouse gas emissions is only a fraction of Canada’s. But citing comparative carbon footprints country by country is not a productive approach, Frank argues. Canada emits only 1.6 per cent of carbon emissions globally, he concedes, but that’s not an excuse for inaction: “The 1.6 per cent argument gets trotted out a lot, but Canada is a top 10 emitter. If we don’t continue to move on climate change, or if we backslide, we’re giving the same argument to every country from 11 on down.” 

China, the world’s biggest emitter, “is working on carbon pricing right now,” he points out. “They launched a cap-and-trade program in December of last year. China recognizes the value of moving on this sooner rather than later.” 

Given all that, it seems unlikely that opponents will be successful in the long run in a fight against carbon taxes. For that matter, four provinces have already brought in their own carbon pricing schemes; Ontario and Quebec subscribe to cap and trade while Alberta and British Columbia have implemented carbon taxes. And Ottawa has threatened to impose carbon taxes or the equivalent on impudent provincial jurisdictions that refuse to do so of their own accord. 

Gordon Beal, CPA, CA and vice-president, research, guidance and support for CPA Canada, says it’s time for companies at home to assess the risks of climate change. Public companies are obliged to disclose material risks, but too few are considering how climate change and carbon pricing may impact their profitability and growth. “To demonstrate a long-term view of value creation, business leaders need to do a thorough analysis that extends from down in their supply chain, throughout their operations, and into their distribution channels,” Beal says. “Without this analysis, they could be putting the business, its employees, shareholders and other key stakeholders at risk. Fundamentally, it’s good business practice.” 

And it’s becoming a global effort. At the request of the G20, the Financial Stability Board (FSB) created a task force on climate-related disclosure. FSB chair  Mark Carney, the governor of the Bank of England, points out that financial institutions that control assets of roughly US$90 trillion have backed its recommendations. 

“One of the things that disclosure can do for individual companies, but also collectively, is give the picture of what the energy transition is going to look like,” Carney told CPA Canada CEO Joy Thomas in a recent interview. “Canada more so than almost any country in the world is going to participate in every element of that energy transition.” 

The transition will have broad effects. Greenhouse gas emissions had often been thought an external by-product of operations, says Beal, but “a price on those emissions is intended to bring the issue front and centre to the strategic and operational decision-making process.” 

That likely means some kind of carbon pricing. Fortunately for Canadian companies, they needn’t worry so much about the politics. The purpose of a carbon tax, after all, isn’t to fill government coffers. It’s to motivate everyone to find ways to avoid paying it.