Eager to move off the full-throttled despair and chastising that boils over in the clash of ideas about energy? Offering insights and practicality while many of us are still cooped up at home, Stewart Muir talks about realistic solutions to the problems we're facing.
At Resource Works, the working day has taken on a different form in these times. Even as we gingerly enter the third stage of the recovery, whose habits have not been permanently altered by long weeks of isolation?
Between the pizza dough, pretending for the sake of family harmony that the sixth season of Friends is every bit as hilarious as the first five, and snooping around the home delivery deals at Harry'sWineHypermarket.com, there is barely time to focus on the minor issues such as: what does a trillion-dollar-plus "energy transition" look like for Canada?
Full disclosure: I confess to being short on slogans and emojis, but heavy on the dollars and graphs. If you need a shot of mermaid tears and unicorn dreams, plenty of policy advocates can be found right now pushing a variety plans for how the COVID-19 pandemic will provide a simple bridge to a post-hydrocarbon economy. Not to make light of the anxiety, fear and grief that makes those easy prescriptions appealing to some. I have to admit, some really good questions did come up in the clash of ideas. Like: What’s the goal of changing national and global energy systems? What will it take to achieve it? What are the barriers? What are we asking people to do? And what are we prepared and able to do?
In looking at a couple of unified climate change strategies—climate change being an issue polling as the third main issue during the recent election (health care being #1 and affordability #2) — at Resource Works we decided to look at them from multiple perspectives, including finance, engineering and regulatory/environmental.
We took the view that most of us can agree we want to settle on a clear target and an effective strategy that can be pursued by a competent technical team. Once we do, we can move away from what seems like an endless series of moving targets, missed targets, sacrificial lambs (like national unity, economic reconciliation for First Nation people, and the hollowing out of significant portions of entire industries and downtown cores of major cities) and a dog’s breakfast of strategies across the nation.
The target and the strategy
We picked Canada’s Paris target, which is to reduce GHG emissions by 30% from 2005 levels (732 million tonnes CO2 equivalent—MtCO2e), which is in the range of 220 MtCO2e.
Then we examined proposals to achieve or slightly exceed that target in a recent ICF/CGA study, “Implications of Policy-Driven Electrification in Canada”. The study looks at options to seriously ramp up Canada’s electrification which is currently at 20% of our energy mix. We’ve pulled out two scenarios “renewables only” (RO) that gives us a reduction of 311 MtCO2e (a 42% reduction, so well above the goal) and “integrated energy system” (IES, pronounced “yes”) that gives us a 38% reduction in GHG emissions (still well above the goal). Then we layered on the element of time. The first timeline we looked at is the one used in the ICF/CGA study (30 years from 2020 to 2050), and the second that we should accomplish this in just a decade, by 2030.
Calculating the cost
Next, we looked at the cost, and there’s a big difference between RO and IES, coming in at $1.4 trillion and $580 billion respectively. These numbers seem staggering if not crippling, so we looked at the cost from a household perspective to see what that looks like. Canada has 16 million households. RO will cost $95,000 per household and IES will cost $40,000 per household. That’s not chump change. That’s a family member’s university education or a down payment on a home (except Vancouver).
We had some serious questions about the incremental cost, so we looked at those numbers. It turns out the cost to reduce one tonne of CO2e with the RO strategy is more than double at $289 compared to $129 for IES. This means the marginal cost of moving from a 279 to 311 MtCO2e is a whopping $1,684/tCO2e. We definitely thought there must be better investments out there, including more competitive strategies for reducing greenhouse gas emissions—if the goal were to move above the 279 MtCO2e level. This left us favouring IES, but we didn’t want to jump to conclusions before working on the other factors like engineering and regulatory/environmental.
The household cost for either option is a lot of money when you consider the average per capita, pre-tax employment income in Canada is $45,600 (2017 dollars). It turns out that Canadians would be contributing the equivalent of 4% (IES over 30 years) and 30% (RO over 11 years) of their after-tax income to meeting the Paris commitment.
That’s a lot of money to come up with, when you consider that the Bank of Canada says half of Canadian households are $200 away from insolvency—in other words, can’t pay their bills. That’s a lot of money given that a recent poll indicated less than one quarter of Canadians were willing to pay any more than $100 on climate change. So it seems clear, not only do we have the issues of climate change and affordability top of mind in Canada, it also seems that we have an issue around affordability of climate change investing.
We then took a look at our options and the annual cost to households. On a 30-year track, with an annual household investment of $1,300, we can meet and exceed our Paris commitment, and reduce emissions by 279 MtCO2e. Still, it’s a far cry from what Canadians are saying they are willing and able to pay, which is $100 or less a year. The 13-fold difference between what we say we are willing to pay and the cost of a reasonable program has to be named for what it is: “aspirational”. But we didn’t stop there. That’s when we decided we need to look at the issue of affordability because it is a barrier to pretty much everything we want to do.
So we thought we’d look at ways we are currently spending that could be eliminated by taking a unified approach on electrification. Just a few examples are the Government of Canada’s $2 billion annual program. Then there is $9.5 billion that Canadian industry is paying under the carbon tax banner. This is costing Canada high-paying jobs because very few countries are deploying the carbon tax as a strategy to deal with climate change. In fact, we’ve discovered, Canada accounts for 12% of the global carbon price revenue when we only account for 1.6% of the emissions. Then there is the lost revenue from industries that we have taken to constricting, like $15 billion a year in lost revenue because some people have very effectively pursued a no-pipeline strategy, riding the contrails of our guilt about not tackling the issues head on. Unsurprisingly, industries and investors are taking their business elsewhere.
But if we take the electrification approach, with Canadian households doing the financing, that even gives us a 59 MtCO2e budget. Then we don’t need to kill our jobs-creating industries—it even gives us much-needed room for growth. Best of all, we can save the lawyer fees from suing right left and centre. So there are definitely benefits for Canada to get on a unified approach for reducing emissions. We know that Canadian natural gas is the cleanest in the world and our oil is on standard and getting cleaner, so it is a global benefit when it comes to the global climate to produce Canadian resources. Getting these resources to places like India and China to displace coal, would be a great use for some of that 59 MtCO2e budget! We did do our fact-checking, referencing pointy-head forecasts (as opposed to aspirational twitter musings or adrenaline-inducing feeds of calving glaciers and boreal burns). They all project fossil fuels will do most of the heavy lifting for decades to come.
Still, getting households into a position to finance a climate change strategy that puts us on track to meet our Paris commitment will require growth in household income. When we looked into it, we found that the buying power of Canadians’ income has been underperforming over the last ten years. This brought us to the idea that if Canadians’ income grows we would be better able to afford aspirational plans developed to meet our targets.
Our key take-aways from the financial analysis are:
- This is a massive financial commitment, ranging from $19 billion a year (close to Canada’s annual defense budget) for 30 years to $127 billion (about half of the annual expenses of the Government of Canada) a year for 11 years.
- The marginal cost of going all-out with the RO option is better spent on moving faster on the IES strategy
- If Canadian households take on this effort, there will be savings and relief for government and businesses.
- The need to grow real household income is essential for all strategies and the growth target should be on 10% growth starting in 2020 if we are going to get to IES by 2030. If we cannot achieve this growth, and can only achieve still ambitious, but more modest 4% real income growth this coming year, we will have to accept a 30-year horizon for our electrification strategy, and amend our Paris commitment (no need to fly, just twitter).
- Time spent protesting might better be spent at a part-time job to start financing the next generation of household climate change financing. (This may just be the parents speaking, but it might be best to stay in class and build those skills to solve the next generation of problems with the breakaway solutions used to solve complex problems in a timely way….)
Engineering, environmental and regulatory issues
The profile of renewables varies significantly in terms of their reliability. This is a key safety issue: it’s just a fact of life that people die without energy when it’s 40 below, and we decided not to ignore this critical safety risk. Knowing solar and wind have to be backed up by natural gas, biomass, nuclear, coal or oil, we took a quick look at the implications if Canada developed on a 100% hydro pathway. For perspective, RO would require 255 new dams, and IES 125 new dams, each the size of British Columbia’s new Site C dam.
Site C is currently on target with a ten-year construction schedule and in-service date of 2025. Ok, so as to avoid being totally discouraged by engineering and construction constraints, we looked at what that would mean on an annual basis, to get the job done over 30 years. What this means is the planning, assessment, permitting, approval, financing and construction of at least 4 (IES) and up to 9 (RO) Site C’s, every year for 30 years in Canada. If we follow the wisdom of certain pressure groups, and complete 100% renewable electrification by the end of 2030, that means the development of 11 (IES) or 23 (RO) Site C’s every year.
Canada has always been a country that has been able to get big things done, but surely even Canadians are going to struggle with this. Consider it takes 10 years to build a project and 4 years to get electrical generating projects through the regulatory process, that’s 14 years before the first projects are commissioned. It is worth noting that the WAC Bennett dam built in the 1960s in BC and three times larger in terms of capacity only took 7 years to build. This left us scratching our heads as to why it takes longer 60 years on. Clearly, the unified electrification climate change strategy will require strategic bundling of electrification projects as well as of projects that are required as of next year to generate the growth in real incomes in Canada to a fast track through the regulatory and construction phases. The detailed engineering, construction-build and workforce implications of either scenario clearly need a reality check.
On the environmental side of things, we were curious about how a hydro pathway would affect the flooding of land in Canada, because hydro reservoirs are essentially gigantic batteries. The size of these natural batteries can vary hugely, so we took these two hydro dams on BC’s Peace River—the 1.1 GW Site C that is currently under construction and the 3.0 GW WAC Bennett built in the 1960’s. By comparison, the Site C dam has only 5% of the footprint of the WAC Bennett dam, so this gives us a large range to consider this impact. In the case of RO, the area of Canada that would be flooded would range in size from three-quarters of Vancouver Island to over 140% of the area of Newfoundland. In the case of IES, we found that the area flooded would be about 23 times the size of the Island of Montreal and up to three times the size of Lake Winnipeg. That’s a lot of flooded land! Makes a person wonder whether the flooding of coastal areas from climate change will be this large and sudden. It does help put into perspective the massive scale of engineering that is contemplated in association with atmospheric management strategies.
Our key take-aways from the EER analysis are:
- Scrubbing 30% of Canada’s GHG emissions is a massive engineering undertaking whether the target is 10 years or 30 years.
- Our regulatory processes, when combined with construction timelines, will make it challenging to get things done over thirty years.
- We need to seriously consider nuclear, the densest and lowest footprint source of energy currently available to us, to play a key role in a Canadian electrification strategy. Alternatively, we will have to accept major loss of land, diminished relationships with First Nations and those rural communities that will be displaced (this is an emergency, so not a lot of time to talk), and wildlife habitat from massive hydro development.
We didn’t want to walk away empty-handed, if full of insight, from this conversation. We thought it would be reasonable to adjust our expectations and perhaps aim for a unified electrification strategy, the much-better valued IES over a 20-year period, with an annual cost of $29 billion. This IES compromise would mean an average household cost of $1,800 that would need to be financed by an increase of 5.4% in real income. That means for 20 years, every working Canadian spends two hours out of a 40-hour work week earning our climate change strategy commitments. We’d have to ask for lots of help along the way (eg. how each level of government could align its policy and programs in the right direction, how businesses and investors might be able to support us in this effort). We’d want to make sure this is the best and least-cost option, and be confident that the analysis and costing is rock solid. At least this conversation has brought us the realization of the magnitude of this undertaking and the value of moving on from slogans to doing the dishes. It is very useful to understand that the cost of a semi-plausible strategy to reduce Canada’s GHGs by 30% is going to take at least 20 years, and will add $150/month to the average household budget. We expect any government serious about climate change will establish the conditions for significant real growth in our household incomes as an immediate first step.
Postscript
Because climate change mitigation is not the only bill waiting to be paid (remember “affordability” ranked higher in election-season polling), we took the liberty of looking at what might be required to address this issue and we’ve bundled them together. Employment income has stagnated over the last number of years, growing in real terms by a lacklustre 0.7% between 2012 and 2017.
To remedy this situation, we set a target of 2% growth in real income over the 2015-2024 period. We are a little behind schedule. This means that in addition to a one-time 5.4% increase in income to finance the IES climate change strategy compromise over 20 years, we’d also need to see a 4.5% increase in real employment income over the next five years. We realize that, yikes, this would mean a 10% increase in the first year. So we thought if we spread the growth for the climate change strategy financing over two years we could aim for 7.2% growth in years 1 and 2 and 4.5% growth in the three following years.
This meaningful progress on such an objective would ensure both affordability and reasonable climate change strategies (pending detailed engineering, least-cost option and regulatory feasibility study) are in place. A reasonable implementation strategy would be to promptly remove barriers and open pathways to this kind of income growth for Canadian households.
And now for a double shot of mermaid tears!