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Forecast: US and Canada Will Regulate CO2 by End of Decade

A new report from CIBC World Markets, the wholesale and corporate banking arm of the Canadian Imperial Bank of Commerce (CIBC), forecasts that all jurisdictions in Canada and the US will have carbon dioxide regulations in place by the end of the decade to address global warming concerns.

The report predicts that every province and state in North America will follow the lead of California and implement not only a CO2 emissions cap but also an emissions trading system that will allow larger polluters to buy emissions credits from other firms whose emissions are less than what is allowed under the cap.

While North America has ignored implementing the Kyoto Accord, public concern about global warming is growing. I expect this will force governments to declare war on carbon emissions on their own terms. As that campaign unfolds, the economy’s largest emitters of CO2 will become increasingly dependent on the economy’s greenest firms for emissions credits.

—Jeff Rubin, Chief Strategist and Chief Economist at CIBC World Markets

The report states that the carbon abatement policies aimed at addressing climate change will have the greatest impact on the energy sector. This will have a significant impact in Canada where the sector accounts for 20% of the country’s CO2 emissions.

That percentage promises to rise steadily over the next decade as emissions-intensive oil sands production doubles and perhaps even triples, replacing depleting but less emission-intensive conventional oil production.

However, the report warns:

The real impact of climate change, and attendant carbon abatement legislation, will instead be felt on the supply curve. If planned additions to bitumen production are delayed or mothballed altogether, oil prices can only move in one direction—higher. To the extent that oil sands production cannot grow, neither can global crude supply, because, net of depletion, oil sands and deep-water wells are where the new supply will come from.

Conventional oil production has now not grown for over two years. Climate change also poses threats to production from deep-water wells. Gulf of Mexico production was spared last year the devastation it sustained in the 2005 record storm season, but most models of climate change predict increasing cyclonic activity in the region—home to 1.5 million barrels per day of crude production.

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Comments

Adrian Akau

Climate Infection
Regulation of exhaust gas should assist us to decrease,
By cutting down harmful emissions right now we need to police,
Presently the burning of our fossils holds no steady bounds,
And the climate is the shock absorber taking the incoming rounds,
Yet our atmosphere is what provides us oxygen to breath,
What is hurt we must defend because it gives us what we need,
If we stuff it full with cabons and with gas that holds in heat,
Then energy must faster flow and cause the weather to unseat,
Stronger storms, raised wind velocity and oceans steady rise,
Filling low lands and low cities with a watery disguise,
And the fields from which we take our food may suffer worse than we,
Sudden rain or lengthened drought may be the future that we see,
Regulations give us warning to prevent the misdirection,
So homes and lives will not be hurt by rising climate gas infection.

adrianakau@aol.com

Brad

Adrian, nice poem.

I really hope we will regulate CO2 in the next year or two. The longer we put that off the worse things are going to get. Plus, climate change is getting higher and higher on peoples lists of concerns, so that should give a political push for carbon caps.

Bill Young

I would agree: The sooner the better.

I would suggest that, rather than cap and trade, a carbon tax be used. Cap and trade has not shown to be very effective in the EU and addresses only industrial emitters. The carbon tax should be gradual and relentless to a level-perhaps doubling the cost of coal. The carbon tax should be across the board on all fossil fuel.

The revenue generated should not be kept by the taxing government but split between 150% rebates for sequestered CO2 and the remainder equally divided between all citizens.

Harvey D.

I agree with you Bill. Hitting the individual pocket book with a progressive GHG tax on all CO2 emitters would be easy to aplly and very effective on a 10+ year period.

The rates + application dates should apply to all States (+ neighboring countries) and be known to ALL early in the first year of the program.

What to do with the $billions in new revenues should be opened to public debates. However, you have to be careful that it (the carbon tax) does not go back in the very same pocket books it came from. This could nolify the whole exercise.

Cleaning up the power generation plants, develop and manufacture lower cost high efficency PHEVs batteries, improve the national power grid, actively support the production of alternative clean energies and of course reduce income taxes for low income people so they can afford to pay the carbon tax, etc.

SJC

Coal plants are now able to expand 20% of plant value with no cleanup at all. This is the wrong direction. If they had to pay credits to renewable sources for their carbon emissions, then sooner or later they would find that cleanup and IGCC makes sense and in the mean time we get more renewable energy sources.

Cervus

I don't like carbon taxes because they are inherently regressive. Artificially high energy prices will hit the poor and middle class the hardest and will increase inflationary pressures to boot.

And I guarentee you that the government would become addicted to that particular revenue stream. I think I saw a commenter from Europe complain that a goverment official was resisting lowering taxes on biofuels to encourage consumption because of the lower revenues that would result.

The problem with converting to renewable sources is that they both have to displace fossil fuels AND cope with increasing demand. Renewables are currently less than five percent of our energy needs, and even though solar and wind are experiencing double-digit yearly increases, they cannot yet displace coal or oil.

Bill Young

Cervus,

I agree that a carbon tax is, by itself, highly regressive. I recommend, however, that the revenue collected be split between sequestration rebates and the citizenry. The sequestraton rebates should be capped at 50% of the revenue.

The tax is levied, not only on the individual (indirectly) but also on commerce in general. The commercial taxation would exceed the indirect individual tax. If the payments distributed to the citizenry are at least 50% of the revenue, the tax and rebate together become progressive rather than regressive.

It is important that the rebate, other than the sequestration rebates, be made per capita, not proportional to consumption and not to corporate entities.

The tax is inflationary, as is any sales or ad valorem taxation. The rebates are compensatory.

If you do not raise the price of fossil fuels you will not seriously reduce consumption. It is too high a risk to expect to adequately address global warming with technological innovation alone.

Bill Young

Cervus,

I would agree with you that we cannot expect renewables to replace fossil and support expanding demand. I do believe that nuclear is, however, up to the job. It is well suited to baseload generation, which is not the forte of intermittent renewables. It is also lower cost per kwh than any of the renewables (except hydro which is pretty well tapped out in the US).

Engineer-Poet

Carbon taxes are not regressive except for, perhaps, home heating; rich people use a great deal more energy (directly and indirectly) than poor people.  Isn't that just about the definition of wealth?

This nation could use a Civilian Insulation Corps.

Cervus

Bill:

Frankly, your proposal seems more like a wealth redistribution scheme, which I oppose just on principle. If you're going to take the money, do something useful with it like funding R&D projects.

Engineer-Poet

R&D is only half of the puzzle; the other half is making the right things attractive to develop instead of creating perverse incentives.  Taxes on GHG's help shift the attraction away from problem fuels and processes towards ones which create no problems or even create benefits.

Andrey

Average US family spends 3.5% of income to fuel their cars. How much taxes should be slapped on gasoline to reduce demand and reduce CO2 emissions somehow noticeably? Double or triple price of gasoline? Does not work in Europe, their vehicular CO2 emissions are growing steady and quite substantially. Same in Japan.

Rafael Seidl

Andrey -

while you rightly point out that high taxes on all forms of energy in Europe (not just motor fuels) have not halted growth in aggregate consumption, it is also true that Western European economies require only about half as much energy per unit of GDP as the US and Canada do.

That would suggest that some variation of a carbon tax could substantially reduce CO2 emissions in North America. Not only would this sustain the innovation and adoption of energy-efficient technologies even if oil prices dip if and when OPEC decides it wants them to, it would also sharply reduce indirect costs such as military engagement in the Middle East and perhaps in the long term, insurance premiums for coastal and offshore property.

Cervus -

you rightly point out that a carbon tax would be regressive, especially since a lot of low earners are forced to accept relatively long commutes to work. However, you can compensate for this by relieving the income tax burden on this group. The bottom line is not any individual tax but rather the total marginal rate for an individual or family (sum of all taxes paid divided by gross income).

Matthew

Rafael -

As it stands today in the U.S., low earners pay almost no income tax; it's very nearly been completely relieved already. The last numbers I saw showed that the bottom 50% of earners here pay only 3.6% of aggregate income taxes. I suppose you could go for relief of payroll taxes or something similar, but that's a whole 'nother can of worms.

No, if we're going to have a carbon tax, everyone should suck it up - just as we all suck up the existing taxes on gasoline and diesel.

wintermane

And yet global warming and climate change will very likely hit at the same time anyway. Still maybe it will cushion the horrors to come. A smidge.

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