Sunday, December 20, 2009

Tory Environmental Report Has Obvious Mistakes And Conclusions That Should Be Questioned

A month ago, in reviewing numerous papers on carbon pricing, I read a report that was done by the National Round Table on the Environment and the Economy (NRTEE) that attempted to offer some justification for the Conservative government's position in favour of cap-and-trade. In reading Achieving 2050 however I was stunned to find that this government-published report, that was supposed to be reviewed by the round table's members, researchers, analysts, etc., contained obvious and critical errors; errors that possibly undermine the reports conclusion that a continental cap-and-trade system is to be preferred over a carbon tax.

On page 38 (PDF page 52), the second paragraph from the bottom, the report references Figure 7 on page 39 (PDF page 53) and claims that as Canada moves from a 45% reduction to a 65% reduction of 2006 emissions, the cost of reducing emissions per tonne increases from $200 to $300. However as one can see in Figure 7 (right) the cost increase is actually from $100 to $200, not the stated $200 to $300.

The report states:

Our research indicates that there is a point at which additional domestic action does not deliver on our cost-effectiveness goal. The rationale for this is straightforward: the costs of abatement rise rapidly as deeper reductions are sought.

Figure 7 illustrates this point. As reductions are sought above 45% below 2006 levels by 2050, the incremental cost to move to our target of 65% increases from $200 per tonne to over $300 per tonne, and even higher to reach an 80% target.
As noted above, this observation is wrong as a quick examination of Figure 7 clearly illustrates. And one can also note another obvious mistake, and that is the report cites the figure as being based on 2006 emissions, yet when one reviews the graph it is clearly in terms of 2005 emissions.

These mistakes call into question the conclusion of the report, that a continental cap-and-trade system is to be preferred over a carbon tax. The report claims that carbon must be priced at $300 per tonne to a reach 65% reduction by 2050, however Figure 7 clearly shows that such a target can be reached at a price of $200. In fact Achieving 2050 claims that all the costs of abatement are higher than displayed in the graph. The report puts the point where costs dramatically escalate at a target of a 45% reduction, and as the government target is 65%, it is concluded that it only makes sense to offset those higher costs outside of Canada. On page 38, in reference to this situation, the report states:
Given the rapidly increasing carbon prices required to attain domestic reductions consistent with our long-term targets, a strategy that balances domestic action with real and verifiable reductions from outside Canada makes sense.
However when one looks at Figure 7, the point in which the graph steeply increases is at the government's target of 65% and not 45%; therefore to reach the 2050 target, no external solution is actually needed and a continental cap-and-trade system may not be the preferred option.

I have had a professor on environmental economics review this paper and he concurs that these are mistakes. It should also be mentioned that for over a month numerous emails have been sent to the NRTEE seeking explanation without any response.

It should be noted that it could be that only Figure 7 is in error and the rest of the report is the correct portion. Though that may be true, it would at the very least leave the entire report's credibility in question as acknowledged mistakes had hitherto gone unnoticed, so why couldn't others.

It is more likely however that NRTEE researchers compiled the graph for the round table, and it was the NRTEE members that were mistaken in their interpretation of that data and perpetuated that misinterpretation in their finessing of the political document. This more probable alternative is furthered by the fact that NRTEE members lack any research or analytical backgrounds and, as previously written, have strong ties to the Conservative Party. It is from this that is likely the Conservative NRTEE members wrote the body of Achieving 2050, misinterpreting the data collected and generated by the staff of researchers and analysts.

The mistakes within the report Achieving 2050 at the very least show a lack of competency in the NTREE and question the conclusion that a continental cap-and-trade system is to be preferred over a carbon tax.

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