|Montreal, October 12, 2002 / No 111|
by Harry Valentine
Several national newspapers have recently carried news items and commentaries pertaining to the Kyoto Protocol and efforts to reduce greenhouse gas emissions. One commentary praised American companies like Alcoa and Pacific Gas & Electric for supporting the Kyoto emissions standards, despite the American government rejecting the protocol. In the US market, companies contend with greater competition and less regulation than their Canadian counterparts. They even compete for green sector investment funding. Market forces compelled several American businesses to invest in cleaner, more efficient technologies and production methods, helped by America's lower personal and corporate tax regime. New technologies offering improved energy efficiency or improved production efficiency are continually being developed and appearing on the market.
By contrast, numerous sectors of the Canadian economy have been heavily
regulated for decades, essentially protecting them from competition. There
is little incentive, for players who are protected from competition by
regulation, to invest in newer, more efficient technologies, especially
if the short-term gains are expected to be minimal. Canada's higher levels
of taxation removes revenue that companies would otherwise have had to
upgrade efficiency or invest in newer, more innovative production technologies.
Ottawa's intention to ratify the Kyoto protocol may ultimately create a
new form of subtle market regulation, one that would protect some politically
favoured players from competition, by restraining their competitors by
force of law.
Fails to fulfill its intended objectives
No fewer that three Nobel Laureates in economics (Friedrich Hayek in 1974, George Stigler in 1982, Ronald Coase in 1991) undertook very comprehensive and extensive academic research into economic regulation, revealing that economic regulation ultimately fails to fulfill its intended objectives. The pro-Kyoto companies are well aware of the protocol's potential to restrain their competitors. Competitors may have to "purchase" emissions credits at high cost, impairing their viability or even forcing some of them out of business or out of the country. It could precipitate another brain drain from Canada to the USA, including an exodus of several businesses. State regulation and management of Canada's East Coast cod fish industry ultimately led to that industry's demise. Ottawa's ratification of the Kyoto protocol could achieve similar ends, in other sectors of the economy.
The present Canadian economic regulatory framework may actually be stifling private, voluntary, market-driven efforts at reducing greenhouse gas production. Such efforts may improve energy and production efficiency, without state intrusion. A repeal of economic regulation could enable reductions in greenhouse emissions being achieved voluntarily, as has already been occurring in some sectors of the American economy. Several Canadian economic sectors are now classified as being deregulated. The term "deregulation" applies after some minor revisions have been made to a regulatory regime that remains essentially unchanged.
In a fully deregulated electric power regime private homeowners could not only generate their own renewable electrical energy, by installing solar photo-voltaic panels on some exterior parts of their homes, they could provide their neighbours with electric power. Under Ontario's electric market deregulation farce, homeowners are prohibited by government regulation from extending an electric power line across the property line to a neighbour. Ontario Hydro's debt load rose to $32-billion under the Rae government in the early 1990s, which the present Ontario government is committed to paying off. Quebec Hydro's power sales to the US Northeast earns revenue for the provincial government. Both Ontario and Quebec are understandably hostile to a totally deregulated, free-market electric power regime. Under such a regime, private people could generate and share clean, renewable electric power within neighbourhoods and without fear of intrusion and intimidation by authoritarian government officials.
The transportation sector has been identified as being a major contributor to greenhouse gas emissions. Government officials are hostile to the concept of total economic deregulation of all commercial transport operations across the nation. The federal Transport Minister refuses to deregulate the long-distance bus industry, preventing cut rate bus and van operations from doing a box-office business along the nation's major intercity corridors. Total economic deregulation of Canadian railways combined with major tax reductions, even a 5-year moratorium on their taxes, could result in the railways upgrading their terminals and infrastructure, even building new intermodal terminals and double-tracking important railway routes. They could win back substantial market share in freight transportation from the trucking industry, especially between Detroit and Montreal. Such efforts would result in a marginal reduction of greenhouse gas production.
State economic regulation of the power industry
In a totally deregulated electrical power generation regime, a totally deregulated railway may consider generating and using their own electricity along their most heavily used routes. Federal monopoly/competition laws may have to be repealed to allow for this, because the railway's own power station could be accused of monopolizing the market by serving a single captive customer, that is, the railway itself (US Anti-Trust Law interpretation).
Many industries need to generate and use steam in their production processes and burn fossil fuel, like oil or natural gas. In a regulation-free environment, they could generate electric power and use the steam as the by-product. They could sell the excess electric power to other industries in the same industrial areas, or even to local power generation companies. The waste steam could be used for district heating during winter, while during summer, the heat from the waste steam could drive air-conditioning systems using either vacuum refrigeration (using water as a refrigerant) or new generation absorption refrigeration technology. In provinces like Ontario and some Maritime provinces, overall reductions in greenhouse gas production would result from comprehensive power deregulation.
Government regulation and political persistence in interfering in the economy may be doing more to hinder private efforts to reduce air pollution, than any political plan could hope to accomplish through forcible coercion. The remote locations of politically favoured huge thermal power stations, away from most industrial or residential areas, prevent them from operating at the competitive high efficiencies of combined-heat-and-power (CHP) thermal power stations. Small CHP installations, such as those that could operate inside industrial areas, have achieved combined efficiencies of near 80% in Western European installations. Big thermal power stations achieve only half that figure, between 40% and 45%, rejecting large amounts of thermal energy to the environment at the site of power generation, as well as losing energy (in the form of heat) along their long-distance transmission lines.
State economic regulation of the power industry is responsible for mega thermal power stations operating at lower levels of efficiency than what could be achieved privately, with smaller CHP power stations operating in a regulation-free environment. In this regard, state regulation has resulted in more greenhouse gas generation than an unregulated regime would otherwise be producing. A political solution to this debacle is unlikely if Canada ratifies the Kyoto protocol. It will only result in federal-provincial confrontations over who has jurisdiction and economic regulatory power where, followed by long-term political wrangling.
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