High Costs of Kyoto Compliance Punishing Canadians

Published November 21, 2003

Roughly a year after signing the Kyoto Protocol, the Canadian federal government has taken concrete actions that make it possible to put a price tag on that signature. The Chrétien government has said it plans to “invest” $1 billion on Kyoto in this year’s budget, to meet 8 percent of Canada’s commitment to reduce greenhouse gas emissions.

Let’s set aside for a moment the debate over whether climate change really poses a threat to humanity or the environment, and just do some calculations. Last year, it cost Environment Canada about $150 million to administer a budget of $841 million. That’s about an 18 percent administration fee. So Chrétien’s pledged $1 billion for greenhouse gas reduction is really likely to cost $1.18 billion.

But it also costs money to raise money. According to the federal ministry of finance, the least expensive way to raise taxes is through the sales tax, through which it costs about 17 cents to extract $1 in tax revenues from the public. So to raise and spend Chrétien’s $1 billion will cost at least $1.35 billion.

Now, if it’s going to take $1.35 billion to meet 8 percent of the Kyoto target, then a fairly simple calculation tells us achieving 100 percent is going to cost at least $16.88 billion.

But that’s just the tip of the iceberg. Studies suggest that for every dollar the government spends on a regulatory initiative in the U.S. or Canada, the private sector spends at least 20 times as much in order to comply. Adding private-sector spending to the government spending, that would bring the full price tag for Kyoto compliance in Canada to about $354 billion.

And that $354 billion, if it is to have any effect, will have to be spent before 2008, since the 2008-2012 time period is the one by which Canadian greenhouse gas emissions are supposed to have been reduced to 6 percent below those of 1990.

So, spreading $354 billion over five years, that’s about $71 billion per year taken out of a GDP that’s about $1.14 trillion—about a 6 percent annual reduction in GDP. Presuming all costs flow down to the roughly 15 million taxpayers in Canada, that’s about $4,700 per taxpayer per year for the next five years!

Of course, that’s probably a low estimate, since some studies suggest even higher compliance costs for industry; other forms of taxation increase the cost of raising money; and it’s likely to cost more for each succeeding set of reductions: While the first 8 percent might cost $1 billion, the next 8 percent is likely to cost more, and so on with each succeeding step toward the target.

What might all this spending achieve? Even those who believe global warming is currently happening and poses future threats admit Kyoto will buy precious little safety.

For example, Jerry Mahlman, director of the Geophysical Fluid Dynamics Laboratory at Princeton University, told the Washington Post, “the best Kyoto can do is to produce a small decrease in the rate of increase.” And in a post-Kyoto Science news brief, Mahlman admitted “it might take another 30 Kyotos over the next century” to properly address the global warming predicted by alarmists.

Bert Bolin, outgoing chairman of the United Nations Intergovernmental Panel on Climate Change, assessed the impact of Kyoto as a 0.4 percent reduction in greenhouse gas emissions compared to a no-protocol alternative, and concluded: “The Kyoto conference did not achieve much with regard to limiting the buildup of greenhouse gases in the atmosphere.”

Do other benefits gained from avoiding predicted global warming make up for the spending we do today? Not according to respected Yale economist William Nordhaus, whose study of the Kyoto Protocol’s benefits and costs found a benefit-cost ratio of 1/7: Even if global warming is really happening, we stand to gain $1 in benefits for every $7 we spend.

Dr. Kenneth Green is chief scientist and director for the Risk & Environment Centre at the Fraser Institute. His email address is [email protected].