Friday, April 27, 2007

Emissions intensity: read the fine print

The coverage of the new Canadian GHG emissions regulations (technically, it's not a policy) generally opens with a sentence like this:

The plan, entitled Turning the Corner, calls on Canada to reduce its current amount of greenhouse gas emissions by 150 million tonnes by 2020 and will require most industries in Canada to reduce greenhouse gases by 18 per cent by 2010. (CBC-News)

It is wrong.

The plan - read it here - calls for an 18% reduction in emissions intensity by 2010. That, once again (and again, apologies to regular readers, I harp on this point only because it is important), is not the total emissions but the emissions per unit of GDP, or in this case, production by the company.

The plan is, right down to the numbers, eerily similar to the American policy I lampooned, as a warning to Canadians, in the Toronto Star almost a year ago. I'd like to claim some brilliance in debunking the US and, at the time potential, Canadian plans. The truth is, as I wrote then "A couple minutes with a calculator, or a morning of Economics 101, will reveal a hole in the intensity plan so big you can drive a Hummer through it".

A target of 18% reduction in emissions intensity by 2010? Reads like the "ambitious national goal" set by the Bush Administration in 2002. Canadian companies are being given less time, but that's merely catch-up for the lack of policy until now.

After 2010, the new plan calls for a 2% per year improvement in emissions intensity. If your production, measured in terms of dollars, tracks with the economy (at roughly 3% per year), guess what? The actual emissions could increase by roughly 1% per year.

Yes, the emissions would be lower in comparison to a business-as-usual growth scenario, but they would still be rising over all. That's one reason the environmental organizations and the opposition parties are attacking this policy with a fervour. Or why they should be. If industries are not required to reduce their actual emissions, the odds of reaching any long-term reduction goal, even the inadequate goal announced yesterday (20% below 2006 levels by 2020), are extremely low.

4 comments:

hotsauce said...

Hi there, thanks for the blog. Interesting analysis. I agree the intensity thing is not too serious. But how do you do the maths on this?

The way I see it, a company that emits

year->prod_units->co2_unit>intensity
2007-->100B$gdp --> 39MTCO2--> 0.39

2008-->103B$gdp -->38.11MTCO2 --> 0.37

(example intensity is from QC in 2005 in MtGHG/B$GDP)

So yeah, the actual reduction looks like it's not going to be much. But it's a reduction right? Or is my math all wrong?

Thanks for your time

Simon Donner said...

That's the right calculation: intensity = GHG emissions / GDP.

Your example involves an actual projected reduction in emissions, from which you are calculating the intensity. The Canadian government is doing the opposite: setting the intensity. From there, assuming a GDP increase of say, 3% a year, you can calculate the emissions.

Look at is this way (using your example):

2007 - 100b$gdp --> 39 MT --> 0.39
2008 - 103b$gdp -- but with a 2%/year drop in intensity
Intensity = 0.3822
Emissions = intensity*GDP = 39.37
MT --> a 1% increase

Again, the flaw is not the intensity concept as much as how it is applied. Under an intensity-based plan, the intensity must drop faster than gdp grows, or the emissions will increase. In that case, you may as well just cap emissions and see intensity only as another metric.

hotsauce said...

No. What I did is calculate the absolute emissions level (a regular absolute cap) that is necessary to comply with the intensity regulation imposed by the government. Intensity rule level (year x) * GDP (year x) = absolute emissions that are acceptable under law for year x.

In your reworked example, a 2% (% points that is) intensity reduction is not actually acheived. It goes from 0.39 in 2007 to 0.3822 in 2008. 0.78% point reduction. Not a 2% reduction. In my view, that becomes a case for non-compliance and enforcement.

I agree with you though that the flaw is not on the principle, but on the level imposed.

Vincent

hotsauce said...

Ok, it's my fault. I was counting reductions in percentage points and not Intensity * 0.98

It's all good

Thank you for your time