Frontier Centre: You have challenged the economic assumptions that underlie Canada’s support for the Kyoto Accords. What are your objections?
Norman Cameron: The fundamental assumption is that the benefits exceed the costs. The benefits depend critically on the probability that the concentration of greenhouse gases in the atmosphere (mainly carbon dioxide) has a significant effect on global climate. Competent scientists assessed this probability as low even before the IPCC’s report to the contrary, and more recent evidence from global satellite data makes it effectively zero. If the costs of reducing greenhouse gas emissions were also zero, that would not matter, but the costs of reducing greenhouse gas emissions fast enough even to meet the Kyoto targets, let alone enough to have any useful impact on global climate, may well entail a huge drop in macroeconomic performance.
F.C: Should Canada’s Parliament withdraw from the treaty? Isn’t it dead in the water?
N.C.: It does appear to be dead in the water, unless President Putin of Russia changes his mind. If the treaty is indeed based on badly flawed science, then we have no business lending our national support to it. We should support good science, not bad science.
N.C.: Under Jean Chrétien’s administration, officials insisted that Canada would move to comply with Kyoto even if it didn’t achieve endorsement from enough countries. How would unilateral compliance affect our economic prospects?
N.C.: If one is convinced that carbon dioxide emissions are indeed harming the only globe we have, then any action is better than none. That conviction can no longer be based on currently respectable scientific evidence, so even collective global action to reduce greenhouse gas emissions would do almost no good. Unilateral compliance would mean taking actions to prevent or induce firms and households to use much less energy than we do now, and to make more of that energy hydroelectric or solar or wind energy. We have not done so already because it is cheaper or more convenient as is. So unilateral compliance is a commitment to make things more expensive and less convenient. If the benefit is nil, this is not a good idea.
F.C: The Kyoto briefs contained only a small section on policy recommendations, followed by a multitude of studies that were alleged to support them. But some have claimed that the dots were not connected. Is the whole process based on science or political science?
N.C.: Some of each, but an increasingly large share of political science (politics, rather, or even the religion of Mother Earth, in the minds of some enthusiasts). The original Rio Summit that started this bandwagon was as much political as scientific, so we should have expected the scientists selected by the IPCC to be a non-random selection of the world’s scientific talent. That those chosen should then claim to represent the mainstream of the best of world science, however, is like the Bolsheviks claiming to be the majority when they took control of Russia in 1918. Subsequent lack of response to newly emerging evidence, like their selective disregard for much existing evidence that did not agree with their conclusion, shows that the science the IPCC used was just a tool of politics, to be discarded when it was no longer useful.
F.C: Even if manmade global warming were a real phenomenon, wouldn’t Canada be relatively better off, given the high cost of our severe winters?
N.C.: Yes. So would almost all of the rest of the globe. Ice Ages are not good for agriculture, and what is bad for agriculture is not good for humanity. Dr. Jaworowski has made this point well in the Winter 2003-04 issue of 21st Century Science and Technology. Alleged linkages of rising temperatures and more extreme weather are not supported by the data either.
F.C: One positive aspect of Kyoto was its use of a market mechanism that allowed polluting parties to purchase C0² dumping rights from others. Has the discipline of economics solved the problem of neighbourhood effects? Is trading intrinsically superior to regulation?
N.C.: Trading is more efficient than regulation, since price signals affect all parties – consumer and producers – while regulation affects only those parties that can be forced to comply. But trading will have a different distribution of effects than regulation, and equitable distribution of effects is often just as important as the total effect. For instance, the use of tradable permits under Kyoto would have conferred an enormous benefit on Russia, which had an excess of greenhouse gas reduction (from a collapsed economy since 1990) that it could sell on world markets. In addition to selling oil to the world, Russia could also have sold the right to use oil in excess of Kyoto targets! What definition of equity would justify that distribution of costs?
F.C: If environmental extremists were somehow able to achieve their whole agenda overnight, what would our world look like?
N.C.: I do not know what the rest of their agenda includes. Just reducing greenhouse gas emissions to 1990 levels would reduce growth in the developed world quite significantly, and that would sentence the Third World to more rather than less poverty. Poor nations cannot afford not to slash and burn rain forests, nor to rely on just having one or two children. So even if they got their whole agenda, the consequences would likely not include lower pollution and slower world population growth.
F.C: While interdependence between national economies is continuing to grow, political support for increased globalization seems to be declining in the West. Is there danger of a trade contraction?
N.C.: I think not. Increased globalization is brought by the communications revolution, which is not going to reverse itself. Nor are tariffs going to go back up. We are having difficulty with further reduction of trade barriers, to be sure, but that is because we are now down to only the most sacred barriers – for rice in Japan, for farm produce in France and the US, for financial services in the Third World (already in enough thrall to the world’s bond markets).
F.C: The issue of outsourcing work to less expensive foreign providers is the subject of much demagoguery. Could you lay out the economic case for its benefits?
N.C.: Certainly. The key is to assume that displaced domestic providers do find alternative employment in producing something else other than what foreigners are relatively better at producing. It is the job of central banks to ensure that such employment is made available, a job they have been vigorously engaged in these last few years in North America. Under that assumption, buying inputs and goods from a cheaper foreign source, and selling inputs and goods in which we are relatively efficient, leaves us with a higher standard of living. The benefits are distributed differently, of course, so the winners (that is, consumers) might want to compensate the losers with at least transitional assistance of various sorts.
This does not mention the possible benefits to rich countries from giving a hand to poor countries to become rich themselves, and therefore better export customers and possibly less belligerent. Those freebie spillovers are not necessary to the case for freer trade.
F.C: Canada’s economy has absorbed damage from American trade interventions in lumber, beef and steel, and pork may be next. Has Ottawa paid too little attention to trade issues? Could we have forestalled some of these harmful actions?
N.C.: Canada has not paid too little attention. The big gamble we took in entering the Free Trade Agreement in 1988, and NAFTA later on, has paid off in a drastic reduction in the frequency with which the US Congress, the patron saint of US special interests, tries to interfere with the flow of imports into the US. Other American trading partners with far less US trade than us face far more of these trade interventions in countervail and anti-dumping actions, because the others do not have a bi-national panel to stomp on Congress’ fingers.
F.C: Over the horizon, what do you think is the most important danger facing the Canadian economy? Is our relative productivity keeping up with the rest of the world?
N.C.: I am optimistic by nature. I see monetary and fiscal policy being conducted by sensible rules, taxes at least lower than a decade ago, all parties now aware of market forces even if not keen on the idea, and so on. Being Canadian, we lament whatever the US has that we do not have, such as more rapid productivity growth. That is largely a product of the sectors in which we are employed, however. If we had had more rapid productivity growth, we would also have much higher unemployment rates. If the US had had our productivity growth, they would not have had a jobless recovery. Is the extra employment for those at the margin of the labour force more important than a small increase in average income? I think it is. The World Values Survey that John Helliwell has reported on recently show that my attitude is common across all the developed nations: being employed makes a huge difference to life satisfaction, while catching up to the Joneses does not.