Q&A from last post – Canada & Kyoto

On my last post about Canada’s stance on Kyoto and Climate Change, Jay made some pretty good points. So instead of just writing back in the comments section, thought I’d post them here.

There are two contentious issues here. The first one is freeloading. If “good” nations take measures to save the environment, then everybody benefits, good and bad alike. That means that the “bad” nations get a free ride. Canadian industry (the folks who will actually foot the bill) rightly thinks that this is unfair. China getting on board is a good start, but India has to get on too. There are a billion of them after all…

The second issue is the balance sheet, and the economic viability of implementing environmental measures. Although the global balance sheet is as you say; e.g. production has environmental consequences which cost everybody, this equation does not appear the same on the balance sheets of any one individual, corporation, or government department. Until that happens, nobody has a measurable incentive to change.

It would be an interesting exercise to come up with a scheme that solves both problems. i.e. a great B-school project.

Cheers, Jay

Good excuses but still excuses.

Kyoto and the freeloading problem:

True, India should get on board with China and the other developing countries but there are a few things to consider:

1. what exactly is the “free ride?” That they can keep on polluting? That’ll work in the short term but will undoubtedly cause bigger problems (and costs) in the long run. Hence, we’re not necessarily “footing the bill” -the countries that don’t move are creating their own bill to pay later on (i.e. health costs, contaminated water supplies etc.) By stalling, Canada isn’t helping anyone – especially not helping our own economy.

2. Canada’s stance is essentially, everyone has to agree or nothing will happen. What about the companies that are going above and beyond what’s asked? (Good info on what businesses are doing here) Are they “footing the bill” for the others? Is it hurting their economies/profits? Au contraire, for the most part, they’re boosting innovation, finding alternative local fuels (improve energy sufficiency), and getting a lot leaner and flexible organizations.

Nevertheless, it is true that if you move alone with Kyoto, setting hard to reach goals with penalties, you’re bound to get hurt. I was sad to research the effects that it’s had on Europe. (Going green isn’t always a starry-eyed experience) But did we really think that trying to undo the wrongs of yesterday wouldn’t have an economic cost? Of course it will! But so too are there costs for not moving!Let’s not forget that this is also still the beginning of the change. Let’s see who has stronger economies (and less health problems, and happier people) 20 years from now. My guess is that their innovation and improved consumption patterns will have beneficial impacts, economically, environmentally and socially.

3. Part of reaching Kyoto involves Flexible Mechanisms and an interesting one in this case is the the Clean Development Mechanisms (CDM). If Canada got serious about Kyoto, we’d have more incentive to invest in India, China and other developing countries (anything is better than our complacent investments in the US! Canada usually has a one-track mindset when doing foreign investments- and I’m sure it’s hurting now with the slumping US economy). By using the CDMs we’d be helping those countries become more sustainable and help our own economy innovate and expand.

Balance Sheet Issue

Companies and other organizations: there’s a lot to say about being eco-efficient.

  • Less waste = less money spent on trips to landfill
  • less energy used= less spent on energy bill
  • etc. etc. etc.

There’s also a lot to say about stakeholder dialogue. If you’re indirectly hurting/killing innocent people with your by-products, expect civil society to be at your company doors.

As for the other issues, the government has a lot of work to do. They’re paying for our health care and they’re in charge of the policy making. Again, they have to smarten up.

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2 thoughts on “Q&A from last post – Canada & Kyoto

  1. Jay Godse says:

    The free ride is concept is related to the “Tragedy of the Commons”. Other people pay, and you benefit without paying. For example, in the article you quoted, Germany and the Europeans implemented environmental standards. They paid. However, the world as a whole benefited. The Germans & Europeans benefited environmentally, but it looks like they paid a lot more economically. The flip side of free riding is true too. When one single company or country pollutes, it creates a future liability for everybody, however, the benefit only accrues to the polluter.

    The challenge is that when you benefit economically, that includes acquiring the wealth needed to clean up pollution in the future. I’m sure lots of companies are benefiting by implementing the standards, but not all (as the Germans and Europeans have shown). Point is, if the benefit does not show up on a real balance sheet of a real company or person, or if voters lose jobs because of environmental costs digging in the ability of companies to pay salaries, then implementing the standards won’t last.

    It’s obvious to me that Canada, USA, and Japan saw years ago what it took the Europeans real experience to see. When many Kyoto-compliant environmental measures cost real people real jobs, and cost governments tax revenues, support tends to dry up. Furthermore, nobody has shown a clear path to reducing health care costs by cleaning up pollution. I’d love to see one.

    Think taxes. In countries with fair taxes and good compliance, people pay because the benefit of everybody contributing exceeds the cost. However, if a country has too many tax dodgers, then they get free social services and infrastructure on the backs of those that pay. Over time, the payers get offended and start demanding lower taxes, or they become dodgers themselves. Getting countries and companies to pay for environmental controls is no different, and that is what Canada, USA, and Japan are fighting for.

    As far as stakeholder go, I don’t really see them voting with their votes or their pocketbooks. It’s one thing to talk about how great Kyoto is, but it is quite another to vote for governments that implement Kyoto-compliant environmental measures that cost prosperity and jobs in the short and medium term.

    As far as the innocent people go, it is hard to prove that a particular polluter is directly responsible for killing somebody. Where it is possible, the victim usually some combination of poor, dirty, brown, and living far far away. i.e. Who cares? (This is, admittedly, a cold and callous thing to say, but our actions as “first” world industrialized nations line up quite nicely with that view). Also, they probably won’t sue.

    Investing in India and China is hard. In the west, we take for granted things like rule of law, property rights, non-corrupt governments, market-driven exchange rates, free trade, and capital mobility. Remove or reduce any one of these factors, and the incentive to invest in India and China goes way down.

    Flexible mechanisms such as carbon credits are a good idea, but only if they are underwritten by the ability and/or willingness of their owners to make good on them. If there was a way to tie carbon credits to the value of a national currency, then the carbon credits would have some clout. Tying them to a national currency is hard, because that requires the commitment of governments who are already up to their eyeballs trying to fight poverty, lawlessness, illiteracy, and other more basic problems.

    Governments will “smarten up” if their voters and/or corporate contributors give them a reason to do so. That…is the challenge.

  2. janeporter says:

    Funny, I’m answering back.. and believe it or not, i’m not even a full full supporter of kyoto. I’m not blind to see the problems of it, but I don’t like the alternatives given either.

    I agree and disagree with your comments. I know all too well about the “tragedy of the commons” but although Canada was ‘free riding’ on Europe’s tough standards, (getting some environmental benefits at europe’s cost) they still paid largely for their negligence (so.. not so free).

    For another matter, although pollution transcends borders (global warming etc.) some of it is still local pollution – and by pushing the boundaries on environmental issues, europe is just benefiting itself.

    I said it before, but I think there’s obviously going to be a hit to the economy when you join kyoto (and agreed… when some people see that jobs are lost, they’re not going to vote that way) but… some voters see it in a different light. Jobs come and go, the economy bounces up and down.. but damaging the environment can have lasting and devastating effects on both the economy and society. So, even though some jobs are lost and the price of fuel is on the rise, some people are still content knowing that their air is cleaner and their children will grow up in a better place. As for the pollution and health care costs link – wasn’t the World Bank report about China showing exactly that? I don’t want to go searching for all of them, but i’ve just finished reading a bunch of environmental science texts explaining the effects of pollution on people’s health. (as for actual domestic health care costs, there must be canadian statistics out there pointing this out)

    Some people will lose on this, that’s a given. Some companies will gain competitive advantages from the improved standards (i.e, profits that land directly on their balance sheet), and some will fail (that’s life and very darwinian;)

    A lot of industries will suffer – but that’s economic history. We go through cycles (kondratief waves – some agree with it some don’t ) http://en.wikipedia.org/wiki/Kondratiev_waves

    * The Industrial Revolution–1771
    * The Age of Steam and Railways–1829
    * The Age of Steel, Electricity and Heavy Engineering–1875
    * The Age of Oil, the Automobile and Mass Production–1908
    * The Age of Information and Telecommunications–1971

    So, looks like we’re approaching a new wave.. and I think the current focus on environmental issues will have something to do with it…

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