Ecuador Just Showed the World What It Means To Take Climate Change Seriously
Portside Date:
Author: Nick Gottlieb
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Canadian Dimension

In 2017, Justin Trudeau addressed a crowd of energy executives in Houston, Texas and proclaimed, “No country would find 173 billion barrels of oil in the ground and just leave them there.”

It’s not quite 173 billion barrels, but Ecuador just proved him wrong.

On August 20, the country voted by national referendum to end oil drilling in Yasuní National Park by a margin of nearly 20 percent. The “once-in-a-lifetime” opportunity to help protect one of the world’s most vital ecosystems will keep 726 million barrels of oil in the ground.

According to Canadian politicians, this exercise is meaningless: if Ecuador doesn’t produce that oil, Saudi Arabia—or Russia, Iran, or some other designated “bad actor”—will.

But according to research on global oil market dynamics, the Ecuadorian vote is the equivalent of removing 156 million tonnes of carbon dioxide accumulation from our future atmosphere. How? Through a radical theory that the United Nations Environment Programme has called “the basic economics of supply and demand.” According to the UN’s Production Gap Report: “if there is less available of a commodity—such as oil—its price will increase, meaning less of it will be consumed.”

This phenomenon is known as the price elasticity of demand. By removing 726 million barrels of oil from the future global oil market, Ecuador is shrinking global supply, thus driving up prices. Price increases lead to lower demand, and lower demand means lower total consumption, combustion, and emissions.

While the magnitude of this effect can vary based on the oil and market conditions, researchers have found that, on average, the per-barrel impact is roughly half a barrel, meaning that for every barrel left in the ground, total global oil consumption will decrease by half a barrel.

This principle means that actions like Ecuador’s, which restrict the production of oil and gas, are actually mitigation strategies, tools that can help reduce global emissions. They are an approach known as “supply-side climate policy”—managing emissions by restricting the production of fossil fuels.

Canada has some supply-side policy: we don’t allow drilling in national parks (just surrounding them), for example, although unlike Ecuador’s Yasuní National Park, our parks don’t tend to sit on huge deposits. More significantly, Québec became the first jurisdiction to ban oil and gas exploration altogether in 2022, although again, that’s a far cry in significance from ending development in Alberta.

Yet, overall, oil and gas production is not just continuing unrestricted in Canada. It is growing. Canadian oil production set a record in 2022 and is expected to grow eight percent more in the next two years, largely because of the Trans Mountain pipeline expansion project.

The Liberals argue that the Trans Mountain purchase was some kind of political sacrifice meant to placate the right as they moved forward with their carbon tax. But the ongoing drama between Alberta Premier Danielle Smith and the federal government should make it abundantly clear: not only did it not work, but it was never going to work. It was a form of “climate appeasement” comparable to Chamberlain’s failure to prepare for war in the 1930s.

But even the idea that it was a compromise in the first place is a stretch: there’s a simple, multi-partisan consensus among Canada’s political parties, including the bulk of the NDP, that the oil we export isn’t our problem. Our leaders scoff at calls for reducing production by claiming “if we don’t produce it, someone else will.” These assertions are typically heard alongside absurd regurgitations of Ezra Levant’s “ethical oil” argument, which is often rebranded as “net zero” oil.

That claim is simply wrong, and is inconsistent with the “basic economics of supply and demand.” The more we export, the cheaper fossil fuels are, the more fossil fuels are burned.

As the fourth-largest oil producer in the world, we could lead the way by drawing down production. Strong supply-side policy in Canada would have durable, measurable impacts on global emissions that would dwarf our attempts at domestic decarbonization.

Supply-side policy would also help us mitigate some of the risks associated with the demand-side climate policies we are already pursuing. Electric vehicles, public transit, home retrofits: these all achieve emissions reductions by reducing demand for fossil fuels. But you know what reduced demand means? A lower price.

Successful demand-side climate policies are subject to a perverse rebound effect: any inroads we make into total fossil fuel use will be partially offset by the newfound cheapness of fossil fuels. Levers like supply restriction can help maintain the price level, maximizing the emissions reductions that demand-side climate policies can bring.

Demand-side policies are also something of a gamble: countries model the potential emissions reductions of subsidies, vehicle standards, and so on, and use those models to claim they are “on track” for meeting targets. But the real world is complex. It’s possible policies will produce the expected result, but it’s also possible they won’t. What if these policies ultimately fail, or fail to succeed at the scale needed? We’re betting the planet on economic modelling of a kind of energy transition that’s never happened before.

Which is another argument for complementing our existing mitigation policies with a supply-focused approach. A cap on fossil fuel production that shrinks over time leaves nothing to chance: it’s a hedge, a guarantor. The combustion of fossil fuels is the unequivocal cause of the climate crisis. The one way to be sure we’re on track to ending it is to regulate it directly.

Today, the combination of far-off net zero pledges, planned future policies, and yes, some existing policies and economic trends, are forecast to limit future warming to around 3C, an outcome that is almost certain to be catastrophic. We need to take the guesswork out of it: instead of an emissions cap for the industry, Canada needs a production cap that declines over time. Alberta’s done it before—the province legislated production caps from 2018-2020 in an effort to save the industry from itself. And, of course, they’ve done it again under Smith, just for the wrong industry.

Ecuador just showed the world what it means to take climate change, biodiversity loss, and Indigenous sovereignty seriously, all with one national referendum, and at significant cost in a country wrestling with the challenging reality of being a resource producer in the Global South. Canada is a rich country and one of the nations most responsible for climate change. It is long past time we catch up to reality and end our mad rush to burn the planet to the ground.

Nick Gottlieb is a climate writer based in northern BC and the author of the newsletter Sacred Headwaters. His work focuses on understanding the power dynamics driving today’s interrelated crises and exploring how they can be overcome. Follow him on Twitter @ngottliebphoto.

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