The Fatal Conceit of Kyoto

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Appeared in the Toronto Star, 25 April 2004
A suppressed report by the federal government evaluating the effectiveness of spending $500 million since the year 2000 to reduce emissions of greenhouse gases has shown -- surprise! -- that the spending was largely wasted, producing neither a reduction in gas emissions, nor the development of new “cleaner” technologies. An anonymous source that participated in the mid-term review is quoted in the Toronto Star, saying, “We seriously underestimated the difficulty of getting reductions and overestimated the payoff from new technologies.”

How did the government manage to blow $500 million of taxpayer money? They put it into “Action Plan 2000,” which committed $210 million to promote technologies that reduced greenhouse gas emissions in industry and transportation; they gave $125 million to cities to encourage them to use the non-existent new technologies. And another $100 million was spent on promoting foreign-demand for the non-existent new technologies.

The lack of value Canadians received for their half-a-billion dollars should come as a surprise to…well, nobody. Governments are notoriously bad at “inspiring” development of new technologies and encouraging their adoption.

The idea that government can inspire the development of new, beneficial technologies is an example of “industrial policy,” a type of governmental steering of industrial development thoroughly discredited outside of the halls of Ottawa. Industrial policy relies on what the Nobel Prize-winning economist Frederick Hayek called “the fatal conceit,” that somehow, government planners have special knowledge that markets, investors, and industry lack.

One of our better Canadian examples of the fatal conceit comes from British Columbia, with a price tag very similar to Action Plan 2000. In a fit of industrial policy, the BC government decided that it had to shorten the crossing time between Vancouver Island and the mainland, by building three new, high-tech ferries. After years of cost over-runs, the ferries were a dismal failure, and BC taxpayers wound up soaked for $450 million.

Examples from abroad are even more spectacular. For decades, the Japanese Ministry of International Trade and Industry (MITI) was responsible for industrial policy in Japan’s high-tech sector. Analyses of MITI’s performance showed a dismal failure to usher in new technologies or to create new industrial sectors in electronics, aircraft, aerospace, and biotechnology. Worse yet, MITI was shown to have slowed the free-market development of these sectors when their activities were found to be at odds with planner’s desires. In 1953, for instance, MITI tried to block Sony from getting into the transistor business! Fortunately, for those of us who watch television, Sony managed to get MITI to back off.

A third example of the fatal conceit comes from California, a state with environmental policies that many Canadian activists want to emulate. In 1991, the California Air Resources Board passed a “zero-emission vehicle” mandate calling for 10 percent of vehicle sales to be “zero-emission” (battery electric) by 2003. At the time, agency planners assured everyone that their initiative would “force” the creation of new technologies, and millions of dollars poured into battery research and subsidies for the few people willing to buy over-priced and under-performing battery-electric cars. Carmakers, forced to plow over $1 billion into attempts to please the planners, failed to develop a market-ready battery electric car.

As money flows into Kyoto-implementation programs, auditors are finally getting the information they need to show its futility. And it’s not just in Canada. European Union members are having trouble coming up with emission reduction plans in the face of escalating cost estimates, and EU Energy and Transport Commissioner Loyola de Palacio has implied that the EU may have to reconsider its implementation of the Protocol altogether.

Meanwhile, countries around the world are pointing out that Kyoto emission targets are simply unattainable. Norway’s greenhouse gas emissions are far above their targets. Spain and Germany have expressed reservations about being able to meet their Kyoto targets without economic dislocation. And despite numerous attempts to bribe Russia into signing the Kyoto Protocol, Russia has called both the science and economics of Kyoto into question.

The $500 million that the government has already wasted is only a taste of things to come unless Paul Martin walks away from Kyoto. Canada has already spent or allocated $3.7 billion dollars on climate change boondoggles of various sorts, and is planning to throw another $1 billion from the sale of Petrocan into the same pit of bad policy. This is an industrial policy that Canada can do without

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