Of Bubbles and Bushels

Here we are approaching the end of another year. It seems many of us will be glad to call an end to 2016 but equally anxious about what’s ahead in 2017. There should be a sign, “Caution – Bumpy Road Ahead”. I’d like to share some of the reading I’ve been doing that seems particularly relevant now.

First off, I came across an interesting discussion of the Carbon Bubble, “the idea that there is a bubble in valuation of companies dependent on fossil-fuel-based energy production” (Wikipedia):

“As futurist Alex Steffen recently explained, vast amounts of the world’s carbon reserves can never be tapped, so their pricing represents a “carbon bubble” analogous to but even worse than the subprime housing bubble. The Carbon Bubble will pop,” Steffen wrote, not when high-carbon practices become impossible, but when their profits cease to be seen as reliable.”

To maintain the carbon bubble, an array of strategies are required: disputing the science of climate change, attacking global climate agreements, undercutting low-carbon
 alternatives and preserving fossil fuel subsidies.” (What Populist Revolution?, Salon Media, Dec 26, 2016) 

We’re seeing all of these strategies at work, some here and others internationally. Ontario is under intense lobbying to abandon adoption of renewable energy. Critics are loudly complaining about the cost of carbon pricing which starts in Ontario in January. There’s been no real discussion here about what the lower-carbon goals are, from a consumer perspective, and how they will be achieved. We’re not alone. Subsidies for wind and solar power have already been gutted in the UK. Of course the US is in full climate-change denial. Americans risk a chaotic future with no climate change adaptation plan and massive exposure to extreme weather events.

The Carbon Bubble, What Happens to Us When it Bursts, is also the title of a book by Canadian economist and author, Jeff Rubin (2015). He argues that the collapse of carbon fuels will create opportunities as well as challenges for Canada:

“Climate change is going to have a profound impact on the Canadian Prairies. When you consider the kind of temperature increases being talked about, two or three degrees, that’s going to transform the agricultural potential of that region. Growing grain is going to be a lot more value-added than producing bitumen … The same climate change that will allow you to grow corn on the Prairies will also make it much more difficult to grow corn in places like Kansas and Iowa. When we had that huge drought in the U.S., which is exactly what climate change models are predicting, we saw corn prices rise by 50 per cent. Climate change is not only going to increase crop yields, it’s going to open the door to growing higher value-added crops. Climate change is likely to push food prices a lot higher than oil prices. (Canada Loses When the Carbon Bubble Bursts – Jeff Rubin, Toronto Star, May 16, 2015)

That brings me to last year’s report, Dollars and Sense, Opportunities to Strengthen Southern Ontario’s Food System, (Jan., 2015). The study was produced with the cooperation of the Greenbelt Foundation, The Metcalf Foundation and the J.W. McConnell Family Foundation. Some key findings are quoted here:

“Ontario is a major net food importer, and this study concludes that we are missing regional economic development opportunities to enhance and support the production and distribution of local food. The authors estimate that more than half of Ontario’s $20 billion in imported food products could be produced in the province. If local production were expanded to replace even ten percent of the top ten fruit and vegetable imports, the Ontario economy would gain close to quarter of a billion dollars in GDP and 3,400 full-time jobs.”

“Our view is that the potential for local food systems to build healthy economies, protect the environment and strengthen social fabrics is far from being fulfilled. The report makes the case for investing in the development of regional food systems and providing the supportive regulatory environment, infrastructure, and distribution networks required for these systems to flourish.”

“One characteristic of the food system is that Ontarians consume more food than the province produces, resulting in food imports that approach $20 billion per year. Over 50% of the $20 billion in imported food products can be produced in Ontario. This presents an opportunity for the Ontario food system to produce substantially more food within the province.”

“One scenario examines the expansion of Ontario production to replace 10% of the top 10 fruit and vegetable imports … Increased local production to offset the 10% reduction in imports of fruits and vegetables could result in an additional $242.5 million in provincial GDP and an associated 3,400 FTE jobs. Although such economic effects are province-wide, in the short term they are likely to be strongest in the counties that already show significant production capacity.”

“Of four southern Ontario regions studied, “The Outer Greater Golden Horseshoe with at least $2.4 billion worth of farm products is in a deficit position for most fruits and vegetables — with carrots, onions, sweet corn and potatoes 
the exceptions. This region is also in a surplus position in grain products and all livestock products.”

The Ontario government is currently pondering the future scope of the Greenbelt and associated watersheds; reform of the Ontario Municipal Board; and the implementation of carbon pricing in the economy. We can predict with some certainty that imports of food will become more expensive and possibly more unreliable. But how we choose to deal with this challenge can also present an economic opportunity… Caution – Bumpy Road Ahead.