These days an intro economics course probably starts with colonialism. Or the evils of settling. But way back in the 20th century when I took intro economics the first thing they taught us was equating at the margin. It took a while to figure out what was going on, but if you did, it unlocked much of what came later and, on top of that, was a good piece of home economics, useful in leading a happier life.

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William Watson: Alberta’s CO2 is the same as everybody else's so why a separate cap for oil and gas?  Back to video

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Suppose there are three things you love doing: golfing, watching TV sports and reading the National Post. Or maybe: walking, recreational cooking and reading murder mysteries. Or, to change the demographic: clubbing, social media and the gym. Whatever your favourite three activities are, call them A, B and C.

How do you get the most out of them? You equate at the margin. You don’t focus on one to the exclusion of the other two. You do each until the next hour spent on it gives you the same satisfaction as an hour spent on the other two. If you’re overdoing A, say, so the next hour isn’t giving you as much pleasure as previous hours did, you pull back a little on A and do more of B and C. It’s not clear what ratio of hours spent on A, B and C will give you equality of satisfaction at the margin. Preferences differ. But whatever your preferences, if you’re not equating at the margin, you’re missing out on potential gains.

Most people probably figure this out without an economics course but it can be convenient to see it spelled out. And it has general application. There are many contexts in which, if you’re not equating at the margin, you’re not doing as well as you could be.

Take greenhouse gases (please!). Suppose you’d like to cut back on your production of GHGs. Presumably you want to do it at the least cost possible. How do you do that? You equate at the margin. Should you pull back on all your GHG-creating activities equally? No. Some may be very important to you — travelling to visit your grandkids, say — while others you get less benefit from — driving to the mall, maybe. So you keep doing A but cut back on B. (I worked through an example of this kind of decision-making for a typical consumer — myself — in an article for the Fraser Institute last year.)

But if you keep cutting back on B, you may find: hey, that’s beginning to hurt a lot. So maybe you ease off on cutting B and do actually reduce A a little, too. Details aside, the way to optimize is to look at every marginal adjustment that would reduce your GHGs a given amount, figure out which hurts least and do that. And repeat until you’ve got the GHG reduction you’re after.

Which gets us to the federal government’s new policy for capping GHG emissions, not overall, but for the oil and gas industry alone. Elon Musk says “The only rules are the ones dictated by the laws of physics. Everything else is a recommendation.” The rules of physics, so far as I understand them, are that CO2 is CO2 is CO2. It doesn’t matter how it gets into the atmosphere, where it comes from or what activity got it there, it all gets mixed up in the air around us and has whatever atmospheric effect it has completely independently of its origin story.

Go back to equating at the margin. If you wanted to reduce an entire country’s GHG emissions, you should still follow the principle of trying to equate at the margin so that every GHG-generating activity is pulled back — not equally: some may be very important: think visiting your grandkids — but by whatever produced a situation in which the next pullback would cause the same harm across all activities.

Capping oil and gas emissions implies you believe the benefits you’ll eliminate by cutting in oil and gas are less than the benefits that would be lost by cutting back on emissions elsewhere. But how do you know that? How does anyone know that?

I happily confess I know almost nothing about oil and gas production. (The difference between me and many people in Ottawa is that I admit that.) Some emissions reductions in the industry may not be costly at all: they come with a simple tech fix or more careful supervision of leaks or flares or whatever. But others may be very difficult and, despite all the happy talk in recent days, will come only with oil and gas production reductions, which will cut benefits, some of them very important, for users.

What you want in a GHG policy is a way to balance the cost of all possible GHG-reducing measures. A cap on oil and gas doesn’t do that. It runs the danger — indeed creates almost the certainty — that the cost of GHG reductions in the industry will be greater than if policy sought them across the entire economy, as, say, a comprehensively applied carbon tax would.

Anti-carbon advocates surely understand that. Something else must explain their obvious obsession with oil and gas.

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