A lot has happened in the news since our last post regarding emissions trading, but it still unclear what the landscape will look like in Canada. One thing appears to be clear, a cap and trade system for greenhouse gas emissions is coming in one form or another to Canada.
Last week Environment Minister Baird announced, among other things, that an emissions cap and trade system is being considered for Canada. The entire plan, which is based on intensity reductions at first, stabilization at 2006 levels and then a gradual reduction of GHG was criticized first by Dr. Suzuki and then by form US vice-president Al Gore.
This of course prompted a response by Environment Minister Baird, which ironically criticized Bill Clinton and Al Gore's terms in office for not doing enough about Kyoto. What the Minister forgets to mention is that Kyoto was not ratified by most states, including Canada, until well after President Bush had taken office. Indeed, it has been suggested that the market mechanisms of Kyoto, which ultimately made the protocol palatable to most countries, was introduced by Gore in 1997. From early on Gore realized flexibility would be required to reduce emissions.
And now, in addition to the British Columbian government signing on to an agreement to develop an emissions trading system with California, Premier McGuinty (Ontario) has woken up this morning and announced that he will be working with the provincial premiers to develop a Canada wide cap and trade system which goes around the Federal effort.
So it appears each day that it is more and more likely that a cap and trade system for greenhouse gases will emerge in Canada. But what is 'emissions trading' and what is in designed to do?
This great little summary was pulled from Wikipedia:
In such a plan, a central authority (usually a government agency) sets a limit or cap on the amount of a pollutant that can be emitted. Companies or other groups that emit the pollutant are given credits or allowances which represent the right to emit a specific amount. The total amount of credits cannot exceed the cap, limiting total emissions to that level. Companies that pollute beyond their allowances must buy credits from those who pollute less than their allowances or face heavily penalties. This transfer is referred to as a trade. In effect, the buyer is being fined for polluting, while the seller is being rewarded for having reduced emissions. The more firms that need to buy credits, the higher the price of credits becomes -- which makes reducing emissions cost-effective in comparison. Thus companies that can easily reduce emissions will do so and those for which it is harder will buy credits which reduces greenhouse gasses at the lowest possible cost to society.
A Canada wide system would set a limit for the country as a whole (say 6% below 1990 levels, or 560 million tonnes). This could then be split by province (hopefully also based on 1990 levels). Whether a federal or provincial levels are set however, the next step would be for a level of government to set emissions targets. This can be done by setting intensity targets (an amount of GHG emissions per unit of production) or absolute targets (no more than 10 tonnes of pollution from XYZ Co.'s plant in Burnaby). The problem with intensity targets is that it does not guarantee an absolute reduction since increases in production lead to increases in emissions, although at a slower rate. Absolute reductions however run into the problem of allocation. You cannot use 1990 levels since some of those emitters are no longer around, and others have appeared. All of this is of course made worse by the fact that we have waffled for the past 15 years since the UN Framework Convention on Climate Change was signed and emissions have escalated.
But assuming the hurdle of finding consensus on both a cap and the initial allocation could be overcome, this cap would then be the maximum amount of GHG emissions that could be produced by the region (Canada or a province) per year. Any emissions above and beyond your allocation would have to be made up by purchasing credits from the market or, in the Kyoto system, by earning credits through the development of projects which reduce the amount of emissions that would have otherwise be created elsewhere in the world. For example, building a wave farm in South Africa would produce less GHG emissions than building a coal power plant (the alternative that would have occurred in the emissions intense South African energy sector). If this project was undertaken by a Canadian company, they would get credit for the notional reductions, since they have invested capital to produce a product that was required with less greenhouse gases than would otherwise have been created.
Will it work? Who knows? I personally think it will. Emissions systems have been successful for other pollutants (e.g. sulphur dioxide). And for those who would say that all the emissions reduction associate with those programs was purely regulatory, those regulations established the cap, the trade, or market portion of the system, ensured the reductions were carried out by the party best equipped to do so.
