Bilateral coalition unveils cap-and-trade proposal
From Thursday's Globe and Mail
July 24, 2008 at 4:05 AM EDT
A coalition of four provinces and seven states revealed a framework yesterday for a broad cap-and-trade program to reduce polluting greenhouse-gas emissions, the first such program in North America.
The Western Climate Initiative draft design proposes setting a hard cap on industrial emissions, providing cash incentives for companies to reduce their pollution levels. Following a European cap-and-trade model - by which greener companies can sell their pollution "credits" to the highest bidder - it would be the first such carbon system on the continent.
"This rewards efficiency," said Nicholas Heap, a climate-change analyst with the David Suzuki Foundation. "The people that are using less fuel and emitting less greenhouse gases are going to have lower costs."
The program would grant each participating province (British Columbia, Manitoba, Ontario and Quebec) an allocated and declining cap for each year from 2012 to 2020, set in advance. Those caps have not yet been set, but would be based on population, electricity consumption and production, and economic activity - not on current efficiency, the WCI report says. As such, the most efficient provinces in 2012 could sooner sell credits to other regions, creating a revenue stream.
The overall WCI emissions cap - the sum of each province and state's cap - "will be set at the best estimate of expected actual emissions," the WCI report said.
It is not yet clear how each province would enforce the caps, with the draft design allowing flexibility for each jurisdiction. One carrot on the enforcement stick is set, however: Any company that did not have sufficient credits to cover its emissions would pay a threefold credit penalty the next year.
The plan is still open for review, and is the culmination of several policy briefs released earlier. It will be reviewed publicly and finalized in September.
The effect of the cap would be for polluting companies to pay for the emissions they created. They would be free to pass those costs on to consumers.
"They'll be paying a price for putting carbon in the atmosphere; that is the idea," said B.C. Environment Minister Barry Penner, whose province was the first to join the WCI. "We believe there are economic and environmental opportunities that can come from a cap-and-trade system."
Emissions caused by the production of transportation fuels, such as gasoline, are included in the draft design. Others include electric generation, general combustion, industrial process emission sources and transportation fuel combustion. The gases considered as emissions are carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulphur hexafluoride.
The cap would apply to all companies emitting more than 25,000 tonnes of those gases, measured as "carbon dioxide equivalents" per year.
"We recognize we're in a carbon-constrained world," said Jock Finlayson, chief economist at the B.C. Business Council, adding that it remains to be seen how the WCI proposal would fit in with the federal government's plan to reduce emissions.
"The devil will all be in those regulatory details. There's a great bit more to come."
The emissions would be regulated at the point of entry into the member province or state. For instance, emissions created by transportation fuel would likely be measured at a distributor - not car by car - but may vary from province to province. Companies would be required to begin monitoring emissions in 2010, and begin reporting them in 2011.
Emissions from the production of biofuel would not be included.
The WCI plan includes the option for provinces or states to maintain "comparable fiscal measures" for putting a price on emissions. B.C. is the only province with such a system, after introducing a carbon tax this month.
The four provinces, which joined the initiative voluntarily, make up nearly 80 per cent of Canada's population, and account for 49 per cent of its greenhouse-gas emissions. Ontario joined most recently, just last week. The participating states are Arizona, California, Montana, New Mexico, Oregon, Utah and Washington. The eleven jurisdictions have a total population of more than 80 million people, creating a broad trading market for polluters.
The United States has a similar cap-and-trade program to reduce acid rain.
The WCI draft design will be discussed by stakeholders in San Diego on July 29. The WCI plan is open for public comments until mid-August.
View the full report or make comments at http://www.WesternClimateInitiative.org.