Conservatives will let Clean Air Act die?

Today's National Post gives a great analysis of the trials and tribulations of the Clean Air Act over the last few months. According to the article, the Tories are likely to let the Clean Air Act die on the order paper and simply bring out regulations for Large Final Emitters using existing legislation. Article author John Ivison explains that two factors are at work. Firstly, a majority of Canadians are pro-Kyoto and want action on climate change. Perhaps more importantly, the special legislative committee on the bill have made a huge number of suggested amendments that make any eventual vote over an amended bill not worth it for the Conservatives.
In terms of eventual regulation targets for LFEs (with an accompanying emissions trading system), the article mentions a likely target of 20% below 2004 levels by 2020.

Tories having second thoughts on Kyoto

My comments: As far as I can tell (based on the Climate Action Network's background documentation and the legislative committee meeting transcripts I've seen), the Clean Air Act was largely a huge waste of time and would have possibly set up some serious regulatory loopholes. So good riddance, if its true that the legislation will die. Meanwhile, however, that 20% below 2004 levels target - by 2020(!) - looks pathetic. We need to have absolute targets in 2020 that are substantially below the Kyoto targets - the EU is recommending 15-30% below 1990 levels, and we probably need even tougher targets.
Personally, I am open to the argument that it is unrealistic to impose full Kyoto targets on industry for 2008-2012 because the timeline for adaptation is too short and industry was led to expect easier targets by previous government negotiations. Maybe we can let them off the hook a bit, something along the lines of gradually tightening targets that get us to 1990 levels by 2012, and Kyoto levels by 2014, for example. But there is absolutely no reason to set 2020 targets that are lower than Kyoto. Let's hope Harper keeps backtracking and backtracking...

Baird open to some international emissions trading?

A pro-international emissions trading piece at globeandmail.com yesterday mentions that Environment Minister John Baird has indicated he is open to including some international trading in his climate change plan. The piece doesn't offer further details, but does provide an overview of emissions trading and the opportunities involved in international trading.

Emissions trading: Like foreign aid, but better

My comments: Glad to hear it. International credits won't necessarily let us meet Kyoto, but they will get us a lot closer, more cheaply than 100% domestic reductions, and might help boost our international development aid budget to the UN's target for developed countries, 0.7% of GNP. (Canada is well below that, at 0.23% in 2003-2004; also well below the OECD average of o.42% - thank you, effortlessly available internet statistics)

Liberals grab FoE's proposal and run with it

Repeat after me - I love minority government. Sure, elections every year or two mean little gets actually done on climate change, but meanwhile the Liberals and Conservatives are one-upping each other to the point where radical environmental proposals transmogrify into mainstream policy!
In January, Friends of the Earth and Corporate Knights publicized a proposal to create an emissions tax at 30$/tonne CO2e for large emitters, with the catch that the tax revenues would actually be kept in special accounts for each emitter, who would have the option of getting the money back to spend on emissions reductions. Many, many orders of magnitude beyond any existing Canadian policy to date. I loved the idea but assumed it would be ignored within federal politics. (See my post for more details)
Last month, FoE and Corporate Knights released a more global proposal, with additional carbon taxes all over the place, tax shifting, the whole caboodle. Again, I thought, this is great, but we'll be lucky to get even absolute emissions limits for industry, let alone making them pay for every tonne emitted! (See my post for more details). Meanwhile, the Climate Action Network set out clear proposals for amending the Clean Air Act, including setting absolute targets for large emitters at our Kyoto target level ((1990 minus 6%). (Here's the post on that one)
NOW, the Liberals release their environmental plan, which first of all sets absolute targets for large emitters; even better, it sets them at our Kyoto target level. This is a much, much better idea than the intensity-based system that the Liberals built and the Conservatives are now recycling. (See this post for why). And on top of this, it brings in the FoE/CK idea of tax +emitter account, with a 20$/tonne tax with emitter accounts allowing emitters to reuse the money, with the tax rising to 30$/tonne in 2011. The key, unfortunate difference is that industry only pays for emissions beyond their targets, not for all emissions as per the FoE/CK plan. This is still an improvement over the old Liberal LFE system, which had a $15/tonne charge (much too low according to both environmentalists and economists). The Conservatives are rumoured to be sticking with the $15/tonne charge.

We'll have to see what the Conservatives come up with, but so far it looks like easy intensity-based targets starting in three years. If that's the case, the Liberal plan is much more effective, and fair (industry shoulders its share of the reductions burden). It'll be interesting to see how things go...

Meet Kyoto or Pay Up, Dion Tells Industry (Globe)
Liberal press release
Dymaxion World post on Liberal plan

Liberals eying absolute targets for large emitters?

Tiny story in today's online National Post - the Liberals are supposedly considering absolute targets for large final emitters as part of their election plan, as opposed to the intensity-based targets that the Conservatives (and previous Liberal governments) have been working on.

National Post story

My Comments: I'm very glad to see absolute targets being discussed for emissions trading, and I hope this is a bit more long lasting than Stephane Dion's brief endorsement of a carbon tax. I don't know if this is an issue that can grab the public's attention politically, and who knows at this point if the Liberals will make it back into power, but I am certain that absolute targets, even if extremely generous ones initially, are a better choice for Canada. They would provide more certainty in terms of our reductions achievements, and will make it much easier for our system to become integrated with the European Emissions Trading System and other eventual tradeable permit systems based on absolute targets.

Let's set up some markets - TD bank report

Toronto Dominion Bank released a report on March 7 calling for market based solutions for climate change. You tell 'em, my financially-inclined brethren! The 21-page report, "Market-Based Solutions to Protect the Environment" is 80% introduction to climate change policy options and 20% suggestions for Canada, with a focus on carbon taxes and emissions trading systems (ETS). It doesn't take a strong position on Canada's policy, but it does recommend:

• a mix of all policy tools, but a focus on price signals (most effective, least overall cost)
• following the polluter-pays principal (maximize efficiency and fairness)
  
• providing long term continuity so that emitters know what to expect
• setting up a domestic emissions trading system ASAP, with the idea of eventually linking to international carbon markets like the European Union ETS
  

The paper covers the classic tools and their advantages and disadvantages, going over

• command and control (can be effective but expensive if too interventionist)
• moral suasion (politically easy but ineffective)
• carbon taxes (the stuff of environmental economists' dreams and politicians' nightmares, but tax shifting will solve the problem if only the political will can be found)
• subsidies (politically popular, sometimes effective but huge free rider problems)
• cap and trade/ETS (an international inevitability; effective but easily diluted by politics (free allocation of permits, overly generous targets)

TD press release
TD report
Toronto Star coverage: "Carbon Taxes Are Coming"

My comments:
carbon taxes: I keep thinking that the idea of carbon taxes are forever marginalized in Canada, but then these reports pop up. Nice to see TD come out with this, even if it is, naturally enough, understated. It looks like the idea is dead at the federal level for now, but maybe if enough mainstream institutions start recommending revenue-neutral emissions taxation we will see provincial initiatives or a return to the idea in future federal debates. Or maybe the policy fairy will simply sprinkle all of our heads with externality-powder and we will wake up and smelllll the coffee...
emissions trading: I'm happy with their general recommendations (starting soon, auctioning permits, starting with a domestic system until international kinks worked out), but I'd like to see an opinion on intensity targets versus absolute targets.

Alberta announces regulations for LIEs based on emissions-intensity

Alberta announced its new (proposed) Specified Gas Emitters Regulation (SGER) yesterday, part of Bill 3, a proposed amendment to the Climate Change and Emissions Management Act. SGER requires facilities that emit more than 100 000 tonnes of GHGs (CO2e?)/year to reduce their emissions intensity by 12% starting July 1 2007, or else

• buy Alberta-based offsets
• buy "emissions performance credits" from other emitters (who receive these credits in exchange for having achieved a lower intensity than their target)
  
• contribute to an Albertan technology fund at $15.00/tonne over their target

The Pembina Institute is quoted as saying that the proposal is "an absolute joke", while the Canadian Association of Petroleum Producers (CAPP) is saying that few if any of the 100 facilities covered will be able to achieve the reductions, meaning that they will have to pay hundreds of millions of dollars into the technology fund.
Some more details about SGER

• lower targets for new facilities: facilities opened in the last 8 years have lower targets initially - 10% if you are 8 years old, 8% if you are 6, down to 2% for facilities in operation four years or less
• Offsets may be open to double-counting: details on qualification, methodology, etc. aren't in place, but the only requirement in the proposed regulation that covers additionality is a condition that the emissions reduction used as an offset not have been required by law. This leaves open the possibility that reductions funded by other provincial or federal initiatives could be used as an offset within the SGER system.
• Baseline intensity will be an average of 2003, 2004 and 2005 emissions, except for new facilities, which will use their third year of operations
• No longer-term targets - the Minister can change targets and the legislation expires in 2014, but no schedule of targets is set out in the SGER legislation.
  

Alberta Ministry of the Environment press release
National Post coverage
Pembina news release

My comments: I have to agree with Pembina here - intensity targets, especially such low targets applied to an industry that has such huge growth, are barely going to slow down our GHG increases. (Pembina calculates that the SGER will allow a doubling of tar sands emissions by 2010 relative to 2003). Meanwhile, I'm wondering why Alberta has come out with this, especially so soon before the federal announcement. I assume its meant more as a bargaining chip/preemptive strike than a real system - Alberta's 100 emitters are too few to make for a liquid emissions trading market, and I don't think this system as it stands could be easily linked to larger carbon markets, if at all. I also don't think that the Albertan system could meet "equivalency" requirements for soon-to-be-announced federal system. The Federal Conservative strategy is likely to recycle the Liberal LFE system, with slightly more stringent targets, so we should expect 15% or higher intensity targets at the federal level. And the national system will also give access to offsets from across Canada and (maybe just maybe) international credits. So is this just an attempt to stake some ground, with an eventual goal of forcing reductions/exemptions from the feds? Or will Alberta make this a big issue to stand its ground on? Anyone with a better sense of Albertan politics (or devious political maneuvering in general), feel free to enlighten me.

Update on FoE / Corporate Knights proposal

Corresponded via email today with Toby Heaps of Corporate Knights re his proposal for meeting Canada's Kyoto targets. Here is what he had to say on capital investment cycles and emissions trading:

Given that many of the LFEs need to take capital investment cycles into consideration, do you think that that some of them will not be able to efficiently use the tax taken from them within the 3-year window provided?

The scale of capital raised would provide sufficient incentive for any rational facility to, at a minimum, commence capital projects to reduce emissions. It is true that order times and installation hold-ups would not allow for everything to be deployed in the immediate term. In order to access the industrial fee, a company would have to show how the lifecycle emissions add up. Lifecycle emissions can run as long as 20-25 years and beyond. As an example, if I am Transalta, my Sundance Generating Plant with no modifcation is going to cost me $485 million per year on the carbon fee. In a four year time span, that will add up to just under $2 billion. I would prefer to not leave that $2 billion on the table for the government to scoop up. Instead I would take it and make investments in either lower carbon forms of electricity production or retrofitting my plant, both of which would produce lifecycle emissions reductions will into the future.

It looks like the Conservatives are going to come out with something fairly similar to the LFE emissions trading system that the Liberal government had under development.

1.Why do you advocate your carbon tax proposal over emissions trading?

Toby provided a detailed comparison chart for his proposal versus emissions trading - summarized at the end of this post.

2. If the government does go with emissions trading, what changes would you like to see happen?

I would like to see industrial facilities with a strong price signal to make domestic reductions so that clean air benefits are coupled with GHG emissions, providing more immediate term benefits to Canadians. In the event that we are falling short of Kyoto targets as a country, I would like to see the government finance international renewable energy projects, with the solar cooker (see notes about solar cooker below) being a major component.

The Solar Cooker Story:

-2 billion people rely on wood to cook their food
-Each solar cooker saves roughly 3.5 tonnes of CO2e per year compared to a wood burning stove.

-Solar cooker can last 20 years

-Alcan has innovated a special material that id ideally suited for solar cookers

-Deploying 10 million family sized solar cookers a year would require 30-40 kt of aluminum

-Manufacturing 10m family sized solar cookers per year in developing nations at a total cost of $100-$200 per unit would cost $1-2bn per year and be generating 140 million tonnes of CO2e by end of year four

(note:presently, the CDM has a hold-up on granting credits for small scale projects on this level and they are working on ironing out the methodology--one area of ambiguity to clarify is whether the forests harvested for the wood are renewable forests of not--in most cases they're not)

CDM methodology on Solar cooker: http://cdm.unfccc.int/Projects/DB/TUEV-SUED1135345789.43/view.html

Comparison of the FoE/Corporate Knights carbon tax with emissions trading:

CK/FoE Zero Leakage Carbon Innovation Fund (see page 2 for desc.)		Cap and Trade
Price certainty – best for business and can be coupled with emissions standards for environmental quantity goals. Redeploys sufficient capital within businesses to pave way for green industrial revolution	Pro	Quantity certainty – best for environment. Does not provide leapfrog opportunities for green industrial revolution	Pro/Con
No ceiling for emissions reductions	Pro	Provides a ceiling for emissions reductions	Con
Provides double dividend to facilities that reduce emissions w/in 3 yrs and powerful incentive to invest in immediate reductions	Pro	All money spent on immediate emission reductions	Pro
Fits with part of Kyoto architecture as it allows government to make up shortfall through financing international renewable energy projects	Pro/Con	Fits with Kyoto architecture and minimizes costs via international trading	Pro
Couples emissions reductions and cleaner air together by requiring domestic industry to make reductions in Canada	Pro	Decouples domestic clear air from GHG reductions by allowing industry to purchase international credits	Con
100 per cent of money stays at facility (or corporate level in certain case). Keeps money in facility's specific account in province	Pro	Money stays in the private sector. Politically difficult to transfer money out of high emissions provinces	Pro/Con
Fair and firm price with flexibility to recognize energy-intensive export value-added industry's ability to pay. Does not punish early movers. Every company in a sector pays the same $ per tonne of C02e	Pro/Con	Flexibility to differentiate burdens according to ability-to-pay, but can punish early movers	Pro/Con
Simple, easier to explain, less vulnerable to lobbying	Pro	Complex, therefore more difficult to explain and vulnerable to being undermined by lobbying	Con
Requires business to take responsibility for emissions and provides them clear price to optimize around	Pro	“Requires business to take responsibility for emissions”	Pro
Risk of a run on stock prices of emissions intensive industry is reduced because clear price on carbon provides a number that analysts can use for discounted cash flow analysis, allowing them to place a cost ceiling on the effect of the carbon price system. Risk of run is also reduced as money paid for carbon fee is recorded on company's balance sheet as an asset.	Pro	Could spark a run on stock prices of emissions intensive industry because of uncertainty on the price of emissions	Con

CK/FoE Consumer Carbon Tax
Consumers are less sensitive to price increases than economic theory suggests	Con
Taxes on carbon content of fuels reduce consumer demand for high carbon fuels and increase it for low carbon fuels	Pro
Higher electricity prices increases consumer demand for efficient appliances and retirement of inefficient appliances	Pro
Access to zero-interest financing for geothermal and retrofits spurs mass deployment of money saving and energy reducing installations	Pro
Carbon taxes do not go into general funds, but instead raise billions to finance rebates on efficient vehicles, home retrofits and other supportive policies	Pro
Raises revenue for providing tax cut/rebate to cushion blow of higher prices for low-income families	Pro

Pembina and CAN-RAC proposal for Large Final Emitters

Matthew Bramley of the Pembina Institute testified to the Clean Air Act Legislative Committee last week on behalf of Pembina and the Climate Action Network (CAN-RAC). They've published their briefing note on both websites. In a nutshell, it proposes that the forthcoming emissions trading system for big industry use absolute rather than intensity-based targets; set targets at 1990 -6% levels; keep a price cap but raise it to $30/tonne; include long term, gradually tightening targets; and move gradually from 100% free allocation to auctioning of permits. The overall 1990-5% target translates to 127 Mt for industry, roughly half of Canada's "Kyoto Gap", rather than the 45-55 Mt hoped for under the Liberal LFE system and the much anticipated Clean Air Industrial Regulatory Acronym (sorry, Agenda). Pembina and CAN-RAC say that costs will be reasonable - increases of less than 1.5 cents/kWh for coal-generated electricity and $1.50/barrel of oil sands oil at the worst.

Link to the briefing note

My comments: Great stuff. Another thorough, well-researched proposal from these folks. It turns the LFE system into something much closer to an ideal emissions trading system while still leaving industry room to breathe via the price cap and competitiveness allowances (forgot to mention this - their breakdown of industry into three sectors gives manufacturing much lower targets, reflecting their lower emissions growth since 1990. This reduces impacts on the LFEs with the most vulnerability to international competition).

Clean Air Act Legislative Committee on Target Setting

The transcripts are now available for meetings 7 through 10 of the legislative committee on Bill C-30. Here's a summary of meeting 7, which focused on target setting, with much additional discussion on policy. The committee heard from Greenpeace, the Canadian Chamber of Commerce (CCC), the National Round Table on the Environment and the Economy (NRTEE), and Dr. Marc Jaccard of SFU. Political sparring between the committee members was remarkably low.

Greenhouse Gas Emissions Targets: Greenpeace reiterated the long term CANet targets of 25% below 1990 by 2020 and 80% below 1990 by 2050. No one else advocated a specific target. NRTEE presented on its work on achieving a 60% reduction by 2050, and the CCC emphasized the need to respect investment cycles and Canada's energy-intense economy. Dr Jaccard made the point that setting targets is irrelevant if you don't have the policies in place to achieve them. Everyone agreed with a key NRTEE point - that long-term targets are needed ASAP, and that short-term targets have to be developed within a long-term plan.

Achieving Canadian Kyoto targets: Greenpeace says its achievable, but when pressed didn't have a detailed analysis of how. The CCC says it is impossible without doing very serious damage to the economy. Dr. Jaccard says at this point it isn't doable - domestically it is impossible and international credits will be in short supply, potentially causing price spikes. He also talked about his work in 98-99 for the feds, where it looked like the only way to achieve Kyoto domestically would have been the equivalent of a $120-150$/tonne carbon tax starting in 2000.

Emissions intensity targets: Lots of discussion on this. Greenpeace says its a bad idea and often gets used to mask lack of absolute reductions. They cited Canada's 1990-2004 intensity gain of 14% while absolute emissions rose 27%. The CCC supports the intensity approach because it doesn't penalize emitter growth. Dr. Jaccard says that intensity targets can work but you will need the capacity to increase them if growth exceeds predictions.

Emissions trading: Some discussion of the large final emitters system (now of course the "Clean Air Industrial Regulatory Framework"...who comes up with these zingy names? so catchy!) Greenpeace advocates absolute targets, no permit price cap, and having industry cover 50% of our reductions (this would make for a much more ambitious target than the 45-55 Mt aimed at right now). Dr Jaccard points out that the LFE/CAIRF system will be compulsory and so will probably achieve some reductions, but that still leaves the other half of the economy.

Policy effectiveness: Dr Jaccard focused on this issue. He cited a few big trends based on global experience to date with climate change policy:

• voluntary policies don't work - we can't depend on subsidies, information campaigns and moral suasion
• we can't count on energy efficiency - its more expensive to implement than thought, and there is evidence that the energy saved just gets used up by new energy-using devices

So:

• we need compulsory policies - his biggest point - be it cap and trade, a carbon tax, or standards, policy needs to have teeth
• focus on emissions rather than efficiency.
• the likely winners - he sees them as a mix of zero-emissions fossil fuels, renewables, nuclear, and some efficiency. ( I should point out that he's well-known and somewhat controversial for his writing on clean coal and other fossil fuels technology)

Link to all transcripts.

My comments: The most interesting thing for me here was Jaccard's comments on policy effectiveness, especially the key point that we need to focus on compulsory policies. I found his point on energy efficiency interesting; its also been made by George Monbiot in his book Heat. I haven't had a chance to look at energy efficiency in depth so I won't comment on it further. Re our Kyoto targets, I'm pretty much convinced by the mountain of respected Canadian environmental analysts chiming in to say its just not possible at this point. What I'd like to see now, though, are some proposals for achievable domestic reductions. How close to Kyoto can we get?

the Clean Air Industrial Regulatory Agenda

The Globe and Mail has been analyzing leaked documents describing the Conservative plan for an emissions trading system for big industry. Basically, it looks like the Liberals' old Large Final Emitters (LFE) system, with slightly tougher targets and of course a brand new name. Unfortunately, this means that most of the flaws of the old LFE system could still be present:

• intensity targets - the biggest flaw - no guarantee that absolute emissions will decline. It also makes for a more complex system to set up (you need to set targets for all kinds of industrial products), and leaves a lot of room for industries to negotiate relatively soft targets without the general public noticing.
  
• free permits - the emitters in the system will (I am assuming here) once again get their permits free. Given international experience so far with emissions trading, this is a big transfer of wealth to industry, and will likely give many emitters a windfall profit, without necessarily rewarding good work.
• an offset system - again, I'm assuming the Conservative model will reflect the Liberal original, here. The LFE system included a complementary offset system, where farmers, landfill operators, etc. could sell credits to the big emitters based on carbon sequestration or methane capture. An offset system can in theory be a great market-based tool, but is very complex to set up and administer (lots of project evaluation methodologies) and creates opportunities for double-counting reductions and diluting the emissions trading system itself.
• a price cap on emissions - the Liberals promised industry that they would sell unlimited permits at 15$/tonne if the price rose that high. This amounted to a fairly low-set safety valve and would have eliminated a lot of emissions reductions from the market. If Canada's market had ever been linked to international carbon markets, then it could have also led to arbitrage (traders buying Canadian permits as a hedge against market volatility, etc.)

On top of these problems, the Conservative system won't go into effect until 2010. Back in 2004 when the LFE system was nearing completion, industry was already ready for a 2008 roll-out, so this seems like an unnecessary delay.

One plus of the draft Conservative system: long term, gradually tightening targets - it sets out targets for not only 201-2015, but stricter targets for 2015-2020. This gives predictability to industry, particularly for capital investment decisions.

So what would the ideal Canadian emissions trading system look like? Here are some key points:

• an absolute target - forget the intensity targets and replace them with an overall, absolute cap on emissions, to guarantee real reductions.
  
• auctioned permits - auctioning permits is more economically efficient, a lot simpler to set up and administer, and removes most opportunities to hide favouritism towards particular industries. It also creates revenue that can be used to run the program AND create a double dividend (see my post) by using it to reduce income taxes or what have you.
• simplicity and clarity - a simple system makes for more liquid markets, more participant confidence, and more transparency. Using an absolute target and permit auctioning would get rid of a lot of the unnecessary complexity of the LFE system. Eliminating the offset system would also help, but this would also remove a big incentive for offset-type reductions - the compromise solution would be to design as simple an offset system as possible.
• no/higher caps on permit price - the 15$/tonne permit price cap was too low and will stifle innovation if its reinstated. Either remove the cap altogether, or announce a much higher cap - 80-125$/tonne (I use these figures since they've been cited as approximating the true costs of CO2e emissions)
  
• long term, gradually tightening targets
  
• roll-out as soon as possible - 2008 if possible.
  

Link to Globe article
Link to further Globe coverage
Link to a US EPA Guide to desigining and operating a cap and trade program - a great resource covering all of the topics discussed above.

Greenspan tells Toronto business leaders cap and trade won't work

A brief article in the National Post today on a speech by Alan Greenspan to a group of Toronto business folks...Greenspan is quoted as saying that cap and trade is either ineffective because the target is too high (a la EU system) or if effective, causes costs to rise sharply, knocking out competitivity and creating job loss. Wonder if anyone asked him about carbon taxes?

Link to NP article
Link to Financial Post article from yesterday on the same speech

Clean Air Act Committee Meetings - Targets, Carbon Taxes and Emissions Trading

Just read over testimony from the February 6th meeting of the Clean Air Act Committee. The Committee heard from Bill Erasmus (Assembly of First Nations), Claude Villeneuve (Université du Québec À Chicoutimi prof), David R. Boyd (BC prof, author), and Mathieu Castonguay (Association québecoise de la lutte contre la pollution atmosphérique). There was a great deal of discussion on overall Canadian targets, the possibility of achieving our Kyoto targets, and the use of carbon taxes and emissions trading. In four sentences:

• Canada can't achieve our Kyoto targets even with international credits, nonetheless we can still work within the Kyoto protocol, and we need to set ourselves a binding target of 80% below 1990 levels by 2050.
  
• Carbon taxes are one of the most effective tools available, we need to use them, and they won't do us any harm; emissions trading can also be used but it is vulnerable to cheating by emitters.
• Emissions-intensity targets are a fraudulent approach, a trap to be avoided.
• The Clean Air Act is an unnecessary and risky piece of legislation.
  

Here is a more detailed summary. Remember that this is based on an unofficial transcript. If you would like a copy, email CC30 at parl.gc.ca

The Clean Air Act
The experts agreed, when asked, that the Clean Air Act achieved very little if anything from a climate change perspective and was unnecessary for addressing greenhouse gas emissions.

Achieving Kyoto Targets
Most of the discussion was from David Boyd. He pointed out that domestically, we would have to cut emissions by 7% a year for 5 years, which is too dramatic. He supports using verified international credits under the Clean Development Mechanism (CDM) but says that due to the long lead time on CDM there will never be enough projects available to cover our emissions. His diagnosis (supported by Villeneuve and others) - we will have to do our best and accept the penalties under Kyoto. Villeneuve proposed that an initial target of stabilizing emissions at 2003 levels for the 2008-2012 period would be feasible.

Emissions Intensity Targets

Both Boyd and Villeneuve criticized intensity targets extensively because they allow total emissions to increase. Boyd pointed out that, from an intensity perspective, Canada did quite well in the last 17 years: intensity was improved by 43% as measured by greenhouse gas emissions/GDP. Given our atrocious performance in terms of actual emissions, this underscores the weakness of using intensity targets.

Carbon Taxes
Again, a lot of discussion with Boyd and Villeneuve; carbon taxes were also supported by Castonguay. Boyd strongly advocated carbon taxes and pointed out that some of the most competitive countries in the world (the top four rated by the Davos World Economic Forum, for example) have carbon taxes. Advantages cited by Boyd and Villeneuve:

• comprehensive
• cover the entire economy
• widely regarded as the most efficient policy approach
• transparent
• administratively simple
• shows political will
• low government investment
• funds can be revenue neutral (tax shifting) and/or used for further reductions, R&D
• less likely to cause energy price volatility than a cap and trade
• proven track record in Europe

Why haven't carbon taxes been adopted? Pure political acceptability. Boyd recommends a revenue-neutral tax pushed by all parties together to mitigate this.

Emissions Trading

Again input from Boyd, Villeneuve. The main point was that despite some successes (US Acid Rain program), they are open to cheating. The recent European Union Emissions Trading System (EU ETS) price collapse demonstrates this. According to Boyd, emitters convinced governments that they needed more permits than they actually did. Since permits were given out freely, this led to many emitters making windfill profits as they sold extra permits, and then a price collapse.
According to Boyd, the Large Final Emitters emissions trading system the previous government was developing was on the brink of creating the same problem.

My comments:
Great to see this testimony. If only these experts and their arguments, particularly those on which they agreed, were listened to, we might be able to put something effective into place. Meanwhile, I'm (naively?) hopeful that the melee leading up to the 2007 election may lead one the opposition parties to start pushing a revenue-neutral carbon tax.

A side note: David Boyd was the expert cited by Minister Baird as comparing the emissions cuts needed to achieve Kyoto with the collapse of the Russian economy. Too bad Baird didn't go on to quote Boyd's bigger points that we need to continue to work within Kyoto, ditch intensity targets, and create a carbon tax...

B.C. Green Plan announcement includes regional emissions trading

From today's National Post, the BC Liberal's throne speech apparently focused on climate change initiatives, including a commitment to build "a sensible, efficient system for registering, trading and purchasing carbon offsets and carbon credits in co-operation with the federal government and the U.S. states of California, Oregon, Alaska and Washington." It isn't clear to me if they are just talking about voluntary carbon offsets - of which there are supposedly a glut of unregulated offerings on the market - or something regional.

Link to NP article
Link to BC Liberals press release on throne speech
Link to Wikipedia article on carbon offsets, including regulation issues
Link to New Internationalist article critiquing offset schemes

CIBC's report on the potential impacts of Canadian GHG emissions trading

As reported in the Globe and Mail today, CIBC World Markets' regular Monthly Indicators newsletter includes an article on Canadian emissions trading entitled "Evaluating Carbon Risk in the Canadian Economy". Briefly, they evaluate the vulnerability of Canadian industry sectors to the impacts of a cap and trade emissions trading system, concluding that coal-fired power plants, the oil and gas sector, and metal refining are the most vulnerable. The bottom line of the article is "investors beware: carbon emissions are very soon going to carry a price in the Canadian economy," and affecting 40% of the TSX.

Here is a more detailed summary and as always some pithy comments.

The article starts out with the assumption that Canada will soon have a cap and trade emissions trading system for greenhouse gasses. Their logic is that Canada generally follows American environmental initiatives. California and an alliance of northeastern states (the Regional Greenhouse Gas Initiative) have each recently enacted cap and trade systems, and McCain, Obama and Lieberman's bipartisan bill could potentially create one at the federal level.

Based on this assumption, CIBC has created a "Carbon Cap Vulnerability Index". This rates Canadian industrial sectors based on a weighted average of four factors, as follows:

1. 30%: emissions intensity - kilotonnes of CO2e/dollar of output
2. 15%: energy intensity - terajoules of energy/dollar of output
3. 30%: ability to pass increased costs onto customers: consultant assessment
4. 25%: ability to reduce GHG emissions: consultant assessment

(The consultants in question are Marc Jaccard and ICF Consulting. Marc Jaccard is the Simon Fraser prof who works extensively on climate change policy in Canada; ICF Consulting recently produced the scenarios for the NRTEE's Advice on a Long-Term Strategy on Energy and Climate Change.)

The results of their analysis are as follows:

1. Coal-fired power plants are the most vulnerable because of their high emissions and low-emission competition (hydro and nuclear)
2. Oil and Gas are vulnerable because emissions are projected to triple; on the other hand, they have a lot of potential for abatement (nuclear power for heating, carbon sequestration) and may end up the marginal supplier for world oil markets, therefore able to set prices.
3. Metal smelting and refining are vulnerable because of high emissions intensity and high energy intensity. To make matters worse, they can't pass prices on and their developing-country competitors won't have GHG costs.
4. The chemical sector's vulnerability comes from high energy intensity and little room for abatement.
5. Oil and gas pipelines will likely be a winner, selling surplus credits and/or passing costs onto consumers.
6. Gold mining won't be vulnerable because it can switch to electricity and reduce emissions, but gold refining faces the same problems as the rest of the metals sector.

My comments:
Just two things to say. First, great to see this message getting out to investors (i.e. "take GHG regulation seriously), and interesting to read about it from a market analyst perspective as opposed to an ENGO perspective. Secondly, interesting to see CIBC talking about a cap-and-trade approach, since so far the Liberal's almost-completed system and the Conservative's hinting about their soon to be announced approach are both based on emissions-intensity, not an absolute cap. Would this affect the CIBC analysis? Potentially. The Liberal's approach used sectoral targets (i.e. different targets for each sector), and specifically stated that competition issues would be taken into account. So any export-driven industries were likely to be given weak targets.
I am assuming that the Conservatives will end up using a lot of the Liberal's earlier work on emissions trading, since they don't have much time and they have so far not been shy in recycling existing programs. If this is the case, we may see weak targets for their political constituents (oil sands), political targets (Ontario and Quebec manufacturing) and anyone with an effective lobby.
On the other hand, you never know - maybe Jaccard, ICF and/or CIBC have been talking to Conservative insiders - maybe we will have an actual cap and trade system after all. Let's hope so.

Link to Globe coverage
Link to CIBC news release (click on corporate releases - more info)
Link to CIBC report

Mark Jaccard and Jack Mintz on carbon taxes and emissions trading

A week ago I reviewed an op-ed by the CEO of the C.D. Howe Institute, Jack Mintz, arguing against carbon taxes. Today I came across a longer article in Alternatives magazine where Marc Jaccard of Simon Fraser debated the issue with Mintz. I recommend reading the article because its a brief (2 page) summary of the principle arguments and counter-arguments around a carbon tax, by two particularly respected experts (note that Mintz is a tax expert, not an environmental economist). Its particularly interesting because by the end of the debate Mintz seems to have changed his position to support carbon taxes.

Here's a brief summary:

Mintz against carbon taxes

1. Carbon taxes don't reduce GHG emissions effectively because demand for energy isn't very price sensitive.
2. Carbon tax revenues are unlikely to be used to reduce other taxes (income, etc.) because governments love to appropriate new revenue streams.
3. Carbon taxes impose a disproportionate burden on low-income earners because energy costs are generally higher as a percentage of their income than higher-income earners. Compensation for low earners would significantly reduce the effectiveness of the tax.
   

Jaccard's rebuttal

1. Carbon taxes have been shown to affect energy use and emissions - demand doesn't go down necessarily, but consumers switch to lower-emissions energy sources.
2. This point isn't an argument against carbon taxes, simply a critique of government in general.
3. Compensation to low-income earners will reduce the effectiveness of a tax very little.
4. No applied economists looking at carbon taxes as a policy tool agree with Mintz's arguments.

Mintz's reponse

1. Regulation with emissions trading is more effective than a carbon tax because it sets a specific target for emissions reductions, whereas its very difficult to predict the reductions that a tax would achieve.
2. Governments will be reluctant to reduce a carbon tax even once emissions reductions are achieved, because of the revenue generated. Alcohol and cigarette taxes demonstrate this dynamic.
3. Yes, carbon taxes and other ecofiscal approaches (taxing "bads" rather than "goods") can be useful tools but can't achieve all reductions on their own.

Jaccard's summary/rebuttal

1. Both positions are actually fairly similar.
1. Carbon taxes on their own may not achieve all of our reductions targets.
1. However, carbon taxes and emissions trading can be used simultaneously and very effectively.
2. Leading climate change policy economists agree that carbon taxes are one of the most, if not the most, effective tools.
3. Carbon taxes should be seriously considered as a policy tool for Canada.
   

Link to Alternatives article

My comments
Glad to see this article come out, since Mintz's initial article in the Financial Post essentially claimed that carbon taxes are a terrible option that should not be considered. By the end of this debate, Mintz has essentially changed tack and said that in fact ecofiscal taxes and carbon taxes *are* a useful tool, but one that needs to be complemented with other policies. Wish that had been included in the FP article.

More details re Conservative position on emissions trading

I've been looking over the unofficial transcripts of Environment Minister John Baird's presentation to the committee on the Clean Air Act (available by request from the Committee secretary - write to CC30@parl.gc.ca). There were a bit more information on the Conservative's plans for GHG emissions trading than was reported in the natonal media. Here's a summary - note that the transcript is unofficial, so the quotes are conceivably inaccurate.

emissions-intensity versus an absolute cap

on the one hand, Minister Baird says: "With respect to hard emission caps and with respect to pollution we've indicated in the notice of intent our desire to have hard emissions caps to deal with pollution"
but on the other hand, he goes on to say (in yet another partisan exchange between him and a Liberal committee member) "I can quote Mr. Godfrey again, if you like, talking about how intensity-based are good, because I agree with him"

Using the clean development mechanism
John Godfrey pressed Minister Baird in some detail on whether or not he would use the CDM. Basically, he appears to reject it: "My problem with the clean development mechanisms, for taxpayers' dollars I would rather take the money, spend it in Canada, and also make our air cleaner. I use the example of the coal-fired generating station. We could take money and spend it abroad and then we'd get no benefit for clean air. But if we make the investment here in Canada, we get the twin benefit of clean air."

Domestic Emissions Trading
Bernard Bigras of the Parti Quebecois, among others, asked Baird about emissions trading - would it happen. He wouldn't make any commitment on it but spoke very positively about the idea of creating a domestic emissions trading market.

My comments
I got a bit excited to see him talking a hard cap on emissions for industry - basically, my biggest hope is that the Liberals and Conseravatives one-up each other right into some kind of significant cap and trade system - but it looks like intensity-targets are here to stay. I was also disappointed by his comments on CDM - hopefully he is just ill-informed. If not, in my opinion Canada will be missing a fantastic opportunity to meet Kyoto cheaply while boosting our international development funding and supporting Canadian technology exports.

Baird delays on industrial emissions, refuses carbon tax and international trading

Environment Minister Baird gave out more details on the Harper government's plans for industrial GHG emissions today, at a presentation to the House Committee studying the Clean Air Act. Highlights gleaned from the big media outlets:

Emissions trading
The big news - no emissions reductions targets for industry before 2010, but (as suspected), it will involve a carbon permit market. As CANet's John Bennett is quoted as saying, the delay is unnecessary since industry has been preparing to meet targets negotiated for the Large Final Emitters emissions trading system, which was set to take effect this January.

Carbon tax
Baird also reiterated the Conservatives' refusal to consider a carbon tax.

International Carbon Trading
The other interesting news from Baird today is that Canada will not take part in an international carbon trading market. Does this mean they are closing the door on Joint Implementation and Clean Developoment Mechanism projects as well?

Justifying the Conservative rejection of Kyoto
Meanwhile, Harper et al are defending their overall stalling on Kyoto with what I have to admit is a clever image"To achieve (the Kyoto target) would require a rate of emissions decline unmatched by any modern nation in the history of the world...except those who have suffered economic collapse, such as Russia".
Look for many, many comparisons between a Kyoto-compliant Canada and a collapsing Soviet Union from the Conservatives.

A quick look at the countries that have had success gives us Britain, who is on track to hit a 23.5% reduction in GHG emissions from 1990 levels by 2010. Admittedly this hasn't been accomplished in a five year period, but it is an example of dramatic domestic reductions.

Link to Globe article
Link to National Post article
Link to CBC coverage
Link re British emissions levels

CD Howe Institute 2004 proposal for emissions trading

Just read over a great commentary from the CD Howe Institute, published in 2004: The Morning After: Optimal Greenhouse Gas Policies for Canada's Kyoto Obligations and Beyond. . Its a commentary, so isn't necessarily the opinion of the Institute itself. Basically its a set of alternative policy proposals for achieving GHG reductions by 2010, supported by modelling. Two of the three authors are researchers from Simon Fraser, one of whom at least (Mark Jaccard) has worked extensively on climate change policy modelling for the feds since Kyoto was signed; the third is Matt Horne from the Pembina Institute.
Their set of policies focuses on what they call market-oriented regulations, basically tools like emissions trading ("emissions cap and tradeable permits" or ECTP as they call it), renewable portfolio standards, and vehicle emissions standards. They also add in some traditional command and control in the form of a carbon sequestration requirement for oil and gas and increased energy efficiency standards.
I'll focus here on what they have to say about emissions trading and carbon taxes.

First, carbon taxes. They reject carbon taxes as a tool because of political unfeasibility, although they point out that revenue neutral tax shifting could be used to make it more attractive.

Secondly, emissions trading. They propose two options, less aggressive and more aggressive. Both options:

• use an absolute cap on emissions (no intensity targets here)
• seem to auction off most permits (not explicitly stated, but implied)
• grandfather (i.e give away) some permits for old coal electricity generation in high emissions provinces, for political acceptability
• provide a price ceiling on emissions permits, beyond which the government will sell unlimited numbers of permits at the ceiling price, using the revenue to buy international permits of some form.

The difference between the options is in the price ceiling for permits - 10$ per tonne in the less aggressive, 50$ per tonne in the more aggressive.

The results of their modelling (based on 2004 implementation): 57.5 Mt of reductions from BAU under the less aggressive model, 86.4 Mt with the more aggressive model. In both cases, industry makes significant use of permits at the price ceiling.

Link to the CD Howe commentary

My comments: I found this a great article for a lot of reasons. It sets up clear policy evaluation criteria, gives an overview of all of the options that could be used, and then explains why certain policy tools were chosen. It clearly explains and summarizes the reductions associated with each policy tool (not always the case in other documents I've seen), and it references every argument on the effectiveness of the tools to academic research.
Re their emissions trading proposal, it seems sound to me. Absolute targets instead of intensity targets, and mostly auctioned permits instead of the permit giveaway planned under the LFE system developed by the feds. I found the grandfathered permits easier to swallow because they were limited to the amount of grandfathering necessary to keep reductions cost burdens relatively equal between provinces, which is a relatively fair political consideration. Their modelling of the results of the different permit ceiling prices was interesting, since it puts the 15$ per tonne guarantee the federal government promised under the LFE scheme into perspective.

Green Party position on carbon taxes and emissions trading

Just spent some time reviewing the Green Party website. The most relevant public documents are their fall 2006 Green Plan and 2006 policy platform. The two documents make some commitments re emissions trading:

1. increasing emissions targets for large industrial emitters to achieve at least 55 Mt CO2e of reductions above and beyond any other measures.
2. setting absolute targets ("cap and trade") instead of using emissions intensity targets
3. "expanding the proposed...system so that it will ensure real emissions reductions across sectors"
4. using revenue from permit sales to offset tax breaks that would be provided for energy efficiency and other reductions initiatives.

The Green Plan also commits the party to implementing a revenue-neutral carbon tax, but doesn't talk about the size of the tax or the emissions reductions targets they hope to achieve with it. They do say that by using an emission cap and trade permit system, they will "avoid having to set the carbon tax so high as to be economically dislocating" (from the Green Plan).

Link to Greens' 2006 policy platform
Link to Greens' September 2006 Green Plan
Link to Green Party news release advocating a revenue-neutral carbon tax

My comments:

As mentioned before, I am definitely happy to see anyone advocate absolute limits over emissions intensity targets. Their 55 Mt CO2e target doesn't seem particularly demanding, since that is actually what the Liberal's Large Final Emitters program was aiming for already. Re a revenue-neutral carbon tax, it makes sense as an idea to me, especially with the necessary compensation for lower income families, but I'd like to see a more detailed proposal. I'm also going to look into more economic research on carbon taxes - my understanding is still that environmental economists are for the idea, but I've heard reference to some convincing evidence from existing schemes elsewhere that carbon taxes inevitably get diluted by politicians' fear of unpopular taxation.

Baird's industry targets

Looks like the Conservatives are poised to resurrect the large final emitters emissions trading scheme. Yesterday, Environment Minister John Baird told reporters that he is preparing to impose emissions intensity targets on industry, apparently "among the most aggressive in the world." The LFE scheme was also based on emissions intensity targets, which, as CANet noted, have a big weakness - they don't provide an absolute limit on industry emissions. If industry grows faster than anticipated, then emissions can grow with the industry, wiping out any absolute reductions.

The one possibly positive thing in this announcement- talk of aggressive targets. Hopefully the Conservatives will want to announce that they've gone beyond the targets previously set under the Liberals...given their political base, though, I suspect that this won't happen. More likely is that they will delay mentioning sectoral targets and hope that the public can't be bothered to figure out the details.

Link to Globe article.