Harmonizing emissions trading

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Debates about climate change policy can get heated. Advocates of a carbon tax clash with those who favour cap-and-trade. And there are those who prefer instead an emissions-intensity regime, which aims to reduce over time the ratio of greenhouse gases emitted to a unit of economic output.

All of which is very academic until one gets serious about curbing one’s emissions output. But now that various governments across Canada and the U.S. are finally committed to implementing an emissions regime, lawmakers are finding that reconciling strongly held opinions is no easy task. Caught in the middle is industry of course, forced to contend with a growing number of existing and proposed GHG emissions regimes that may or may not see the light of day.

California was one of the first to take legislative action by implementing a cap-and-trade program on carbon dioxide emissions – being developed in conjunction with the Western Climate Initiative, which regroups 11 American states and Canadian provinces. In 2007 Alberta became the first Canadian province to adopt legislation aimed at regulating GHG emissions, but chose to follow an emissions intensity approach instead. This year both Quebec and Ontario introduced their own plans which seek to create a provincial cap and trade system. Nationally, in spite of talk about a joint North American regime, the Canada and U.S. plans are separate works in progress. Add to that a mix of various regional initiatives — including the Regional Greenhouse Gas Initiative (RGGI), composed of a group of northeastern states, which targets power-producing companies — and the whole thing amounts to a dog’s breakfast.

The confusing patchwork of regimes makes it difficult for companies to understand the financial impact of their emissions. The success of an emissions trading system requires harmonization of rules across jurisdictions. Only then can a market for fungible GHG credits become viable. Then again taking a wait and see approach is fraght with risk too. Because regardless of which GHG regime will apply to a company’s activities, there is value in banking credits or offsets early as they will likely grow in value over time.

And the sooner the various levels of government can provide some guidance to its industrial sector, the earlier businesses can prepare for the new green economy.

So far Environment Canada has already indicated that it will explore ways to harmonize federal and provincial offset systems, to ensure efficient carbon trading. But the devil will be in the details.