| Canada urged to join global carbon system |
It's important to collaborate now | 
By Monte Stewart - Business Edge
Published: 03/21/2008 - Vol. 8, No. 6 | | |
Canada's future carbon market will work best if it's connected to a global system, says the head of the International Emissions Trading Market (IETM). "Ultimately, economic theory gives you the answer that, if you want to get the most out of a market, you should make it as big as possible," said Henry Derwent. "But there are a lot of other issues to be taken into account, apart from economic theory." IETM is a Geneva-based non-profit group that seeks to establish effective, efficient and fair global market-based emission-trading systems that transcend borders and regions, in accordance with the United Nations Framework Convention on Climate Change. Derwent spoke at the recent Globe 2008 conference in Vancouver, which attracted 10,000 participants from 80 countries to discuss issues involving business and the environment. He said in the last year, the global carbon-trading system expanded 100 per cent into a $60-billion market, with 60 million tonnes of allowable emissions changing hands. But, he warned, the Canadian market will have to contend with federal and provincial emissions-reductions regulations, exchange rates and other factors, so Canada's link to a global system is not a sure thing. "There are different levels of emissions reductions, which become economic at different levels of carbon products in different parts of the world and in different sectors - and they are very different," Derwent told the conference. "In other words, in some places, the bar is high and there's a lot of opportunity. In some places, the bar is low and there's not very much opportunity. "The only way to equalize that difference is to allow those sectors to trade with each other and those regions to trade with each other. The trading's already started." He also expects the Kyoto accord, and probably the U.S. presidential election, to play important roles in a global emissions-trading scheme. "Canada's position outside Kyoto is pretty well established," said Derwent. "If Kyoto is not the work that is useful to talk about here in Canada at the moment, the question of what replaces it - what comes after it - definitely is." Prime Minister Stephen Harper's Tory government has announced a regulatory framework that includes an emissions-trading market and requirements for producers in the Alberta oilsands and elsewhere to employ carbon sequestration on future oil and gas projects. Derwent said it's too early to tell where funding will come from, and how costs will be shared, when it comes to putting carbon-sequestration systems in place. Derwent said Canada can learn from the mistakes of the European carbon-trading system, which is entering its second phase of emissions trading while other countries are just starting. The most obvious lesson is not to allocate too much supply, because the price of emissions will be too low and not enough of a motivation for emitters to reduce. The second most important lesson is: "Try to make sure that the distribution methodology is not balkanized. "In other words, it's not a whole tier of different sub-authorities with their different methodologies for distributing (carbon credits)," he said. "Otherwise, people will get in a real muddle and regard what is being done next door as really unfair." Such a scenario looms in Western Canada, where B.C. and Alberta have taken opposite stances on the effects of climate change. Jill Duggan, the British government's head of international emissions trading, said many Canadian jurisdictions are already linked to an international trading system through the Western Climate Initiative (WCI), which includes provinces and American states and seeks to establish a market-based system for reducing emissions. B.C. and Manitoba are full-fledged members of the WCI, while Alberta, Ontario and Saskatchewan have observer status that allows them to participate in all meetings. Duggan said an internationally linked trading system can lower the cost of emissions, stabilize investor expectations, mobilize capital and accelerate innovation, while ensuring larger trading volumes and market liquidity. With more countries involved, the market can also address competitiveness issues and reduce the impact of the national decision-making process on business. Regional systems can feed into a central system, she added. But linking is not straight-forward and easy. Europe is currently conducting a review of its trading scheme. "It's a 10-year process," said Duggan, who has managed a voluntary British trading scheme in the past. "If we get it wrong, it takes 10 years to make it right. So it's important to collaborate now." As a result, Europe is examining links with North America. Last year, 15 governments banded to form the International Carbon Action Partnership (ICAP), which includes public organizations and governments that have established, or are in the process of implementing, cap-and-trade systems. B.C. and Manitoba are members of ICAP, which is slated to bring in Australia and New Zealand. "Why are we involved?" said Graham Whitmarsh, head of the B.C. government's climate action secretariat. "Because (carbon trading) is happening and it's happening in a real way." He said the mountain pine beetle, which is expected to destroy 80 per cent of the province's pine trees, is just one example of the effects of climate change in the province. "That in itself is a good example of why we can't afford not to address (climate change)," said Whitmarsh. "We've spent hundreds of millions of dollars today addressing that (pine beetle) problem and it's nowhere near dealt with ... We have to address (climate change) on a global basis." The B.C. government has passed legislation that requires emissions to be reduced 33 per cent by 2010 and more than 80 per cent by 2050. Meanwhile, a revenue-neutral carbon tax must be in place by 2010. In contrast, Alberta Premier Ed Stelmach plans to reduce the energy-rich province's carbon dioxide emissions to 14 per cent below 2005 levels by 2050. Whitmarsh said a cap-and-trade system regulates large industrial emitters and ensures emissions reductions will be achieved, while a carbon tax provides price certainty for businesses. But participants in a separate panel discussion on the future of energy warned that fossil fuels will still be the world's main energy source well into the future. "A critical issue that we face is the true cost of energy," said Bob Huggard, president of North American home and business services for Toronto-based Direct Energy, which serves as both a conventional gas producer and seller of electricity to retail customers. "We don't have the right economic signals in place to help people understand what it is they're actually paying for and what it is they're actually using." (Monte Stewart can be reached at monte@businessedge.ca) | | |
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