Several Canadian provinces, like an increasing number of U.S. states, are actively contemplating adopting cap-and-trade schemes as one of the principal mechanisms to help reduce local greenhouse gas emissions – in some cases in coordination with other provinces and states but independent of the federal government’s climate change efforts. This approach seems motivated by disagreements with the federal government over what targets and means should be used to combat climate change, as well as differences of opinion over the economic opportunities that may come with participation in North American regional carbon markets. This bulletin outlines some of the latest developments.

British Columbia, Manitoba, Ontario and Quebec to discuss emissions trading

On January 28, 2008, British Columbia Premier Gordon Campbell announced that B.C., Manitoba, Ontario and Quebec will engage in talks aimed at establishing a common cap-and-trade system to reduce their greenhouse gas (GHG) emissions. The announcement came at the end of the two-day Council of the Federation meeting of provincial and territorial leaders, which focused largely on climate change. B.C. and Manitoba already stand out as the only two Canadian members of a California-led regional group, which includes seven western states, known as the “Western Climate Initiative (WCI).” Launched in February 2007, the nine WCI members support the use of a cap-and-trade system to help reduce members’ GHG emissions by 15% of 2005 levels by 2020. Although not formally pursuing membership, Ontario recently met one condition for WCI participation by joining the Climate Registry, a uniform GHG reporting and verification system that has been adopted by 40 U.S. States, along with B.C., Manitoba, Saskatchewan and Quebec. A remaining precondition for membership would be to adopt California’s proposed vehicle emission standards, which Quebec has already done. Premier Dalton McGuinty reportedly prefers a single North American vehicle emission standard, such as the one recently put forward by the U.S. Environmental

Protection Agency.

Provinces meet with New England states

Representatives of the Atlantic provinces, Ontario and Quebec are meeting with the New England states on February 4 and 5 to explore regional mechanisms for GHG emissions trading and plan to make recommendations to their respective governments. One of these mechanisms is the Regional Greenhouse Gas Initiative (RGGI), a regional cap-and-trade–based scheme designed to reduce GHG emissions. Ten northeastern states (Maine, New Hampshire, Vermont, Connecticut, New York, New Jersey, Delaware, Massachusetts, Maryland and Rhode Island) are already members; the Canadian provinces are only official observers at this point. RGGI applies to fossil fuel electricity generating plants and advocates capping emissions at 2009 levels and then reducing them by 10% by 2019. As part of the implementation process, RGGI states are planning to auction permits to electricity generators in June 2008.

Alberta on its own path

In contrast to the regional ambitions of other provinces, Alberta continues to forge its own path. It was, of course, the first jurisdiction in North America to implement a soft (intensity-based) cap-and-trade regime in summer 2007. Recently, Alberta also announced its 2008 Climate Change Strategy, which will allow Alberta’s GHG emissions to rise until 2020 before being reduced by 14% below 2005 emissions by 2050. This target is weaker than that of the WCI, as discussed above, as well as that of the federal Conservatives’ Regulatory Framework, which aims to reduce Canada’s GHG emissions by 20% of 2006 levels by 2020 and by 60%–70% of 2006 levels by 2050. Alberta’s plan proposes three paths to achieve its 2050 target: carbon capture and storage is to account for 70% of the planned reductions; energy conservation and efficiency initiatives for 12%; and measures for “green energy production” for 18%. Newfoundland Premier Danny Williams expressed his support for Alberta’s position and cautioned that climate change action in oil-rich provinces must balance environmental protection with economic growth.

Meanwhile, the Alberta carbon market has begun to see an increase in transactions following its launch in July 2007. On January 24, 2008, World Energy Solutions, an environmental commodities exchange, announced the auction of 80,000 carbon offset credits to buyers in Alberta. Last summer Torys acted on one of the largest carbon transactions in the Alberta market.

The Alberta carbon market has a de facto price cap of $15/tonne because regulated emitters have the option to pay that amount into a research and development fund for low carbon technologies to cover up to 70% of their excess emissions rather than purchase offset credits.