A North American cap-and-trade system that was supposed to benefit B.C. through increased green economy investment – not to mention the environment, through reduced greenhouse gases – is in danger of evaporating.
Over the last several years, the BC Liberal government has invested tax dollars to fund and implement a carbon cap-and-trade system under the Western Climate Initiative (WCI), a homegrown carbon offsets market (the Pacific Carbon Trust) and a carbon tax.
But none of the initiatives have generated a measurable return for taxpayers, the business community or the environment. And the Pacific Carbon Trust (PCT) is coming under increasing criticism for funnelling money from the public sector – including cash-strapped school boards – to the private sector, which has been using the money to fund initiatives that, in some cases, result in no net reductions in greenhouse gases.
“This is something we’ve got to get rid of,” Mark Jaccard, professor of resource and environmental management at Simon Fraser University, said of the PCT.
B.C. is already ahead of the curve when it comes to climate change policies, say some analysts, including Jaccard, thanks to its abundance of hydroelectricity and some of its provincial policies, like the carbon tax.
The province could therefore expect to be a net seller of carbon offsets to jurisdictions like California under a cap-and-trade system, said James Tansey, executive director of Sauder Business School’s ISIS research centre and CEO of Offsetters.
But the WCI appears to be teetering on the verge of collapse. Arizona announced earlier this year that it will not endorse a cap-and-trade system in 2012, and other states and provinces are dithering.
California, B.C. and Quebec have been the most bullish for cap and trade. All three have developed cap-and-trade laws and were poised to start enforcing them January 1, 2012.
But just last month, California announced it will delay enforcement of cap and trade until 2013. Quebec, meanwhile, announced earlier this month that it will proceed with cap-and-trade implementation in 2013.
Whether B.C. will also now reset its implementation date to 2013 from 2012 is unclear. That decision is “pending,” according to the B.C. government’s communications department.
B.C. Environment Minister Terry Lake told Business in Vancouver his government is still very much on board with the WCI, but will not implement a cap-and-trade system unilaterally.
“We’ve always said without trade there is no cap and trade,” Lake said.
“We’re not going to go if California doesn’t go, because we just don’t have a big enough market. I’m still optimistic that the WCI initiative will go forward.”
Under cap and trade, 75 to 80 of British Columbia’s largest emitters of greenhouse gases (those producing 25,000 tonnes per year or more) would be required to either cap their emissions or buy credits from those who have. They would not have to pay B.C.’s carbon tax.
“We wouldn’t charge them carbon tax and put them under cap and trade,” Lake said. “We wouldn’t double regulate.”
Large emitters would receive a kind of pollution quota in the form of permits. Companies that manage to reduce their emissions could sell unused permits to companies that can’t or won’t reduce their emissions.
But like any traded commodity, carbon pricing will be subject to price fluctuations and distortions, which is why Jaccard believes B.C. should wait for a few years before jumping on the cap-and-trade bandwagon.
The whole notion behind cap and trade, after all, is to put a price on carbon emissions, and B.C. has already done that with its carbon tax, Jaccard said.
The price is currently $25 per tonne ($0.06 per litre at the pump). It will go up to $30 per tonne in 2012.
In California, financially weak companies are expected to be granted some free permits to avoid putting them out of business. This could distort the market.
“I’m fine with cap-and-trade systems,” Jaccard said. “But in this particular circumstance, it doesn’t make a lot of sense for us to be early leaders in the cap-and-trade world in North America, because we already have the best emissions pricing policy in North America – the carbon tax.”
He added that B.C. also has a good GHG-reduction policy in the form of a zero-emission standard for all new electrical generation.
As the largest GHG emitter in B.C., natural gas company Spectra Energy will fall under cap and trade. It currently pays $10 million to $15 million annually in carbon tax. If it had its druthers, the company would rather just keep paying the carbon tax.
“It’s simple,” said Gary Weilinger, Spectra’s vice-president of strategic development and external affairs. “There’s a very level playing field. It’s very difficult to [manipulate], unlike a cap and trade. There’s going to be those who are going to be looking to beat the system.”
The problem with relying solely on a carbon tax, however, is that it merely places a premium on fossil fuel consumption, Tansey said. It doesn’t force anyone to reduce emissions; it just makes them pay more.
In fact, Statistics Canada figures show gas consumption in B.C. went up, not down, in 2009, despite the carbon tax, which was then $15 per tonne ($0.03 per litre).
Cap and trade places real limits on how much greenhouse gas emissions large emitters can produce and rewards those that manage to come in under those caps.
Tansey estimated that California will have a carbon offset shortfall worth $150 million to $495 million a year. B.C. companies that are already taking steps to reduce GHG could benefit from that market.
Rio Tinto-Alcan, for example, could profit from the $2.5 billion modernization of its aluminum smelter in Kitimat, Lake said.
“They would essentially be able to earn a bunch of carbon credits by reducing [its emissions] so much.”
Some B.C. companies are already benefitting, thanks to the PCT, which has bought 783,816 tonnes of CO2 so far, though critics say it’s at the expense of the taxpayer.
Lafarge was one of the first companies to participate in the PCT. Its Richmond plant burns coal to create cement. By switching to biomass (wood waste, for example), the company became eligible for PCT funding.
Neither Lafarge nor PCT will say how much the company received to switch to an 80-20 fuel mix (80% coal, 20% biomass.) The PCT calculates the total offsets at the Lafarge plant at 189,000 tonnes over three years.
That doesn’t mean the plant is reducing its emissions by that much. In fact, there is no net reduction in emissions at the plant. It just means Lafarge is using a fuel source (wood waste) that is considered to have a smaller carbon footprint than coal.
“Our emissions are still roughly the same, but the CO2 we’re emitting is new CO2, as opposed to stuff that has been sequestered (coal),” said Randy Gue, Lafarge’s director of Resource Recovery and Business Development.
While few would question the value of reducing a company’s reliance on coal (one of dirtiest of fossil fuels), some observers are questioning where the money is coming from.
The PCT was set up with a $25 million provincial government investment as a mechanism by which the B.C. government could become carbon neutral.
All public-sector organizations in B.C., including cash-strapped school boards, have been forced to either reduce energy consumption and cut their emissions or buy offsets from the PCT.
Last year, the public sector paid $18 million to the PCT; the private sector pays less than $250,000 a year.
When it was first set up, the PCT had no offsets to sell the private sector, explained the trust’s CEO Scott MacDonald.
“We were resistant to begin to attract more private clients in the first couple of years only because the supply wasn’t there to resell them [offsets],” MacDonald said. “That will come with time. Over the next year, we’ll begin to expand to include more private clients.”
Recently, the B.C. government announced that, thanks to the PCT, it has become carbon neutral. But Jaccard said that assertion is impossible to prove.
“Most of the evidence that I’ve seen, and research I’ve been engaged in, suggests that carbon neutrality is bogus,” Jaccard said.
He pointed out that companies will plant trees, switch to renewable energy and invest in energy conservation and efficiency without offset incentives, because it often makes economic sense to do so.
“We need to verify that this thing would never have occurred otherwise, and that’s impossible to do,” Jaccard said.
While he praises the B.C. government’s carbon tax and zero-emissions targets for new power generation, Jaccard said the PCT should be scrapped.
“Not only are there equity issues with these things, there are also experts who are saying we don’t even think this is an effective way to reduce greenhouse gases. This is not a good policy for achieving your environmental objective.”