A long-awaited North American carbon-trading market is closer to becoming a reality, but there's still much to be done, energy and environmental experts say.
And it still remains to be seen if the oft-touted cap-and-trade system - which is based on maximum emission levels set on a country-by-country basis - will be put in place.
Elyse Allan, president and CEO of Toronto-based General Electric (GE) Canada, says rules and regulations must be established on the level of absolute or intensity caps, allocation of cuts or caps across industries and across players in each industry, details on the trading structure and mechanisms, and other factors.
"GE is supportive of a cap-and-trade system and looks forward to participating once the rules and mechanisms are established," says Allan.
Under a cap-and-trade model, governments or other organizations set limits on a country's total emissions.
Emitters buy and sell emission credits, also known as carbon offsets, depending on their greenhouse gas production.
"We also need to know what the scope of the program is going to be and whether offsets will be permitted and if so whether there will be limits on use," says Allan. "We need to know if the program is going to be economy-wide or not ... And importantly, we are going to need to know how allowances will be done."
Analysts involved with emissions-trading credits are predicting a formal market will be in place within 18-24 months. And B.C. Premier Gordon Campbell and California Governor Arnold Schwarzenegger are already touting an emissions-trading system that involves western provinces and states in the Pacific Northwest.
Aldyen Donnelly, president of the Vancouver-based Greenhouse Emissions Management Consortium (GEMCo), says corporations and individuals who are willing to take risks on trades should be able to start figuring out how to make money right now.
GEMCo is a consortium of six firms that includes TransCanada Energy, Sask Power and New Brunswick Power. It also consults for other companies and large emitters, including an unidentified major oil and gas producer and the government of Nova Scotia.
Large emitters already buy and sell emission credits, but most of the activity takes place out of the public eye and participants are waiting to see how voluntary reductions now under way will compare with reductions required by governments.
Donnelly says a cap-and-trade system will leave Canadian companies vulnerable to takeovers from large European companies that have plenty of emissions-cap room under terms of the Kyoto protocol.
GEMCo was once among the world's largest emission-credit speculators, but has pulled out of the market because of uncertainty over most credits' ability to offset global warming.
Donnelly says the European Union has received emission surpluses that are well above its potential capacity. Canada, on the other hand, faces much tighter limits.
Donnelly says U.S. speculators are in the process of setting up offset aggregators and trading arms in Canada that see the market the way she does, and predicts more activity ahead. Offset aggregators are organizations that serve as trading representatives for multiple participants.
The B.C. government recently introduced legislation designed to achieve certain emission targets by 2020, but Donnelly says Premier Gordon Campbell's proposed carbon-trading scheme fails in its efforts to emulate California's proposed system.
"There are massive structural differences between the regulatory strategies (in B.C. and California)," says Donnelly.
James Tansey, a UBC professor who has started up the non-profit Offsetters Climate Neutral Society, says a cap-and-trade model is the best way to reduce emissions on a global scale.
"A cap-and-trade system, on a large scale, is the most effective way to drive overall climate policy," says Tansey. "If you don't have a cap, then, while trading can generate efficiencies, it doesn't limit the overall production of CO2 emissions.
"The European emissions-trading scheme has a real cap associated with it, and that's generally been considered pretty effective ... For a small-scale organization like Offsetters, what we're doing is just preventing emissions from specific organizations. We can show very clearly that those emissions have been reduced. " His group pools investments in carbon offsets on behalf of consumers and then invests them in upgrading the efficiency of heating systems in community facilities like ice rinks.
Offsetters will invest in 10,000 tonnes by the end of this year at a cost of about $150,000.
"It doesn't require that every single organization meet a specific target," says Tansey. "It allows them to trade in order to achieve the most efficient CO2 reduction within the system as a whole."
He believes the regulatory model for the market will be regional. "The Western Climate Initiative, a collaboration launched in February that includes northwestern states and British Columbia while other provinces act as observers, will create some opportunities for establishing a framework, he says.
"I don't think the federal government is any closer" to developing a system, he says. "In fact, there's good evidence that it has moved backwards, given that under the Liberal government there was a plan to form some type of offset market around the time of that election. We've seen very little progress on that (plan), and it's hard to imagine that there will be much progress given the current government's position on climate change."
Pierre Alvarez, president and CEO of the Canadian Association of Petroleum Producers, says his members have long been preparing for a carbon-trading system of some kind, but money would be better spent on investment in new technologies that reduce emissions and ensure Canada's long-term energy supply.
(Monte Stewart can be reached at monte@businessedge.ca)
