Following up on the last post, there are a few other major policy directions that the US has taken in the draft Waxman-Markey bill that Canada (or Provinces) could look to for inclusion in our domestic system(s).

Any new facilities will have to compete for the same gov’t issued allowances as existing facilities – meaning that as new facilities come on line (more than closures of plants) there will be less and less credits for each facility. This hard cap is a far cry from the intensity world Canada has been in for the last few years… a program that would create more credits as new facilites come on line and as production expanded. Policies like this are likely not possible now with the hard cap world the US seems to be in. 

Past the hard cap vs. intensity debate, there is the discussion about who and what is covered under a cap and trade system. Coverage and phase-in of industrial sectors is a big part of the latest US propsed cap and trade program.  The proposal is to capture electricity, fuel producers, fluorinated gas producers (GHGs with fluorine), and carbon sequestration sites in 2012. In 2014, the rest of the typical industrial sectors will be covered and will include some sectors not contemplated in the Canadian government’s Turning the Corner regulatory framework (glass production and food processing). Lastly, in 2016, the program will begin to cover local distribution companies that provide natural gas to customers not covered by the program – something the Canadian system has not said it would be covering. 

More importantly, fuel producers are liable for all emissions from the USE of the fuel they produce (or import). This seems difficult to quantify given the numerous different uses and types of, for example, petroleum-based liquid fuel. How refined the fuel being used is and how its being used, will have an impact on how many emissions actually occur. 

All in all, a much broader coverage  than what was expected from the Canadian government’s framework. To think that a future Canadian system would seek to cover different sectors and sources than the US system would, is likely a bit unrealistic.

What does the bill mean to Canada? Well… it means that most of the major elements will be simliar if the Tories are going to achieve a North American cap and trade system (or avoid trade grievances). Coverage between both country’s systems will likely line up fairly closely. Required reductions will be close. Methods to calculate emissions will be comparable if not the same. And methods of complying (offsets, technology fund credits) and rough cost of compliance will also line up closely. Simliar costs of compliance means a simliar price on carbon. This will depend largely on the policy for distributiong allowances to industry – Canada’ s Turning the Corner plan essentially gave enough free allowances to cover historic annual emissions – the US seems poised to auction at least some of the allowances they create (if not all – Markey’s last bill had 100% auction of credits). So for the price of carbon to have a chance of being the same, look for the method of distribution to be fairly close in terms of the amount of allowances given away and the amount sold.

The goal of a North American system is only met if those four things align – Coverage, Targets, Quantification Methods, Compliance (including carbon price).  

So the debate in the US has begun… in Canada we can look to those four key areas to likely be the same between the US and Canadian systems if the Conservative’s much hyped North American cap and trade system is ever going to happen.

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