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Canada unveils carbon trading plans Market could start operations later this year; environment minister hopes domestic market will grow into North American version By Gary Park For Petroleum News
The Canadian government has taken its long-delayed step towards carbon trading that it hopes will lead to a North American marketplace embracing the United States and Mexico.
Environment Minister Jim Prentice released draft rules for a federal carbon-offset scheme, including which projects will qualify, how others can apply for inclusion, the value of each offset credit and how reductions in greenhouse gas emissions will be tracked and verified.
He said the initiative contains an option for large industries, which account for 30 percent of total Canadian GHGs, to comply with mandatory emissions cuts the government plans to unveil later this year.
“The offset system, like all elements of our climate-change plan, is aimed first and foremost at reducing emissions in Canada,” he said. “We will be rigorous in ensuring that credits will only be issued for projects that actually reduce the amount of GHGs in this country.”
Dealing indirectly with concerns over the complexity of carbon trading and the risks of fraud occurring, Prentice said “this is not about creating an abstract world where ‘paper credits’ are bought and sold like some complex financial product.”
“Every offset credit will represent a real and verifiable emissions reduction equal to the equivalent of (one metric ton) of carbon dioxide.
“What I’m describing is a gold standard of offset credits that will apply in Canada,” he said.
Looking for trading market Prentice said he is counting on the United States adopting a cap-and-trade system that will allow Canada and the U.S. along with Mexico, to establish a common trading market.
“Clearly the United States is headed in the direction of a marketplace,” he said. “We have a very close dialogue with the United States on this issue.”
But Prentice emphasized that traders, not the government will establish a price for carbon in Canada.
More elements of Canada’s climate change regulations, including GHG reduction standards for each industry, will be released by December before the Copenhagen summit on a post-Kyoto United Nations climate change treaty.
He said Canada’s final package of climate change regulations will be released in 2010 and start to take effect in 2011, although, depending on the response to the latest proposal, carbon trading could start later this year. However, only carbon offsets made after Jan. 1, 2011, will count toward the reduction targets that industry will be required to meet.
Canada’s goal is a 20 percent reduction from 2006 GHG levels by 2020 and 60-70 percent by 2050.
Complement to regional markets Prentice said the federal offset system will “complement, not supplant” a patchwork of regional carbon markets being developed by Ontario, Quebec, British Columbia and Manitoba.
Those schemes have been launched by provinces which have grown frustrated with waiting for a national or continental market, notably the Western Climate Initiative, which is a coalition of four Canadian provinces and seven U.S. states that is developing a regional market to trade carbon emissions.
A spokesman for the Canadian Association of Petroleum Producers said there is nothing in the draft rules that is unexpected, but the industry will take the 60-day response period to provide “appropriate and constructive feedback.”
He said the government has taken a “good step towards a broadly applicable climate policy for Canada.”
Gary Leach, executive director of the Small Explorers and Producers Association of Canada, welcomed the government’s efforts to harmonize its approach with the provinces, thus preventing competing and inconsistent federal and provincial schemes.
He said his association favors the Alberta approach which targets large emitters and puts an emphasis on funding the research and development of new technologies.
Will emissions just be moved Matthew Bramley, director of the Pembina Institute’s climate change program, said he is concerned that the federal offset system will only “move emissions around,” not reduce them.
Alberta Premier Ed Stelmach said he had already urged Prentice not to place an unfair burden on Alberta, which is generating wealth to support the rest of Canada, and not to get too far ahead of the United States.
Alberta Environment Minister Rob Renner said his government will now lobby for a federal fund to complement the trading system by promoting the development of carbon capture and storage.
However, Prentice said earlier in June that he does not see CCS as the “silver bullet” for lowering GHGs in the mining and in-situ extraction of oil sands bitumen.
He said CCS is “important, but it’s really in the upgrading of bitumen that CCS has more promise.”
The Alberta government is expected later in June to allocate money from its C$2 billion fund to support the development and testing of three to five CCS projects from 11 applications.
ConocoPhillips has pulled out of that competition, estimating it would cost more than C$200 per metric ton to capture and sequester carbon dioxide from its Surmont oil sands operation, compared with estimates of C$15-$30 a metric ton for trading carbon on open markets.
The company’s outgoing Canadian President Kevin Meyers told reporters that the C$200 estimate does not apply to all potential CCS projects and should not be viewed as a blanket rejection of CCS.
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