Exploring the Challenges and Opportunities for Establishing a North American Emissions Trading System

John Drexhage

Director, Climate Change and Energy

IISD

Contributors to Climate Change (1900 to 2000)

Europe20%

Pacific Asia, Industrial6%

Developing Asia19%

South and Central America

10%

Mid East and North Africa

4%

Sub Saharan Africa4%

Former Soviet Union 12%

North America25%

Source: WRI, Options for Protecting the Climate, 2002

Global Per Capita Emissions

0

10

20

30

40

50

60

70

UnitedStates

Canada Russia Japan EU LatinAmerica

China India

Tonnes of Carbon Per Person

+ 23%

+ 7%

+ 16%

+ 24%

+ 38%

+ 38%

+ 43%

Appendix 2.1

GHG Emissions By Province

0

50

100

150

200

250

Atlantic

Quebec

Ontario

Man

itoba

Saska

tchew

an

Alber

ta

Britis

h Col

umbia

1990 2010Mt

Appendix 2.1

GHG Emissions By Sector

0

50

100

150

200

250

Resid

entia

l

Comm

erci

al

Indust

rial

Transp

ortatio

n

Fossil

Fuel

Indust

ries

Elect

ricity

Gen

erat

ion

Agroe

cosy

stem

s

Was

tes/

Oth

ers

1990 2010Mt

- 2% + 31%

+ 8%

+ 34%

+ 66% + 24%

+ 16%

+ 55%

Appendix 2.2

Canada’s Projected GHG Emissions: All talk and voluntary actions

500

550

600

650

700

750

800

850

900

1990 1995 2000 2005 2010 2015 2020

Kyoto Target 571 Mt6% below 1990

2010 Emissions 809 Mt

1990 Emissions 607 Mt

BAU Gap 238 Mt33% above 1990

Mt

CO

2 eq

uiva

len

t

Business as Usual

(1999)

699 Mt

Projections

GHG Emissions By Selected States

0

100

200

300

400

500

600

700

800

California Illinois New York Ohio Pennsylvania Texas

1990 2003Mt

+ 7%

+ 16%

+ 24% + 38%

+ 38%

                                                                                                                            

                                                                                                                              

A Challenge? Comparison of Oil Sands versus Conventional Oil Production in Canada

Source: CAPP, 2007, Canadian Crude Oil Production and Supply Forecast 2006 - 2020

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

Oil Sands

Conventional

                                                                                                                

Figure 3: US Share of Exports and Imports on the Decline

….with the very notable exception of energy…. The United States is Canada’s major trade market for energy products,

accounting for 99% ($84.8 billion) of all Canadian energy exports for 2006 – up from $50 billion in 1990

Some with different climate change implications…. Canada exported $36.0 billion of natural gas to the United States (100%). In

volume terms, Canada accounted for more than 85% of U.S. gas imports and had a 16% share of the U.S. market.

Electricity exports, mostly sourced from hydro represented some 3.1 billion in sales.

than others: Exports of crude oil were 1 578 000 barrels per day in 2005, valued at $29.9

billion. More than 99% of these exports were U.S.-bound. Canadian crude oil held an 11% share of the U.S. market in 2005 and accounted for more than 16% of U.S. crude imports.

Linking Systems

Three broad state level/regional actions: West Coast Initiative (Targets, etc, still under design, but

likely absolute with limits on international or even inter-regional credits, but interest in technology offsets )

RGGI (Absolute targets, limits on offsets access) Climate Action Registry (No targets)

Provincial Actions BC (absolute), Alberta (intensity), Quebec and Manitoba

(Kyoto – absolute); with Ontario soon to come (absolute a shoo in)

Federal Regulatory Framework GHG intensity reductions of 6% per year

2007 – 2010 2006 baseline with 20% reductions by 2020

and 60 to 70% by 2050 2020 target equivalent to 150 M tonnes in

absolute terms Four compliance options: emissions

reductions, Tech Fund, Trading, One-time Early Action Credit

Federal Initiatives (Canada)

Conservative Plan Regulatory Framework for Large Emitters Integrated approach on air issues Intensity Based – 18% by 2010; 2% per annum

thereafter, and 20% absolute by 2020 The four compliance provisions:

Technology Fund Offsets Credits for Early Action Limited CDM Access for Industry

Federal Regulatory FrameworkOffsets:

Climate Change Technology Fund (Perm or Temporary, with receding access?)

Def’n of offsets Max. 10% of intensity target allowed to go to

certain CDM credits Next step? – linking with N.A. ETS (WCI,

RGGI)? Explore linking internationally

British Colombia Emissions target of 33% below 2007 levels by 2020 (10%

below 1990 levels) Targets for 2012 and 2016; Long term target for 2050 in

development Set to introduce legislation in late 2007 to institute hard cap on

emissions, as part of WCI Other actions/interest:

adoption of tail pipe standards low carbon fuel standards (reduction of at least 10% in the

carbon intensity -from well to wheel- of its transportation fuels by 2020

B.C. Energy Plan: A Vision for Clean Energy Leadership (2007) emphasizes renewable energy, energy efficiency and CCS

Alberta Albertans and Climate Change: Taking Action (2002)

reduce GHG emissions intensity by 50% below 1990 levels by 2020. completed commitments made under the 2002 plan by achieving a 15%

reduction in emissions intensity between 1990 and 2002. Climate Change and Emissions Management Amendment Act

(2007) Limits GHG emissions intensity for large emitters

(>100,000 t GHG/yr must reduce emissions intensity to 12% below facility’s average emissions intensity from 2003-2005 by end of 2007.

New facilities must reduce intensity by 2%/yr after third year of operation. Reductions may be made via operational improvements, the purchase of

offsets or contributions into a climate change Technology Fund. Fund contribution rate is $15/tonne of greenhouse gas.

In process of renewing its Climate Change Action Plan, anticipating late 2007 release.

Provincial offset system in development

Saskatchewan Saskatchewan Energy and Climate Change Plan

(2007) Emissions stabilized by 2010 Reduce GHG emissions by 32% from 2004 levels by 2020 Reduce emissions by 80% from 2004 levels by 2050 Proposes local Technology Fund & Emissions Offset Fund,

aiming to ensure that benefits of compliance measures taken in province under federal regime (via offset purchases or Technology Fund contributions) remain within province

Manitoba Kyoto and Beyond: Manitoba’s Climate

Change Action Plan (2002) meet and exceed Kyoto Protocol reduction targets

(6% below 1990 levels by 2012) Plan currently being updated and expected to

introduce new legislation in late 2007 Establishing an offsets registry with CSA and Cdn

Climate Exchange Joined the WCI and Climate Registry

Ontario Ontario Action Plan on Climate Change (2007)

relaxes targets originally introduced in Ontario’s Climate Change Act.

Commits to reductions of 6% below 1990 levels by 2014 (instead of 2012), 15% below 1990 levels by 2020 (instead of 25%) and an 80% reduction from 1990 levels for 2050.

Plans to close its four remaining coal-fired power generation plants by 2014, make investments in rapid transit, double renewable energy generation and improve energy conservation measures

First jurisdiction in North America to introduce a Standard Offer Program (also know as ‘feed-in tariffs) to reduce barriers to small renewable energy generators

Supported by Ontario’s Renewable Porfolio Standards of an additional 5% renewables by 2007 and 10% by 2010.

Quebec

Quebec and Climate Change: a Challenge for the Future (2006) Reduction of 6% below 1990 levels by 2012 Includes carbon tax involving levies on gasoline, diesel

fuel, light heating oil and coal, representing a levy of about $3 to $3.50 per ton emitted.

Focuses on public transportation, renewable energy generation, energy efficiency including a new building code by 2008 by up to 25% and regulating vehicle fuel efficiency to California standards.

Supported by Using Energy to Build the Quebec of Tomorrow: Quebec Energy Strategy (2006-2015), committing to increasing renewables: 4000 MW of wind by 2015 and 4500MW of water by 2010)

Prince Edward Island

A Climate Change Strategy for Prince Edward Island (2005) Reductions to 1990 levels by 2012 and 10% below 1990

levels by 2020 (NEG/ECP CCAP) 9 recommendations for addressing climate change

focusing on renewable energy, transportation, energy efficiency, building partnerships, coastal management and land use planning, forestry, and waste management.

Supported by Energy Framework and Renewable Energy Strategy (2004) and Renewable Energy Act, mandating a Renewable Portfolio Standard of 15% for 2010.

New Brunswick Climate Change Action Plan (2007)

Reductions to 1990 levels by 2012 and 10% below 1990 levels by 2020 (NEG/ECP CCAP)

Focuses on demand-side management and renewable energy in the electricity sector and improvements in public transit, fuel efficiency and alternative fuels in the transportation sector.

Other components of note include qualifying forest management-based offsets under the federal regime, “improving” nuclear power generation and consideration of clean coal and CCS technologies.

Nova Scotia

Environmental Goals and Sustainable Prosperity Act (2007) 10% below 1990 levels by 2020 21 goals and commitments on renewable energy,

GHG emissions, and sectoral strategies

Supported by Renewable Energy Standards Regulations (2007) mandating a portfolio of 20% renewables by 2013

Newfoundland

Climate Change Action Plan (2005) Reductions to 1990 levels by 2012 and 10%

below 1990 levels by 2020 (NEG/ECP CCAP) 40 action items including energy efficiency, a

‘house in order’ strategy for government, fuel efficiency of fishing vessels, research initiatives on carbon accounting in forestry management;

An energy plan which will support these actions is currently being prepared.

Territories

Yukon: Climate Change Strategy (2006) Builds on existing programs, activities and experience to respond to the

impacts of climate change No specific GHG targets

Northwest Territories: Greenhouse Gas Strategy (2007-2011) Commits to lead through example by adopting a target to reduce emissions

from its own operations to 10% below 2001 levels by the year 2011. Commits the territory to establish longer-term targets beyond 2011 by

undertaking another review in 2010 in recognition of an equitable approach to Canada’s international commitments

Nunavut: Nunavut Climate Change Strategy (2003) No specific target Commits to identify and monitor climate change impacts, and develop ways

of adapting to change.

Linkage Issues Canadian provincial and federal actors all

strongly interested to coordinate with US initiatives

Not as clear if this has the attention of US actors (exception of Schwarznegger?)

Clearly led from the top Bureaucrats all scrambling around: what does it all mean

and how to coordinate?

Implications for linking with EU ETS?

Provincial AffiliationsWest Coast Initiative: British Columbia and Manitoba members;

Saskatchewan, Ontario and Quebec observers

NEG-ECP All Eastern Provinces members

RGGI All five Eastern provinces are RGGI observers;

Ontario and Quebec have expressed an interest in membership

The Climate Registry British Columbia, Manitoba and Quebec are

members; all provinces have committed to join TCR

Canada-US Air Quality Agreement Example of Canadian – US cooperation to address

transboundary air quality ½ of acid rain in eastern Canada comes from American

sources, the cooperation of the U.S. was needed to reach the reduction targets

1991 Canada-U.S. Air Quality Agreement Both countries agreed to reduce emissions of SO2 and NOx,

the primary precursors to acid rain Expanded cooperative efforts to control transboundary

ground-level ozone and particulate matter (PM), the primary precursors to smog

Linkage Issues Intensity vs. absolute Stringency Timing Provisions Role of offsets

What and where Price caps Technology incentives/funds Auctioning vs. Grandfathering Credits for early action Registry reporting State/Provincial – Federal Coordination

Broader Areas of Cooperation

Areas for progress: Continental approach to energy AND climate change

Potential for regional carbon trading systems Integrated approach on energy and climate Trade and investment Biofuels and energy subsidization Transportation

Vehicular and air Urban planning Post 2012: Supporting a clean energy future internationally