Carbon Tax – GHG Accounting

Canadian Federal Carbon Pricing System Comes into Force in Backstop Jurisdictions

The Canadian federal government is committed to pricing carbon emissions and advancing the objectives of the Pan Canadian Framework on Clean Growth and Climate Change. The main components of the federal carbon pricing backstop system are set out in the Greenhouse Gas Pollution Pricing Act, which was passed in June 2018:

federal fuel charge; and
an Output-Based Pricing System for large emitters, i.e. those facilities with emissions 50,000 tonnes of carbon dioxide equivalent.

On October 23, 2018, the federal government announced that the federal carbon pricing system would come into force in 2019 in so-called “backstop jurisdictions”, i.e. those jurisdictions that have either decided not to implement a carbon price or to implement a system that does not meet federal requirements (the key requirement being a price on carbon of $20 per tonne starting in 2019, increasing by $10 per tonne annually until it reaches $50 per tonne in 2022. The backstop jurisdictions include: Ontario, New Brunswick, Manitoba, and Saskatchewan. In October 2018, the Department of Finance released details about how proceeds from the federal carbon pricing backstop will be returned directly to residents of backstop jurisdictions through the Climate Action Incentive. Both Ontario and Saskatchewan have launched constitutional challenges to the federal government’s jurisdiction to impose the federal carbon pricing scheme on the provinces. Both cases are expected to be heard in 2019. In the meantime, the federal carbon pricing system will come into force as planned.

Alberta, British Columbia, Newfoundland and Labrador, Northwest Territories, Nova Scotia, Nunavut, Prince Edward Island, Quebec and Yukon have either developed their own carbon pricing systems that meet federal requirements or chosen to adopt the federal backstop.

The following table summarizes the carbon pricing initiatives across all provinces and territories as of January 1^st, 2019:

Jurisdiction	Carbon Pricing Approach
British Columbia:	Carbon tax = $35 per tonne, which will increase by $5 per tonne on April 1, 2019 until it reaches $50 per tonne by 2021.
Alberta:	Carbon levy = $30 per tonne. No further increases planned at this time.
Saskatchewan:	The federal backstop will apply, in part, in Saskatchewan: · Saskatchewan will implement its output-based performance standards system on January 1, 2019 (applicable to industrial facilities that emit ≥25,000 tonnes of CO2e per year). · Federal OBPS will apply to electricity generation and natural gas transmission pipelines beginning January 1, 2019 (applicable to facilities from those sectors that emit ≥50,000 tonnes of CO2e per year, with the ability for smaller facilities that emit ≥10,000 tonnes of CO2e per year to voluntarily opt-in to the system). · Federal fuel charge to apply from April 2019.
Manitoba:	· Federal OBPS will apply from January 1, 2019 (applicable to facilities from those sectors that emit ≥50,000 tonnes of CO2e per year, with the ability for smaller facilities that emit ≥10,000 tonnes of CO2e per year to voluntarily opt-in to the system). · Federal fuel charge to apply from April 2019.
Ontario:	· Federal OBPS will apply from January 1, 2019 (applicable to facilities from those sectors that emit ≥50,000 tonnes of CO2e per year, with the ability for smaller facilities that emit ≥10,000 tonnes of CO2e per year to voluntarily opt-in to the system). · Federal fuel charge to apply from April 2019.
Québec:	Cap & Trade System – Allowance Price of CAD $20.27 (based on results of November 14, 2018 auction)
New Brunswick:	· Federal OBPS will apply from January 1, 2019 (applicable to facilities from those sectors that emit ≥50,000 tonnes of CO2e per year, with the ability for smaller facilities that emit ≥10,000 tonnes of CO2e per year to voluntarily opt-in to the system). · Federal fuel charge to apply from April 2019.
Nova Scotia:	Cap-and-trade program will start on January 1, 2019.
PEI:	The federal backstop will apply in PEI, in part: · A carbon levy on fuel will come into force on April 1, 2019. · Federal OBPS will apply from January 1, 2019 (applicable to facilities from those sectors that emit ≥50,000 tonnes of CO2e per year, with the ability for smaller facilities that emit ≥10,000 tonnes of CO2e per year to voluntarily opt-in to the system).
Newfoundland and Labrador:	Newfoundland & Labrador’s own carbon pricing plan came into force on January 1, 2019: · Provincial carbon tax rate of $20 tonne will commence on January 1, 2019. · A performance-based system for offshore and onshore industries will establish GHG reduction targets for large industrial facilities and large scale electricity generation; exemptions for certain sectors are available.
Nunavut:	· Federal OBPS will apply from July 1, 2019 (applicable to facilities from those sectors that emit ≥50,000 tonnes of CO2e per year, with the ability for smaller facilities that emit ≥10,000 tonnes of CO2e per year to voluntarily opt-in to the system). · Federal fuel charge to apply from July 1, 2019.
Yukon:	· Federal OBPS will apply from July 1, 2019 (applicable to facilities from those sectors that emit ≥50,000 tonnes of CO2e per year, with the ability for smaller facilities that emit ≥10,000 tonnes of CO2e per year to voluntarily opt-in to the system). · Federal fuel charge to apply from July 1, 2019.
Northwest Territories:	Northwest Territories will introduce a carbon tax on fuels starting July 1, 2019 = $20/tonne of GHG emissions; this will increase annually until it reaches $50/tonne.

Manitoba Releases Draft Framework for Output-based Carbon Pricing System for Large Industrial Emitters

In October 2017, the Manitoba government released its Made-in-Manitoba Climate and Green Plan (the Plan) and announced that it would be introducing a flat carbon tax of $25 per tonne of carbon dioxide equivalent (CO₂e). One of the commitments set out by the Manitoba government in the Plan was the development an output-based pricing system (OBPS) for large industrial emitters. In July 2018, Manitoba fulfilled this commitment by releasing its Draft Regulatory Framework for a Made-in-Manitoba Output-based Pricing System (the Draft Framework) for public consultation.

The release of the Draft Framework follows the introduction of Bill 16 into the provincial legislature in March 2018. Bill 16, also known as The Climate and Green Plan Implementation Act – is expected to come into law in November 2018. Bill 16 provides the legislative authority for the Manitoba government to implement the Plan, along with the fiscal tools needed to introduce a carbon price in the province. Bill 16 also establishes the Industrial Greenhouse Gas Emissions Control and Reporting Act, which provides the government with the authority to develop an OBPS for industrial facilities competing in emissions intensive, trade exposed (EITE) sectors of the economy. Manitoba’s proposed OBPS is described in further detail below.

Overview of Manitoba’s Proposed OBPS

The Draft Framework describes the key elements to be considered in the design and implementation of the OBPS. Manitoba’s proposed OBPS is separate from the proposed federal OBPS. Manitoba’s OBPS will apply to large industrial emitters in the province, specifically those facilities with emissions of 50,000 tonnes or more of CO₂e. At the moment, there are six large industrial emitters in Manitoba (representing approximately 6% of the province’s total emissions): Koch Fertilizer Canada, TransCanada Pipelines, Graymont, Canadian Kraft Papers, Husky Oil and Vale.

Manitoba plans to establish emission limits for covered facilities in the form of emissions intensity performance standards, or EIPS, which are expressed in tonnes of carbon dioxide equivalent (tCO2e). Covered facilities with emissions above their established limit will be required to pay the $25 per tCO2e emitted beyond their limit or meet their compliance obligations through another approved compliance option (e.g. emission offset credits). Covered facilities which emit less than their established emissions limit will be able to bank or sell emissions to other covered facilities up to their limit at a compliance price of $25 per tCO2e.

Manitoba’s OBPS will cover emissions from the following on-site sources: stationary combustion, on-site transportation, industrial processes and product use, waste and wastewater, flaring, and some venting and fugitive sources.

The Manitoba government is considering three options for setting EIPS:

Facility-specific Standards – an EIPS is set at the individual facility level based on a facility’s historical GHG performance.
Sector-level Standards – an EIPS is set at a designated percentage below the production-weighted average emissions intensity of similar facilities within the same sector.
Best-in-class Standards – an EIPS is set at the emissions intensity of the best-performing facility within a sector, globally, nationally, regionally, or provincially.

The Draft Framework notes that there are industrial facilities in the province with multiple product/activity lines that may warrant establishing multiple emissions-intensity performance standards (one for each product/activity). The emissions limit for these facilities will be based on the sum of the limits for each product/activity. A covered facility’s compliance obligation will be based on the following formula:

Compliance Obligation (tCO2e) = Facility’s Total Emissions – Facility’s Emissions Limit

In order to facilitate continuous improvement in GHG performance, the stringency of EIPS will increase over time. It is proposed that each EIPS be subject to an annual 2% declining cap factor. The declining cap factor would apply to all emissions included in the emissions intensity standard, with the exception of industrial process emissions.

Covered industrial facilities will receive an OBPS registration certificate that enables them to purchase carbon tax-free natural gas and solid fuels and receive a full rebate on the carbon tax paid throughout the calendar year on all other fuel types. The first compliance period would begin in January 2019 and reporting would be required as of January 1, 2019. However, performance standards would not be set until June 2019 given the time constraints for implementation.

For compliance purposes, covered facilities must compensate for excess emissions by: (a) remitting an emissions performance credit at a rate of one credit for each tonne of greenhouse gas emissions in excess of the limit; (b) paying a levy at a rate of $25 for each tonne of greenhouse gas emissions in excess of the limit; or (c) a combination of both (a) and (b). The Manitoba government will issue performance credits to facilities for each tCO₂e below their emissions limit. Under the OBPS, the following types of emission credits will be available:

Performance Credits – issued to an industrial operation whose emissions in a compliance period are below the limit that applies in that period.
Manitoba Offset Credits – under the regulations, an emissions offset credit system may be established for projects in Manitoba that reduce emissions or remove emissions from the atmosphere.
Agreements with Other Jurisdictions – the minister may enter an agreement respecting recognition of credits issued by the other jurisdiction.

The Manitoba government plans to establish an emissions registry to track the issuance, trading, and use of emissions performance credits. Each registered facility will be required to create an account with the registry once it becomes available.

In addition, registered facilities will be required to quantify emissions using a prescribed methodology. Consideration is being given to requiring third-party review of facility reports verified by a certified third-party accredited to ISO 14065 by the Standards Council of Canada or the American National Standards Institute.

The Manitoba government is also considering an opt-in provision for industrial facilities that do not meet the 50,000 tCO₂e eligibility threshold, but may experience competitiveness pressures due to the carbon tax. Facilities that meet both of the following criteria would be eligible to opt-in:

Have annual emissions between 10,000 and 50,000 tCO₂
Compete in an EITE sector/sub-sector of the economy.

The Manitoba government will hold workshop and information sessions for stakeholders throughout fall 2018, and will issue registration certificates to covered facilities in December 2018. The OBPS would be implemented in January 2019, followed by the establishment of EIPS in June 2019. The opt-in for qualified entities would commence in January 2020.

The Manitoba government has invited interested parties to provide written comments/feedback on the proposed regulatory framework to Manitoba Sustainable Development by September 30, 2018. Comments may be submitted in writing to the following address or email:

Sustainable Development Climate Change and Energy Branch

12-155 Carlton St., Winnipeg, MB, R3C 5R9

Email: ccinfo@gov.mb.ca

In First Budget, BC NDP Increase Carbon Tax but Abandons Revenue Neutrality

In July 2017, the BC New Democratic Party (NDP) was sworn into office and subsequently released its first provincial budget. The Budget 2017 Update (2017/18 – 2019/20) addressed a number of policy issues including tax measures and new spending on social initiatives. Although the NDP is still in the process of articulating its climate change policy, the budget did announce changes to the BC carbon tax. In particular, the budget provides for the following:

As of April 1, 2018, an annual increase in the carbon tax of $5 per tonne of carbon dioxide equivalent (CO₂e) until it reaches $50 on April 1, 2021 (the federal government has set a pan-Canadian target carbon price of $50 by 2022). BC’s carbon tax is currently set at $30 per tonne of CO₂
Effective as of September 11, 2017, Part 2 of the Carbon Tax Act has been repealed. This means that the requirement for the BC Ministry of Finance to prepare an annual Carbon Tax Report and Plan will no longer apply. Further, the Carbon Tax Act will no longer require that revenue measures be introduced to offset carbon tax revenues, meaning that the government will be allowed to spend carbon tax revenues on emission reduction measures and other green initiatives, rather than having to return carbon tax revenues to taxpayers.

With the repeal of Part 2 of the Carbon Tax Act, an important reporting and transparency mechanism has been removed. It is uncertain at this time whether the BC NDP will implement a similar reporting mechanism to ensure accountability for the use of carbon tax revenues by the provincial government. It is anticipated that the BC NDP will provide further details on its climate change policy priorities in the coming weeks.

Canadian Federal Government Announces Minimum Carbon Price for Provinces to Meet

On October 3, 2016, Prime Minister Trudeau announced that the federal government will set a minimum price on carbon starting at $10 per tonne in 2018, and increasing by $10 per year for the next four years until it reaches $50 per tonne by 2022. Each province will be required to implement carbon pricing in its jurisdiction within two years – whether in the form of a carbon tax or a cap-and-trade system – which must meet the federal minimum price. Otherwise, the federal government will impose a tax that makes up the difference and return the revenue to the province. In addition, provincial emission reduction goals for reducing emissions must be at least as stringent as federal targets. Currently, Canada’s four biggest provinces – Ontario, Quebec, Alberta and British Columbia – have carbon pricing plans in place.

The Prime Minister said he will convene a first ministers’ meeting on December 8 with the aim of concluding a pan-Canadian climate plan, which would include carbon pricing and other measures.

New Report from World Bank Points to Global Shift Towards Carbon Pricing

On September 20, 2015, the World Bank released its 2015 State and Trends of Carbon Pricing report (the Report), which shows the number of implemented or planned carbon pricing schemes around the world have almost doubled since 2012, and are now worth about $50 billion.

The Report indicates that about 40 national and 23 city, states and regions around the world are using carbon pricing schemes, like emissions trading systems (ETS) or carbon taxes. This represents about 7 gigatons of carbon dioxide equivalent, or 12% of global greenhouse gas emissions, a threefold increase over the past decade.

Based on a review of carbon pricing initiatives around the world (including emissions trading systems and taxes in places like British Columbia, the European Union, Denmark, Sweden, and the United Kingdom), the Report reinforces lessons learned to date – in particular, that well-designed carbon pricing schemes are a powerful and flexible tool that can cut emissions and if adequately designed and implemented, they can play a key role in enhancing innovation and smoothing the transition to a low-carbon global economy.

The Report points to a number of examples to demonstrate the shift to carbon pricing instruments worldwide, including:

• Launch of the South Korean ETS in January 2015.
• Approval of a national carbon tax by Chile to start in 2017.
• The European Union ETS is the largest carbon instrument in terms of value, followed by the trading systems in Korea and California.
• Ontario announced in April that it is joining California and Québec’s emissions trading systems.
• The EU and South Korea recently announced plans this week to explore linkage between their emissions trading systems.
• The US and China – the world’s largest greenhouse gas emitters – host the two largest national carbon pricing initiatives in terms of volume covered (as driven by initiatives in their states and provinces). In China, the carbon initiatives cover the equivalent of 1 gigaton of CO2e, while in the US, they cover the equivalent of 0.5 gigatons of CO2e.
• China currently has seven pilot carbon markets operating in major cities and provinces, and has plans to launch a national system in 2016.

It was also announced in September 2015 that more than two dozen cities in China and the US are making new pledges to lower emissions.

The Report also considers the issue of “carbon leakage”, whereby carbon pricing leads some industries and lead them to move production to other countries or jurisdictions where emission costs are lower. The Report notes that ex-post analysis of the EU ETS, the biggest cap-and-trade system in place today, shows that so far, carbon leakage has not materialized on any significant scale. The risk of carbon leakage will remain real as long as carbon price signals are strong and differ significantly between jurisdictions. However, this risk tends to affect a limited number of carbon intensive and trade-exposed sectors, which risk can be effectively mitigated through policy design.

The Report also discusses the enormous savings that can be made through cooperation between countries. Compared to domestic action alone, cooperation and linking of carbon pricing instruments across borders could significantly lower the cost of achieving a 2°C stabilization goal, because countries have more flexibility in choosing who undertakes emission reductions, and who pays for them. Based on an analysis of studies made over the years, the Report shows that this cooperation can mobilize resources and transfers between countries and investors, and result in net annual flows of financial resources of up to $400 billion by 2030 and up to $2.2 trillion by 2050.

Finally, the Report says that carbon prices that converge have a positive impact on competitiveness by favouring more efficient and cleaner sectors, leading to a more efficient economy.

The FASTER Principles

To help countries navigate the carbon pricing landscape, the World Bank Group, together with the OECD and with input from the IMF, also released a report on the FASTER Principles, which aims to help governments and businesses develop efficient and cost-effective carbon pricing instruments.

The FASTER principles are: F for fairness; A for alignment of policies and objectives; S for stability and predictability; T for transparency; E for efficiency and cost-effectiveness and R for reliability and environmental integrity.

Climate Change in the Spotlight

The spotlight is now on New York with the upcoming United Nations meeting on the new Sustainable Development Goals, Climate Week New York, and in about two months, global leaders will meet again in Paris for COP 21.

The decisions made in New York and Paris will set the course for development for years to come. But while these are top level, pivotal meetings, actors around the world are not waiting for a global agreement to act. They are already putting a price on carbon dioxide and other greenhouse gas emissions to drive clean investment. This includes the private sector. And we’ve seen companies from the oil and gas industry – calling for widespread carbon pricing. Today, over 400 businesses worldwide are using an internal price on carbon to guide their investments.

Update on China: China Steps into Leadership Role as it takes Action on Climate Change

In his first comments as China’s prime minister, Li Keqiang recently laid out a vision of a more equitable society in which environmental protection trumps unbridled growth and government officials put the people’s welfare before their own financial interests. While the Prime Minister was short on specifics, his comments represent an encouraging acknowledgment of some of the pressing issues facing China.

Traditionally, China has been used as a carbon scapegoat and excuse for inaction by countries such as Canada and the U.S., whose per capita emissions are much higher. However the tables are turning with China beginning to take a leadership role in addressing climate change. China’s emergence as a climate leader means that Canada and other countries can no longer point their fingers at China as an excuse for not taking action to reduce their own greenhouse gas emissions.

China to roll out Cap & Trade in 2013

As the world’s largest emitter of carbon dioxide, China is preparing to gradually roll out cap-and-trade pilot programs in seven major cities and provinces starting in 2013. This initiative is part of a larger goal to reduce carbon intensity – or the amount of carbon dioxide emitted per unit of economic output – by 40% to 45% below 2005 levels by 2020.

In November 2011, the Chinese government decided to implement cap-and-trade pilots in two provinces and five cities (including Shanghai, Beijing and Shenzhen) beginning in 2013 with the final goal of implementing a nationwide exchange program by 2016. In less than two years, officials have designed and started to implement seven trading trials that cover around one-third of China’s gross domestic product and one-fifth of its energy use. If successful, the schemes could demonstrate that an emissions trading system will be an effective way for China to manage its greenhouse gas emissions. In addition, China’s activities may spur policy makers in other countries such as the US to act.

Bloomberg New Energy Finance previously estimated that the regional pilots would cumulatively cover 800 million to 1 billion tonnes of emissions in China by 2015, meaning that the market would become the world’s second largest after the European Union. It has been reported that at the beginning, regional and city-wide markets will remain separate with unique rules and criteria. For example, some of the markets will cover factories and industrial operations exclusively, while others will focus on power generation or non-industrial sectors.

The first trades took place in September 2012 in Guangdong province, when four cement-manufacturing companies invested several million dollars to acquire carbon pollution permits (allowances). The Guangdong scheme is expected to cover more than 800 companies that each emit more than 20,000 tonnes of carbon dioxide a year across nine industries, including the energy-intensive steel and power sectors. These firms account for more than 40% of the power used in the province. The Guangdong carbon market alone will regulate some 277 million tonnes of CO2 emissions by 2015.

China plans to open six further regional emissions-trading schemes in 2013, in the province of Hubei and in the municipalities of Beijing, Tianjin, Shanghai, Chongqing and Shenzhen. It plans to expand and link them until they form a nationwide scheme by the end of the decade. A nationwide scheme could then link to international markets.

Until now, China’s experience with carbon trading has been limited to the Clean Development Mechanism under the Kyoto Protocol. While China’s political system could let a carbon market grow faster than anywhere else because changes can be implemented quickly, the carbon market faces challenges in China. In particular, China needs to develop and enforce proper legislation and regulations to measure, report and verify carbon emissions from industrial sites. It also needs to build an effective framework to oversee the reporting and trading of carbon credits.

At this stage, the most urgent issue that needs to be addressed is how China collects and analyzes data on carbon emissions. The credibility of China’s statistics on energy use and carbon emissions has been questioned partly because of the large discrepancies between numbers calculated using top-down data and numbers calculated using bottom-up data. Without accurate numbers, the first transaction of the Guangdong trading scheme was based on expected future carbon emissions, rather than historical data. Improved statistical methodology and political action will be required to boost the reliability of carbon emissions data in China. China will also need specific laws to ensure transparent reporting and strong enforcement to prevent fraudulent or misleading claims about carbon emissions.

Chinese Carbon Tax on the Horizon

On the climate front, the Chinese government appears to be on the verge of taking a critical step which has been demonized by politicians in Canada and the USA – that is, implementing a carbon tax. Although the carbon tax is expected to be modest, China plans to also increase coal taxes.

According to Jia Chen, head of the tax policy division of China’s Ministry of Finance (MOF), China will proactively introduce a set of new taxation policies designed to preserve the environment, including a tax on carbon emissions. In an article published on the MOF web site in February 2013, Jia wrote that the government will collect an environmental protection tax instead of pollutant discharge fees, as well as levy a tax on carbon emissions. The local taxation authority will collect the taxes, rather than the environmental protection department. The article did not specify the level of carbon tax or when the new measures will be implemented. In 2010, MOF experts suggested levying a carbon tax in 2012 at 10 yuan per tonne of carbon dioxide, as well as recommended increasing the tax to 50 yuan per tonne by 2020. These prices are far below the 500 yuan (US $80) per tonne that some experts have suggested would be needed to achieve climate stability.

It is not anticipated that China’s plan will have a significant impact on global climate change, although the tax may have some beneficial impact within China itself, where air pollution is a serious problem. A paper from the Chinese Academy for Environmental Planning suggests that a small tax could still raise revenue and provide an incentive to reduce emissions, thus bolstering China’s renewable energy industry.

To conserve natural resources, the government will push forward resource tax reforms by taxing coal based on prices instead of sales volume, as well as raising coal taxes. A resource tax will also be levied on water. In addition, the government is also looking into the possibility of taxing energy intensive products such as batteries, as well as luxury goods such as aircraft which are not used for public transportation.

Ontario Ministry of Environment seeks input on Greenhouse Gas Discussion Paper

On January 21, 2013, the Ontario Ministry of the Environment (MOE) released a discussion paper entitled Greenhouse Gas Emissions Reductions in Ontario. The purpose of the paper (available online): is to support discussions and gather feedback on the development of a greenhouse gas (GHG) emissions reduction program. In addition, these discussions will elicit information to support Ontario’s intention to obtain equivalency with the developing federal greenhouse gas regulations in certain sectors (including natural gas‐fired electricity generation), meaning that Ontario industries will not be subject to duplicate requirements.

In 2007, Ontario introduced its Climate Change Action Plan which includes the following GHG emissions reduction targets:

6% below 1990 levels by 2014,
15% below 1990 levels by 2020, and
80% below 1990 levels by 2050.

Ontario estimates that current initiatives to reduce greenhouse gas emissions will deliver 60% of the reductions needed to reach the 2020 reduction target. While a GHG emissions reduction program alone will not close the gap, it will play an important role in moving Ontario towards its goal of being 15% below 1990 emissions levels by 2020.

The program elements presented for discussion in the paper have been developed based on a set of key principles aimed at balancing Ontario’s economic and environmental interests. These principles include:

Achieving absolute reductions in greenhouse gas emissions in a cost‐effective way that considers competitiveness and supports achieving equivalency with the federal government.
Simplicity, consistency, transparency and administrative efficiency.
Striving to treat sectors and facilities equitably.
Taking into account early action by industry leaders.
Using accurate and verified emissions data to support policy development.
Promoting development and deployment of clean technologies.
Considering broad alignment with other emissions reduction programs of similar rigour that provides opportunity for linking in the future.
Considering integration with other provincial environmental policies.

The paper indicates that Ontario’s program would initially limit GHG emissions from fossil fuel-fired electricity generators and large GHG emitters in certain industries, including petroleum refining, chemicals, steel, cement and pulp and paper. The paper also indicates that the program would limit emissions from facilities in these sectors (other than the electricity generation sector) to the level of their current total emissions, with the limit declining thereafter by 5% over five years. Although it does not explicitly advocate a cap-and-trade system, the paper does suggest that the MOE will consider the use of emissions trading mechanisms to establish a carbon price and provide businesses with options on how to achieve reductions at the lowest cost.

In addition, the paper proposes that Ontario’s program would be in place one year prior to federal regulation of greenhouse gases from industry. A one year window will provide time for the province to negotiate and finalize an equivalency agreement with the federal government to ensure there is a single regulator for greenhouse gas emissions in the province.

Ontario acknowledges that other North American jurisdictions are also taking action to address emissions of GHGs. It notes that Quebec, British Columbia, Alberta, Saskatchewan and Nova Scotia all have or are developing regulations to reduce greenhouse gases. It also notes that in the USA, the Regional Greenhouse Gas Initiative limits emissions from electricity generation in north-eastern states, while California has introduced a broad greenhouse gas emissions trading regime with an intention of linking to Quebec’s program.

The MOE will accept submissions on the discussion paper until April 21, 2013. For further information, please refer to the Environmental Registry: Here

EU and Australia Agree to Link Carbon Trading Schemes

On August 28, 2012, the European Union (EU) and Australia announced their agreement to fully link their respective cap-and-trade schemes by 2018. In addition, Australia announced that it will drop its planned A$15 per tonne carbon credit floor price and it will limit the use of Kyoto Protocol eligible international units under the Australian scheme. Furthermore, Australia will set its price ceiling with reference to the expected 2015-16 price of European allowances. The combined effect is that cheaper EU carbon credits will be available for Australian emitters.

Under the arrangement, the European Commission will seek a mandate to negotiate a treaty on behalf of the EU by mid-2015 for the full linking of the emission trading systems from July 2018; the Australian Government has an existing mandate to negotiate such a treaty. As an interim arrangement, a partial link will be established to allow Australian businesses to source 50% of their emission allowances from the EU from July 2015. A similar allowance will be available for European emitters once the full link comes into effect no later than July 2018.

This is a welcome development for the EU trading scheme. Oversupply has driven the cost of carbon credits to record lows; currently, EU carbon trades at around US$10 per tonne. The opening of the market to Australian companies should help to alleviate this oversupply and with a carbon tax of A$23 per tonne, Australian emitters are welcoming the integration which will offer them a cheaper alternative. However, the Australian government continues to project that carbon prices will reach A$29 per tonne by 2015 and 2016.

Australia Passes Legislation for Offsets from Farming and Forestry

On August 22, 2011, Australia’s parliament endorsed the world’s first national scheme to regulate the creation and trading of carbon credits from farming and forestry, which will complement government’s plans to put a price on carbon emissions from mid-2012.
The new law is a precursor to carbon price legislation that will be put before parliament in late 2011. Known as the Carbon Farming Initiative (CFI), the new law allows farmers and investors to generate tradeable carbon offsets from farmland and forestry projects. Land use, including agriculture, accounts for 23% of Australia’s emissions. Projects backed by the CFI include reforestation, protection of native forests, curbing methane emissions from livestock, better fire management of savannah grasslands as well as capturing methane emissions from some landfills. Excluded projects include those deemed to affect the availability of water, threaten the richness of plant and animal species in an area or might threaten jobs. Managed investment schemes for forestry are also excluded. Under the rules, a project can only earn carbon credits if the investment is additional to those that would occur normally, with the lure of revenue from credit sales making the project financially viable.
Modeling by the Australian Treasury estimates the CFI will generate credits totalling 7 million tonnes of GHG reductions by 2020. ClimateWorks, a non-profit organization focusing on low-carbon growth, has calculated the CFI could reduce emissions by up to 41.5 million tonnes by 2020, mainly through greater investment in carbon tree plantations.

The CFI scheme is expected to start off slowly until the approval of laws parliament passes laws to put a price on carbon emissions from July 2012. Under the scheme, a government panel will vet and approve the rules for each project activity and an agency will administer the scheme’s offset registry. A number of project types have already been approved, see www.climatechange.gov.au/cfi. Successful projects will earn Australian carbon credit units, or ACCUs, that can either be traded domestically or overseas. ACCUs can be compliant under the U.N.’s Kyoto Protocol, depending on the project type. Or projects can sell non-Kyoto Australian units that can be used in the domestic voluntary carbon market to help firms meet carbon neutral goals. Kyoto-compliant units can be converted into credits that can be traded internationally and sold to companies or governments with Kyoto emissions targets. To provide investor certainty, the initial crediting period for native forest protection is 20 years, 15 years for reforestation projects and 7 years for all other eligible offset projects.

Pricing of the ACCUs will depend on the demand for offsets from certain types of projects, and particularly on the price for carbon in Australia. Some analysts expect ACCUs to closely track the national price on carbon emissions from power generators, smelters, refiners and others.
Prime Minister Julia Gillard plans a carbon tax starting at A$23 a tonne on about 500 of Australia’s biggest polluters from July 2012, ahead of emissions trading from mid-2015. Agriculture is not included in the carbon price scheme, but the government wants farmers to be able to benefit from the market for carbon credits. Under the carbon price plan, Australian industries which buy carbon offsets will need to ensure at least 50% of the offsets are domestic credits.

The government estimates that the CFI will help Australia reduce its carbon emissions by 460 million tonnes by 2050. The government has committed to cut total emissions by five percent of year 2000 levels by 2020. While Australia accounts for only about 1.5% of global emissions, it is the highest per capita polluter in the developed world because coal is used to generate most of the country’s electricity.

Study finds that cap-and-trade more likely to trigger clean tech adoption than carbon tax

A study by Professor Yihsu Chen at the University of California Merced has found that a cap-and-trade system is more likely than a carbon tax system to trigger the adoption of clean energy technologies. The study, which was coauthored by Chung-Li Tseng of the University of New South Wales in Australia and that is published in the Energy Journal Volume 32, Number 3, 2011 (a quarterly journal of the International Association for Energy Economics) also found that the volatile pricing of a cap-and-trade system could lead to earlier adoption of clean technology by firms looking to hedge against carbon cost risks.

The study used economic models based on a framework of real options to determine the optimal timing for a coal-burning firm to introduce clean technologies using the two most commonly considered policies: (1) cap-and-trade, in which carbon emissions are capped and low-emission firms can sell excess permits to high-emission firms; and (2) carbon taxes, which employ a fixed monetary penalty for per-unit carbon emissions.

According to Professor Chen, “…cap-and-trade offers ‘carrots’ while taxes offer ‘sticks’. Cap-and-trade induces firms to explore profit opportunities, while taxes simply impose penalties to turn clean technology into a less costly option.”

For the study, researchers considered the scenario of a small firm that owns a coal-fired power plant and is obliged to supply power to its customers. They compared cap-and-trade and carbon tax models in determining when the firm would choose to add a natural gas power plant – a relatively clean energy resource – in order to meet its energy demands while maximizing its long-term profits. The study found that the cap-and-trade model triggered the adoption of clean energy technology at a lower overall carbon price than a tax policy did. Further, the study found that the volatility of non-fixed permit prices was the key difference that led the firm to add a natural gas plant earlier than it would have under a more predictable tax system. Professor Chen said that: “Based on our study, mechanisms designed to reduce cap-and-trade permit prices or suppress price volatility — which have been implemented in existing cap-and-trade programs like the Regional Greenhouse Gas Initiative — are likely to delay clean technology investments.”