Ontario Premier Kathleen Wynne announced on January 14, 2015 that a carbon pricing plan is currently under consideration by the provincial government. This follows the signing of a Memorandum of Understanding Concerning Concerted Climate Change Actions by Ontario and Quebec in November 2014, which includes a commitment by Ontario to explore the use of market-based mechanisms to curb emissions. To that end, Environment Minister Glen Murray is in the process of preparing a report on the various options to put a price on carbon, including the potential implementation of a carbon tax or a cap-and-trade system. It is anticipated that more details will be released about the carbon pricing plan in spring 2015.
Tag: carbon trading
Regulatory Additionality
Regulatory additionality is a quality requirement for an emission reduction to be recognized as such.
In order for an emission reduction to be recognized, a project proponent must provide evidence that the project activities and all equipment and substances involved in the achievement of the emission reduction are beyond what is required based on applicable regulatory requirements. Only those emission reductions that are achieved beyond regulatory requirements are considered additional and therefore meet the regulatory additionality requirement test. Reductions that only meet the regulatory required levels are not considered to be real emission reductions.
California Governor Gives Green Light to Link Carbon Market to Quebec
In a letter dated April 8, 2013 to the state Air Resources Board (ARB), California Governor Jerry Brown approved a proposal to link the California’s cap-and-trade system with Quebec’s program, paving the way for companies to trade carbon permits across borders.
In the April 8 letter, Governor Brown found that the request from the ARB met all necessary state requirements. The ARB, which has been working with Quebec for several years to develop complementary systems, will consider changes to its cap-and-trade program on April 19 that will allow it to link with Quebec. Quebec is the first region that California has proposed to partner with, which will lay the foundation for a broader system that other governments may join.
ARB staff has said a link with Quebec would expand investments in low-carbon technologies, many of which are being developed in California, and improve market liquidity for carbon allowances by increasing the pool of both permits and companies trading them. According to the Governor’s letter, California will not link systems with Quebec until January 1, 2014. In the meantime, the ARB and Quebec’s Ministry of Environment will test their auction platforms and trading systems to ensure they are compatible. Governor Brown has asked the ARB to file a report with his office by November 1, 2013 outlining how the ARB will review and take public comment on changes to a linked program and whether there are any impediments to linkage occurring on January 1, 2014.
Quebec plans to reduce emissions to 20 percent below 1990 levels by 2020 with its cap-and-trade program, which applies to about 75 companies in the province. Under California’s program, carbon emissions from power generators, oil refineries and other industrial plants will be capped and then gradually reduced to 1990 levels by 2020. The system will eventually regulate 85 percent of the greenhouse gases released in California.
Regulators in both California and Quebec are issuing carbon allowances through a combination of free allocations and auctions, each permitting the release of 1 metric ton. Companies must turn in allowances to cover their emissions, and those with more allowances than they need, can sell or trade the excess.
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.
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.
China Announces Carbon Trading Pilot Scheme
On July 17, 2011, China’s official state news agency, Xinhua, reported that the Chinese government is planning to introduce a carbon trading pilot scheme as part of the country’s measures aimed at reducing emissions from energy-intensive industries. The pilot scheme would be introduced with a view to eventually establishing a national carbon market. While no specifics were given on how and when the schemes would be implemented, Chinese officials have indicated previously that a pilot scheme would be introduced in a handful of major cities (including Guangdong, Hubei, Beijing, Shanghai, Tianjin and Chongqing) by 2013 and then expanded nationally in 2015.
Xinhua quoted Xie Zhenhua, vice-minister of China’s National Development and Reform Commission, as saying the scheme would result in more punitive electricity tariffs being imposed on energy-intensive industries in an attempt to encourage them to enhance their efficiency. The China Daily newspaper also reported comments from Xie suggesting that a new wave of carbon regulations would be introduced with the carbon trading pilot scheme. These regulations would be geared towards accelerating the development of a more standardized approach to energy efficiency and introducing tighter regulations on labeling low-carbon products. Furthermore, Xie said that the Chinese government would introduce further incentives for companies producing energy-efficient products and business models.
This move will not only provide an extra tool for China to achieve its Copenhagen commitment to reduce carbon emissions relative to economic growth by 40-45% below 2005 levels by 2020, but a Chinese carbon market could represent a major boost to the global carbon market.
California to delay carbon trading program to 2013, but targets remain the same
On June 29, 2011, chairwoman of California’s Air Resources Board (CARB), Mary Nichols, announced that the state will delay enforcement of California’s cap-and-trade program until 2013. The announcement was made at a hearing on the status of California’s cap-and-trade system, which had been called to explore the implications of a law suit brought by environmental justice groups advocating policies other than cap-and-trade to reduce greenhouse gas emissions. In that law suit, a judge ruled in March that CARB had not sufficiently analyzed alternatives to cap-and-trade as required under the state’s Environmental Quality Act. CARB has appealed the decision and an appeals court ruled recently that officials could continue working on cap-and-trade regulations pending the court’s decision. Ms. Nichols indicated that the law suit was not a deciding factor in her decision to delay the first carbon trading program in the U.S.
The delay in the cap-and-trade program, which was originally scheduled to come into force on January 1, 2012, was proposed because of the need for “all necessary elements to be in place and fully functional”. In particular, Ms. Nichols cited the need to protect the cap-and-trade system from potential market manipulation. The decision came after Ms. Nichols conferred with the state attorney general’s office as well as experts on California’s ill-fated foray into deregulated electricity sales which led to widespread fraud and rolling blackouts in 2000 and 2001. However, Ms. Nichols said that the postponement would not affect the stringency of the program or the amount of greenhouse gas reductions required to be made by industries. Under the cap-and-trade program, 600 industrial facilities (including cement manufacturers, power plants and oil refineries) would be required to cap their emissions in 2012, with that limit gradually decreasing over eight years. The one-year delay will enable CARB to test the system and carry out simulation models.
Ms. Nichols said that quarterly auctions of emissions allowances that each regulated emitter must turn in would begin in the second half of 2012, rather than February 2012 as originally planned. Entities emitting more than 25,000 metric tons of carbon dioxide equivalent per year will begin trading credits at the end of 2012 to cover their emission reduction obligations for 2012 and later. Hence, the first three-year compliance period, which originally covered the years 2012 to 2014, will be shortened to two years. CARB has indicated that it will release draft regulations covering allowance distribution and details on offset protocols within the next two weeks. In addition, CARB has said that it is still on track to finish its cap-and-trade regulations by the end of October 2011.
It is likely that BC and Québec, California’s anticipated carbon trading partners, will follow California’s lead and delay their carbon markets until 2013 as well.
Manitoba begins Consultation on Proposed GHG Legislation
The Manitoba government has launched a public consultation period to gather input on proposed cap-and-trade laws aimed at reducing greenhouse gas (GHG) emissions. The consultation is part of Manitoba’s commitment, announced in December 2009, to move forward on enabling legislation to create a cap-and-trade system.
The Manitoba government has launched a public consultation period to gather input on proposed cap-and-trade laws aimed at reducing greenhouse gas (GHG) emissions. The consultation is part of Manitoba’s commitment, announced in December 2009, to move forward on enabling legislation to create a cap-and-trade system.
In June 2007, Manitoba joined the Western Climate Initiative (WCI). It is expected that Manitoba’s system would integrate with the WCI, meaning that Manitoba will be able to participate in the WCI trading system with BC, Ontario, Québec, California as well as other several U.S. states. The WCI’s goal is to reduce GHG emissions in the region by 15% below 2005 levels by 2020.
In 2008, Manitboa’s GHG emissions was 21.9 megatonnes of carbon dioxide equivalent (CO2e) or approximately 3% of Canada’s total GHG emissions. Manitoba’s GHG emissions profile is unique among Canadian jurisdictions. Unlike other Canadian provinces whose GHG emissions come from a small number of large emitters, the majority of Manitoba’s GHG emissions come from many smaller emitters across a wide range of sectors.
Manitoba’s proposed cap-and-trade program would affect approximately 18 emitters that release more than 25,000 kilotonnes each of GHGs per year. Another group of about 36 emitters that each release 10,000 kilotonnes of CO2e per year or more (but less than 25,000 kiltonnes) would only be required to report their emissions.
According to data from Environment Canada, in 2008 the Koch Fertilizer plant in Brandon was the largest emitter in Manitoba, followed by Manitoba Hydro, Winnipeg’s Brady Road Landfill, TransCanada Pipelines and HudBay Minerals.
Comments on the proposed cap-and-trade program can be made online through the Manitoba Conservation Department website until March 15, 2011.