Isramart: Carbon trading system will have profound implications for B.C. businesses

Isramart news:
While a strange silence has fallen over much of the climate-change debate, government officials in four Canadian provinces are getting closer to unveiling a new system for regulating greenhouse-gas emissions that will have profound implications for many companies and industries operating within their borders.

British Columbia, Ontario, Quebec and Manitoba remain determined to become part of a carbon trading system with a number of U.S. states under the aegis of the Western Climate Initiative.

And while most of the work that has gone into establishing a cap-and-trade mechanism has been done away from the prying eyes of the public, that could change this summer when companies begin learning what it could mean to them.

Like most everything to do with the fight to lower greenhouse-gas emissions, efforts to build a legitimate cap-and-trade market are a bit of a jumble. It looks like British Columbia, Ontario and Quebec are determined to commence with something that resembles a carbon trading system by 2012. In fact, the plan is to hold the initial auction of carbon permits next year.

Manitoba, which also seems committed to the program, may not be ready to join quite as soon. It’s not a province with many large emitters in any event.

The group’s U.S. partners, meantime, are dealing with all manner of issues that the provinces seem to have avoided.

In California, for instance, a petition similar to the one under way in British Columbia to kill the harmonized sales tax has been launched to blow up the state’s progressive climate-change legislation. It looks increasingly likely that the question of whether the bill should be repealed will go to a referendum.

Washington State is having trouble getting a law passed that would allow it to be part of a carbon trading scheme. Arizona has backed out but still wants a say in how a cap-and-trade market is designed.

It doesn’t help that many of the governors of states that signed up originally to be part of WCI are in their final term in office. Midterm elections could usher in a new set of governors with different ideas about cap-and-trade.

But Ontario, Quebec and British Columbia don’t plan on waiting for their prospective partners to sort things out. This summer, British Columbia will begin informing the province’s biggest emitters how the system is likely to work and the kind of emissions levels at which they could be looking.

Under such a plan, jurisdictions set a GHG ceiling. Say, for the sake of argument, it’s 90,000 tonnes annually. Companies will be given or be forced to buy credits allowing them to spew that level of GHG emissions into the atmosphere. If a company anticipates it is going to exceed that level, it can buy extra credits that are auctioned off under a cap-and-trade scheme or purchase carbon offsets through other channels.

If a company expects to pollute less than the 90,000 tonnes, it can sell its excess credits through a secondary market.

Overall, however, there are not enough credits available for all the companies participating in the plan that may need to purchase them, and there is a limit to the offsets they can purchase. It is this scarcity that, in theory anyway, forces companies to change the way they do business.

At least that’s a simplistic explanation of what happens.

But you can see why companies that would be affected by this program would be antsy: It could add to their costs. How much it will is what businesses in British Columbia are going to discover this summer, and it is then we may begin hearing the kind of outcry that killed attempts to set up such a market in Australia.

But British Columbia, Ontario and Quebec – and those U.S. states involved in the design of the cap-and-trade system – are intent on avoiding a similar pushback from industry by not being overly aggressive, early on at least, with the emission ceilings they set. This will allow companies to ease into the program a bit and give them time to make the necessary adjustments to lower their GHG levels.

The worst thing that could happen is to make the costs associated with carbon trading so prohibitive that businesses decide to locate elsewhere.

The idea is not to use cap-and-trade as a type of tax grab. Rather, the idea is to spur businesses to seek out more environmentally friendly ways of powering their businesses. At the same time, those companies have to be convinced there is an economic reason to do so.

No province or state wants to attach an anchor to its economy and hope it still motors along. Right now it’s all about finding that sweet spot where the price on carbon drives change but doesn’t come at a cost to jobs.