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Sex, drugs and . . . cap-and-trade?
While they may not be sexy, B.C.'s cap-and-trade regulations are important
British Columbia's proposed cap-and-trade system isn't likely to ever compete with the political drama that has gripped B.C. for the last month, but it is one of the not-so-sexy policy issues that will need to be sorted out once the turmoil subsides.
On Monday, B.C. finished consulting on the central rules for the cap-and-trade system that the province is expecting to finalize in early 2011. Weighing the input from that consultation and setting the cap-and-trade rules will be an important task for B.C.'s next premier and cabinet, and will have big implications on B.C.'s ability to chart a course toward a clean energy future.
The basics of cap-and-trade in B.C.
On the off chance you haven't been following the ins and outs of B.C.'s approach to cap-and-trade, here's the quick summary. B.C. is proposing to implement a cap-and-trade system in January 2012 to spur investment in clean energy solutions in large industries, such as the natural gas sector. The province wants to link with systems in Ontario, Quebec, California and New Mexico, which are part of a group of states and provinces called the Western Climate Initiative.
In an effective cap-and-trade system, governments set a limit on total emissions and sell allowances equivalent to that cap. Companies buy allowances for every tonne of carbon pollution they are responsible for. The value of those allowances increases over time as the cap is lowered, resulting in a stronger and stronger incentive to reduce emissions (as opposed to buying allowances). While it isn't as simple as the province's carbon tax, cap-and-trade accomplishes the same thing — making clean energy solutions more competitive with conventional options like coal.
Does B.C. need cap-and-trade when it already has a carbon tax?
You might wonder why B.C. needs a cap-and-trade system, when it already has a carbon tax, given both are very similar. Here are a few reasons why:
- Cap-and-trade would address two important gaps in the province's carbon tax — industrial process emissions and the emissions from imported electricity.
- B.C. can help kick-start a broader effort to reduce greenhouse gas emissions. For example, a cap-and-trade system comprised of B.C., Ontario, Quebec, California and New Mexico would make carbon pollution more expensive in economies that are responsible for 891 million tonnes of climate pollution (21% more than Canada's emissions).
- B.C. can help increase the market demand for clean energy and energy efficiency solutions that B.C. businesses will be able to compete for. The same system comprised of B.C., Ontario, Quebec, California and New Mexico has a combined GDP of $3 trillion (almost 20% of Canada and U.S.'s combined GDP).
Time to make some decisions
After several years of negotiations and consultations, the government now has to set its cap-and-trade rules. Basically, it's time to cross the finish line. Recognizing those rules can get pretty complex, we've boiled the opportunities down to two key things the province can do to make sure the system is as successful as possible:
- Allow cap-and-trade to build on the foundation provided by B.C.'s carbon tax. Having implemented the carbon tax in 2008, B.C. already has taken some important steps toward an economy that adequately rewards investments in clean energy. We've identified several ideas that will allow B.C. to preserve those benefits and avoid an outcome where cap-and-trade provides less incentive to invest in clean energy solutions.
- Ensure the cap provides an adequate incentive to invest in clean energy. A cap-and-trade system is only as good as the limit it sets on carbon pollution. If the limit is effective, there will be a meaningful incentive for B.C.'s industries to invest in their facilities so they are cleaner and more efficient. We've identified several opportunities to ensure the cap does just that.
If you like these two ideas, take a look at our full list of seven recommendations. You can also still share your thoughts with the government as it makes its decisions. The ministers responsible for the cap-and-trade regulations are Minister of Environment Murray Coell (email@example.com) and Minister of State for Climate Action John Yap (firstname.lastname@example.org).
Matt Horne is a policy expert with the Pembina Institute. He is based in Vancouver.