CO2 meets the market
Nova Scotia took a step toward meeting Ottawa’s directive on climate change Friday by setting up a reporting system for companies whose greenhouse gas emissions will be capped in 2019.
Ottawa has given provinces a choice on how to reduce emissions from industries responsible for large volumes of greenhouse gases. Provincial governments can put a direct carbon tax on these emissions. Or they can opt for a cap-and-trade system, which Nova Scotia has done. If a province does neither, Ottawa will impose a federal tax.
Cap and trade is a market-driven scheme designed to achieve the greatest volume of reductions for the dollars spent. Nova Scotia has yet to release full details of its version, but the general idea is this: Total emis- sions are capped, each regulated company has an emissions allowance and those which cut emissions below their allowance can sell the unused portion to another regulated firm.
The theory is that firms with the lowest emissions-cutting costs will overachieve in reductions and sell their credits to firms with higher reduction costs. The total cap will be reduced over time, so the availability and cost of credits will go up and the financial incentive will increase for all firms to cut emissions.
Friday’s regulations identify the types of firms, based on emissions volumes, that must begin reporting and independently verifying emissions. The group includes heavy industry, power generation and high-volume petroleum and natural gas suppliers and distributors.
The government expects cap and trade will involve some 20 companies, including Nova Scotia Power, Northern Pulp, Lafarge, Exxonmobil, Imperial, Irving, Wilsons and Heritage Gas.
Unlike Ontario and Quebec, Nova Scotia won’t allow credit trading with other jurisdictions like California. The government says this will spur investment here, but the small local trading pool could make credits either too costly or too cheap, compared with big markets.
This could mean either higher costs passed to local consumers or less value achieved for firms that make big emissions cuts. That’s something the government should weigh carefully when the rules for trading are rolled out this spring.