Carbon market could be worth billions

Long before green became synonymous with the environment, it was known as the colour of money. The creation of an interprovincial system for trading carbon credits would allow it to represent both very nicely, according to a report out of CIBC World Markets.

In fact, such a market for greenhouse gas emission credits would generate up to $12 billion a year, the report says. Those provinces that are home to the bulk of Canada’s petroleum production would see cash outflows, but cleaner energy producers would benefit from the system.

“Saskatchewan, Alberta and New Brunswick could be the biggest buyers of emissions credits, with the Manitoba and Quebec economies the most obvious sellers, given their already low emissions intensity and planned expansion of emission-free electricity generation,” says Jeff Rubin, chief economist and chief strategist, managing director, CIBC World Markets.

The $12 billion figure is based on a price of $30 per ton, which the report says is the widely recognized price required to stabilize emissions. Across the country, Canadians generate 410 megatonnes of carbon dioxide and equivalent pollutants — and that’s just from identifiable industrial sources.

Using the Kyoto Protocol as a guideline, with its target of reducing greenhouse gas emissions based on 1990 as a benchmark year, the CIBC report points out that Alberta and Saskatchewan account for 60% of national GHG emissions growth.

The oil industry is not the only culprit in rising emission levels. The report points to electricity generators as the largest contributor to carbon emissions. Alberta, Saskatchewan and Nova Scotia rely heavily on coal-fired power plants, which make up 60% of their electrical generating capacity.

That stands in stark contrast to British Columbia, Manitoba, Quebec and Newfoundland & Labrador, which rely on emission-free hydroelectric generation.

Ontario relies on a mix of coal-fired generation, nuclear and hydro. Ontario is the second-largest emitter of greenhouse gases, but the CIBC report points out that the provincial economy is large enough that it is the second-lowest emitter per unit of GDP. In other words, Ontario is a heavy polluter, but it’s getting the most bang for its buck.

The emphasis on electricity generation does not mean the oil and gas sector is off the hook, however. Since 1990, the industry has seen its emissions increase by 50%, largely due to the costs of extracting synthetic crude from Alberta’s oil sands.

A report produced by the socially responsible investment leader, The Ethical Funds Company, says only two Canadian oil and gas producers have responded to the threat of climate change.

The report, entitled Head in the Oil Sands? Climate Change Risks in Canada’s Oil and Gas Sector, gives credit to only Shell Canada and Suncor for addressing the issue.

“We believe that all facets of society — government, corporations and citizens — can and should play a role in tackling climate change, but the response of the oil and gas sector is crucial,” says Bob Walker, vice-president, sustainability, at The Ethical Funds Company. “With effective action and the right market incentives, this sector can be viewed, not as the enemy but as a key ally in tackling climate change.”

The Ethical Funds Company encouraged Canadian producers to adopt best practices modelled after those of Shell Canada and Suncor, as well as U.K.-based BP and Shell’s parent, Royal Dutch Shell, to limit their impact on the global climate.

“We hope the Canadian oil and gas sector will use this report to unite in a process to stabilize emissions, achieve carbon neutrality and, in the decade to come, make the transition to a carbon-free energy system,” Walker says. “Climate change is without a doubt the most significant environmental challenge facing our society today.”

The report points out that the risks to the environment are coupled with risks to the oil companies’ profitability, and that the companies owe it to their shareholders to mitigate the risks.

There has already been speculation that small island nations may sue the world’s largest polluters as their countries become uninhabitable. Companies also face the possibility of stricter regulation and the imposition of a carbon credit trading system, such as that outlined by the CIBC report.

“The regional disparities in emissions growth could lead to some pretty hefty interprovincial flows of emissions credits under any future cap and trade system established along the lines currently being implemented by a growing number of U.S. states,” Rubin says.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com

(03/13/07)

Steven Lamb