Climate Change: Treatment is affordable
Buying in: Today, corporations meet to talk about trading up to a healthier world by swapping emissions credits. Let’s encourage them, says David McGuinty

(The Globe and Mail, January 29, 2002)

Few still doubt the human hand is at play in climate change and global warming. But many fret at the cost of reducing the greenhouse gas emissions that cause them. Canada has the second-highest per capita greenhouse gas emissions in the world. If we ratify the Kyoto Protocol, we’ll have to reduce them by 6 per cent from 1990 levels. That means reducing our emissions by 26 per cent from current levels, because we are emitting so much more now than we were in 1990. If we don’t ratify Kyoto, we’ll still have to act to stop climate change.

That’s why the National Round Table on the Environment and the Economy is meeting in Toronto today with hundreds of business, environmental and community leaders to explore emissions-trading, a tool to reduce emissions.

Emissions-trading uses the private market to meet targets for reducing harmful emissions by encouraging implementation of the reductions where they can be made most cheaply.

Government sets industry’s reduction obligations. Suppose Industry A is able to cut its emissions at low cost; it now has a financial incentive to make extra reductions because it will be able to sell the surplus. The buyer? Industry B, which faces high costs to reduce its own emissions; it can save money by buying Industry A’s extra reductions.

The overall outcome is that the aggregate emissions reductions are achieved, but at a lower overall cost.

The trading tool would minimize any economic disruption and help protect Canadian competitiveness in the transition to a carbon-constrained world. The beneficiaries would include utilities, oil and gas processors such as Alberta’s mushrooming world-scale oil sands operations, and refineries.

Emissions-trading gives a dollar value to each unit of emissions reduced. This creates an incentive to seek out and implement lower-cost measures to reduce emissions. Frankly, one of the missing drivers in environmental protection has always been the profit motive, the engine of our economy. If emissions-trading can give a cash reward to a clever cleanup, so much the better.

If Canada does ratify Kyoto, a study done for the National Round Table on the Environment and the Economy found that by 2010, the cost (much of it transitional) would be as much as $40-billion a year. That’s without an emissions-trading system. But the cost could be cut by an estimated 52 per cent to 97 per cent with a trading regime, the study found.
Emissions-trading hasn’t had a good name in Canada; it was seen as a sellout, a way for industry to buy the right to pollute. But if a trading system is based on firm emissions-reduction requirements, and is transparent and effectively enforced, U.S. experiences suggest that emissions-trading can serve both the environment and the economy.

When the Americans decided to fight acid rain in 1991 by requiring a large reduction in sulphur dioxide emissions, a trading program was established. The electric utilities that are the source of much of U.S. sulphur dioxide pollution have hit the reduction targets designed to protect the environment – and are saving an estimated $1.6-billion a year by using emissions-trading. A study found that participating utilities achieved a 75-per-cent to 80-per-cent saving compared to the costs they would have incurred to make the reductions without trading.

Emissions-trading in the United States is also credited with reducing the costs of a variety of other environmental cleanup programs (thanks to emission-trading, the cost of reducing smog-causing nitrogen dioxide in Chicago dropped by an estimated 90 per cent).

Other countries are already moving ahead. Denmark and the United Kingdom are setting up domestic emissions-trading programs to meet their Kyoto obligations. The European Union is on track for such a program by 2005. An international market is surely coming. Canada should move – quickly – to establish its own domestic trading program. We’ll be in a better position to affect the shape of the international market, and to be compatible with it. And we’ll benefit if that market’s features are friendly to Canada’s particular needs. In short, we can be policymakers, not policy takers.

A Canadian market in carbon emissions could be worth as much as $2-billion a year. Let’s keep the commissions at home.

While emissions-trading does not alter the amount that emissions are reduced, it does change where reductions occur. That makes it a particularly useful tool for reducing greenhouse gases: Climate change is a global problem, so it doesn’t matter whether the emissions are reduced in Toronto or Timbuktu.

Canada’s greenhouse gas-reduction challenge is daunting. Let’s harness the power of the market to get a discount on the cost.

David J. McGuinty is President and CEO of the National Round Table on the Environment and the Economy.

Index to Articles