Canadian Carbon Pricing System Moving Forward

As the world gears up for COP24, the Canadian government reaffirmed its intention, on October 23, 2018, to implement a federal carbon pricing system across Canada in 2019.

DcDre-xU0AAUhvwAs set out in its Nationally Determined Contribution (“NDC”) submitted to the UNFCCC under the Paris Agreement, Canada committed to reduce GHG emissions by 30% below 2005 levels by 2030. To that end, Canada proposed adopting various measures to transition to a low-carbon economy, including a federal carbon pricing system. In 2016, the government published the Pan-Canadian Framework on Clean Growth and Climate Change ,(“Pan-Canadian Framework“) which outlined a benchmark for pricing carbon pollution requiring all ten (10) Canadian provinces and three (3) Canadian territories to have a carbon pricing system in place by 2018, in their respecting jurisdiction (the “Benchmark“). Provinces and territories had the option to either implement i) an explicit price-based system (i.e. a carbon tax like in British Columbia or a carbon levy and performance-based emissions system like in Alberta) or ii) a cap-and-trade system like in Quebec.

Pursuant to the Pan-Canadian Framework, the federal government was to introduce an explicit price-based carbon pricing system in order to cover jurisdictions that will not have met the Benchmark requirements within that two year period.

In that regard, earlier this year, the Greenhouse Gas Pollution Pricing Act (the “Act”) (the Federal Backstop), received Royal Assent on June 21, 2018. The Act outlines two compulsory mechanisms which will be applicable to jurisdictions that did not meet the Benchmark:

  1. a charge on fossil fuels that are consumed within a province (generally to be paid by fuel producers and distributors) which will start applying in April 2019; and
  2. an output-based pricing system, to be applicable to emission-intensive industrial facilities (i.e. facilities emitting 50,000 tonnes of carbon dioxide equivalent/year or more, etc.), to be applicable as of January 2019.

The majority of Canadian jurisdictions have either developed their own carbon pricing systems or elected to adopt the federal system:

The holdouts—Manitoba, Ontario, Saskatchewan and New Brunswick—having either failed to adopt measures that meet the federal Benchmark stringency requirements or declined to propose their own carbon-pollution pricing systems. They will be obligatorily subject to the federal carbon pricing system.

The main requirement of the federal system is to attribute a $20/tonne cost on emissions as of April 2019, which will rise by $10 each year, reaching $50/tonne in 2022. The federal government has committed to return direct proceeds collected under the federal carbon pricing backstop system to provinces.  This may happen via one of three methods: 1) providing individuals and families “Climate Action Incentive payments;” 2) providing support to schools, hospitals, small and medium-sized businesses, colleges and universities, municipalities, not-for-profit organizations, and Indigenous communities; and 3) supporting reductions in GHG emissions in such provinces.

Chart_Pricing carbon in CanadaIt remains to be seen whether or not the Canadian carbon pricing plan will help Canada meet its NDC commitments and contribute to the overall long-term goal of the Paris Agreement of holding the increase in the global average temperature to well below 2 degree Celsius above pre-industrial levels and of pursuing efforts to limit that increase to below 1.5 degrees.

 


Pricing carbon: Is this the year?

At the close of COP21, French President Francois Hollande promised to build on the Paris Agreement by advocating for a global carbon tax.

ICAPPutting a price on carbon has been done at regional, national, and subnational levels thus far. Some jurisdictions have used the cap and trade approach while others have levied a carbon tax.

Today the International Carbon Action Partnership (ICAP) issued a report predicting that 16% of global GHGs will be covered by carbon markets by 2017, up from 9% in 2016. The report underscores that emissions trading schemes (ETS) are currently found on 4 continents, 35 countries, 13 provinces and states, and 7 cities.  Analyzing the coming growth, it points to pledges in the 185 INDCs filed pre-COP21 that indicated intent by almost half of these countries to use market mechanisms to mitigate GHG emissions.  ICAP specifically highlights China’s announcement in 2015 to expand its province-level pilot markets to a national market in 2017: once operational, the Chinese ETS will bypass the EU’s market as the largest in the world. The ICAP report also looks carefully at new efforts in North America, Latin America and the Caribbean, and greater Asia Pacific region.

On the carbon tax front, Canadian province British Columbia has applied a carbon tax to fossil fuel consumption in the province since 2008.  Currently, voters in Washington State are considering a ballot measure that would make it the first U.S. state to do the same. Over 350,000 Washington residents signed on to the initiative, which (similar to BC) would be a “revenue neutral” tax that would result in other state taxes being lowered.  South Africa is in the process of revising a carbon tax bill proposed last November, which is likely to be implemented in January 2017.

UPDATE:  On March 3, all ten Canadian province premiers will meet with Prime Minster Justin Trudeau to discuss a national carbon tax. Alberta Premier Rachel Notley supports a carbon tax while her peers from Manitoba and Saskatchewan oppose it.  Interestingly, the Ontario and Quebec premiers also oppose a national carbon tax, presumably due to their existing regional carbon pricing schemes.  A collection of energy sector business leaders, banks, unions, think tanks, and environmental groups have weighed in to support it.

 


California Leads Subnationals in Setting a High Bar for COP21 Negotiators

Mary Nichols, Chair of the CA Air Resources Board presents to UCLA & Vermont Law Students (Photo courtesy of Tracy Bach)

Mary Nichols, Chair of the CA Air Resources Board presents to UCLA & Vermont Law Students (Photo courtesy of Tracy Bach)

The VLS delegation had the privilege yesterday to attend an intimate presentation given by Mary Nichols, Chair of the California Air Resources Board, and Ken Alex, the Director of the Governor Jerry Brown’s Office of Planning and Research. Mary and Ken candidly addressed a group of professional students and professors from UCLA and Vermont Law School while a documentary crew followed Mary’s every move and captured the group’s reaction.

These representatives of the California state government offer a surprisingly powerful presence at COP21. The commitments and strategies of subnational groups have been a major topic of conversation this week since these groups, including U.S. states, represent key stakeholders in the movement to address climate change. According to some sources, “in order to keep global temperatures from rising 2˚C by 2050, the world needs to cut 8 to 10 gigatonnes of carbon emissions by 2020.” Our mitigation goal will be even higher if the negotiators ultimately agree on maintaining temperature rise at or below 1.5˚C. Yet, the U.N. Environmental Program reports that agreements between subnational governments to reduce emissions could prevent 3 gigatonnes of carbon from entering the atmosphere by 2020. Cooperation and ambition amongst subnationals is therefore crucial to reaching our COP21 goals.

Governor Brown speaks for subnationals (From: the Office of Governor Brown)

Governor Brown speaks for subnationals (From: the Office of Governor Brown)

California is a particularly important piece of the puzzle. According to Ken Alex, the state represents 1.3% of global emissions and has a larger economy than 188 of the 195 countries that have ratified the UNFCCC. The state therefore has a large role to play, and so far, it has exceeded expectations. California is leading a group of more than 123 subnational jurisdictions (including Vermont), which represent $9.9 trillion in GDP and 720 million people, in pursuing more ambitious goals than those identified in the anticipated Paris Outcome. This group of signatories to the Under 2 MOU is aiming to reduce emissions 80 to 95% below 1990 levels by 2050, or to achieve a two tons per capita CO2 emissions limit.

Under Governor Brown and Mary Nichols’ leadership, California is making progress toward addressing these goals. The California cap and trade scheme is gaining traction, partnering with Quebec and, hopefully soon, with other states. The state is also the only one in the country allowed to implement its own, more rigorous, mobile air emissions standards. These standards have subsequently been adopted in other international cities, including in Beijing.

From: LA Times & Christophe Petit Tesson (EPA)

Governor Brown and former Governor Schwarzenegger meet to discuss climate change. (From: LA Times & Christophe Petit Tesson / EPA)

To promote California’s progress and inspire other global leaders, several California representatives have presented at COP21 over the last several days. Governor Jerry Brown welcomed new signatories to the Under 2 MOU in the German Pavilion at Le Bourget. Arnold Schwarzenegger spoke on behalf of Austria at the beginning of the week, and later conducted meetings with the current governor of California. Other state representatives, like Mary Nichols, are also participating in discussions throughout the event, including in a session dedicated entirely to California at the U.S. Pavilion.

We will continue to track the inspiring action of subnationals throughout the event, particularly those of U.S. states like California and Vermont.


Past as Prologue? Joint Implementation and the Future for Flexibility Mechanisms

TradingA recent report by the Stockholm Environmental Institute (SEI) raises some serious questions about the integrity of the Joint Implementation (JI) program, one of the Kyoto Protocol’s main flexibility mechanisms. Since flexibility mechanisms are a core part of Geneva Negotiating Text, this report raises the question of how the UNFCCC will learn from its past mistakes as it enters into the new, post-2020 agreement.

JI is one of three flexibility mechanisms created under the Kyoto Protocol (KP) to assist Annex I Parties in meeting their emission reduction targets. JI allows Annex I countries to meet their targets by purchasing emission reduction units (ERUs) countries.  The JI program design is a creature of the changing political landscape of Europe in the early 1990s. Most JI projects transferred ERUs from Economies in Transition (EIT) countries to other Annex 1 countries in Europe. EITs were the Russian Federation and the former Soviet bloc countries emerging from communism in the early 1990s.

The KP built special exemptions into the JI program to help EITs in their transition to a market-based economic system. Decades of central planning left the EITs with inefficient and outdated manufacturing and energy production facilities that could not compete in the EU marketplace. To give the EITs an advantage, the KP let them set their emission baselines at or before 1990 levels. Since their pre-1990 emissions were significantly higher than their post-1990 emissions, the EITs immediately had a surplus of ERUs to sell into the JI market. As of March 2015, almost 872 million ERUs have been transferred through the JI program with four countries – Ukraine, Russia, Poland, and Germany – accounting for 94% of ERUs issued.

The SEI report indicates “significant environmental integrity concerns” for 80% of the ERUs from Ukraine and Russia. What are these concerns?  The main concern is the faulty determination of a JI project’s “newness” of emission reductions.  One of JI’s key requirements is additionality, which means that the emissions reduction would not have occurred without the project. The SEI report revealed that additionality claims were not plausible for 43% of the projects and 73% of the ERUs. For example, seventy-eight projects received credits for preventing the spontaneous combustion of coal waste piles, projects that cannot plausibly produce additional emissions reductions. The report estimates that unqualified JI projects resulted in an extra 600 million t CO2e of global GHG emissions from 2008-12, the first commitment period of the Protocol. How did this happen?  One main reason given was that host countries established their own lenient rules, without international oversight, for approving projects and ERUs.

This happened because KP rules allow JI projects to be approved under two very different tracks. Track 1 allows host countries approve and issue ERUs and determine if the reductions meet the additionality requirement. Track 2 gives the Joint Implementation Supervisory Committee, an UNFCCC body, the power to review projects and requests for ERU issuance and to certify JI auditors. 97% of the ERUs have been issued under Track 1, demonstrating the JI program design incentivizes countries to self-approve non-additional reductions.

Flexibility mechanisms are going to be a crucial element in getting Parties to agree to a post-2020 agreement in Paris, but they need to change how they measure and verify reductions. The SEI report lists a number of options to improve reporting and measurement practices including improving the program’s transparency by making all documentation publicly available, implementing an internationally accepted verification methodology, and banning the practice of retroactively crediting projects. These recommendations need to be implemented in the post-2020 agreement. The past doesn’t need to be the prologue for Paris and beyond.


Senator John Kerry: “Amateur hour is over. It’s time for science fact to trump science fiction.”

Wednesday, December 16, our last day in the Bella Center due to NGO restrictions, was an intense day.  In the first meeting, we witnessed the resignation of COP15 President Connie Hedegaard and several Heads of State statements, as well as the concern from developing countries regarding the imposition of the Danish text.

Senator Kerry at the Bella Center

I left the plenary to hear U.S. Senator John Kerry discuss the critical role of a global deal in advancing domestic legislation.  Kerry is the Chairman of the Foreign Relations Committee and lead author of the Senate’s climate bill.

As I was attempting to enter the meeting, I ran into Brice Lalonde, Kerry’s first cousin and French ambassador in charge of international climate change negotiations since 2007.  I had the luck of finding a seat in the front row!

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Renewable Energy Advocates Get Upclose Look at Middelgrunden Windfarm.

Denmark has been a leader in renewable and clean energy for over 40 years.  While some policies were perhaps misguided, like banning car use on Sundays in the 1970’s, slow but steady expansion of the country’s renewable energy portfolio has allowed the country to maintain its emission levels while boasting of continuing healthy economic expansion.  One of the best examples of the country’s advances in renewables technology is the Middelgrunden windfarm located just offshore in Copenhagen’s harbor.  Built in 2000, it currently has twenty 2 MW turbines that generate a total of 40 MW of power (about 3% of Denmark’s total requirements).   [youtube=http://www.youtube.com/watch?v=J0Qi5xBA-ow] Continue reading


The Truth About Cap-and-Trade

Three cheers for Lesley McAllister! In a recent article, this empirically-minded law professor explains why so many cap-and-trade programs have not made any dent in the emissions they were meant to control (34 Colum. J. Envtl. L. 395, 2009). Ever since I read this article a few weeks ago, I have been pondering its implications for the upcoming negotiations in Copenhagen. I’d like to highlight just a few of the lessons Professor McAllister gleans from a careful study of four existing cap-and-trade programs in the U.S. and Europe, and I hope she will forgive me for oversimplifying and injecting my own views with abandon. Continue reading