Interest in emissions trading soars as Canada prepares to confront climate change

November 2, 2007

There is an emerging Canadian consensus that carbon regulation is inevitable, and with it, a growing sense that future policies for addressing climate change will include market-based mechanisms such as emissions trading. In early October, the Canadian Council of Chief Executives released a declaration calling climate change the "most pressing" issue today and calling for "aggressive" action and "absolute" emissions reductions. The CEOs also acknowledged that government regulation - including emissions trading, technology investment and environmental taxation - would be required in order to reduce greenhouse gas (GHG) emissions.

While Quebec recently implemented a carbon tax on fuel, other Canadian provinces are opting for market-based approaches. Ontario is in favour of a national GHG cap-and-trade scheme (i.e. the trading of emission allowances where the total allowance is strictly limited or "capped"). It has also professed interest in participating in the Western Climate Initiative (WCI), a U.S. state-level organization aimed at cutting GHGs using market-based tools such as cap-and-trade. British Columbia (BC) and Manitoba have already joined the WCI. Plus, the Premier of BC has announced that BC will soon become the first province to legislate binding caps on GHG emissions, including a one-third reduction by 2020. B.C. also recently signed the Climate Action Charter, whereby the province, the Union of BC Municipalities and over sixty local governments committed to becoming carbon neutral by 2012.

Alberta now has its own GHG emissions reduction regime which became effective July 1, 2007. The regime does not impose a hard cap on emissions; instead GHG emissions intensity (i.e. per unit of production) levels must be reduced to 50% of 1990 levels by December 31, 2020. To achieve this, the regime imposes yearly emissions reduction obligations on large industrial emitters (facilities with annual GHG emissions exceeding 100,000 tonnes of carbon) and provides three ways for these emitters to achieve their reduction obligations: (1) improve the facility's efficiency and achieve actual emissions reductions; (2) acquire fund credits which cost $15 per tonne and are paid into an Alberta-based climate change technology fund; and (3) acquire and use emissions offsets from verified, Alberta-based projects. The regulatory framework for offset verification and credit trading is still in development. The regime also imposes certain reporting obligations. Large industrial emitters have until December 31, 2007 to establish their baseline emissions intensity figures.

Announced last April, the Canadian government's proposed green plan, if implemented, would establish Canada's first federally regulated, market-driven emissions trading system. A domestic "inter-firm" trading scheme would allow regulated emitters to buy and sell emission credits among themselves, using a baseline-and-credit model. In the short term, the plan would not set hard caps on emissions but instead use intensity-based targets or "baselines." The plan would also include an offset program allowing emitters to purchase credits to help meet their targets. Ontario recently announced that it will help develop protocols in support of the federal offset program.

These developments in Canada reflect similar developments in the U.S. In early October, the U.S. House of Representatives released a white paper outlining plans for broad climate change legislation, the "cornerstone" of which would be cap-and-trade. Also, a group of the world's most powerful banks have been lobbying the U.S. and other industrialized nations to set up a regulated cap-and-trade system rather than imposing carbon taxes. CIBC World Markets' chief economist Jeff Rubin recently predicted that the next U.S. administration will follow through with adopting green policies that would include "firm and hard emissions reduction targets" and a national cap-and-trade scheme. Rubin further forecasted that Canada would be expected to follow suit.

While the regulatory landscape in Canada remains a patchwork, in light of the soaring interest in emissions trading, it appears likely that emissions trading will form a key component of any comprehensive climate-change legislation implemented in Canada in the future.

DISCLAIMER: This publication is intended to convey general information about legal issues and developments as of the indicated date. It does not constitute legal advice and must not be treated or relied on as such. Please read our full disclaimer at

Stay in Touch with Knowledge Hub