Commentary, Vancouver Sun, August 4, 2010
History will judge whether the decision by British Columbia and a few other members of the Western Climate Initiative to push ahead with a cap-and-trade scheme to limit carbon initiatives is bold or foolish.
It is certainly consistent with the independent track followed by Premier Gordon Campbell who pushed through and has steadily increased B.C.'s carbon tax at a time when such levies are considered political poison in most other jurisdictions.
The WCI was initiated by western states and some provinces, partly out of frustration with the anemic pace of action at the national level. But now that cap-and-trade seems to be dead in Washington, D.C., the path sketched out in the design released last week for a regional program seems all the lonelier and fraught with economic uncertainty.
The plan faces two central challenges. The first is external, exacerbated by the foot-dragging in the U.S. that leaves B.C., Ontario, Quebec, California and New Mexico -- the only five members of the WCI that have committed to proceeding with the cap-and-trade plan by 2012 -- at risk of handicapping domestic industries up against competitors in jurisdictions that face no such restrictions.
The second is internal but still rooted in the need to maintain the strength of our industrial sector. It is the conflict between the need to allow for industrial expansion, both of existing industries and to make room for those we have not yet imagined, while achieving the goal of a cap-and-trade scheme, which is to place a hard cap and then ratchet down the overall level of carbon dioxide and other greenhouse gas emissions.
The B.C. government's excitement about the expansion of the shale gas industry is a perfect example of the challenge. The province recently approved a new gas processing plant that could increase the province's emissions by as much as three per cent once it is fully developed.
The government has made it clear that it won't do anything to dampen economic development. Less clear is how new development will fit into what is supposed to be a shrinking emissions package.
How much of a burden -- or an opportunity -- the cap-and-trade system will be on B.C.'s major industrial users won't be known until some crucial details are worked out.
First is how the allowances will be handed out. If they are simply given away based on historical emissions in the first year the trading scheme goes live, they can provide a windfall for existing businesses and a significant barrier for new ones.
Auctioning them off creates a more level playing field, but that would be a significant new cost for existing businesses. How much of a revenue windfall that will create for the government will depend in part on how large a bureaucracy will be needed to administer the cap-and-trade program and the accompanying plan to authorize offsets that could be purchased by emitters that are short of the necessary allowance.
The experience with the cap-and-trade system implemented earlier by the European Union turned up serious problems that added costs that are ultimately borne by consumers and limited its value in terms of reducing emissions.
We have the benefit of learning from the mistakes they made, but there are still too many difficult questions unanswered to judge whether this is a plan B.C. can afford to implement two years from now.