Selling Clean Air Workshop Proceedings West Coast Environmental Law Research Foundation Workshop Blue Horizon Hotel, Vancouver, October 15-16, 1998 Proceedings compiled by Chris Rolfe Staff Lawyer West Coast Environmental Law Introduction These proceedings are the summary of Selling Clean Air: Market Instruments for Climate Protection, a two-day workshop on market instruments for climate change organized by West Coast Environmental Law Research Foundation. The workshop was held October 15 and 16, 1998, in Vancouver. This workshop brought together approximately 100 participants. The first day examined market instruments and the pros and cons of using different market instruments for reducing Canada’s greenhouse gas emissions. The second day was aimed at improving the capacity of municipalities, environmental groups, small businesses, and community groups to develop projects that reduce greenhouse gas emissions in a quantifiable way that achieves other social benefits and can generate gas emissions reduction credits. A discussion paper was prepared for the workshop. It is available on the Internet at www.wcel.org/wcelpub/1998/12525.html. The workshop was made possible with generous funding from the Vancouver Foundation, BC Hydro, Environment Canada, the Greenhouse Gas Reduction Trading Pilot Project, Westcoast Energy and Alcan Aluminum. The workshop was organized by Chris Rolfe, staff counsel with West Coast Environmental Law. Assistance for the workshop, discussion paper and this summary was ably provided by Steven Shrybman, Karen Campbell, Ted Ferguson, Christopher Heald, Catherine Ludgate, Sandra Janzen, Laurel Brewster, and Alexandra Melnyk. Special thanks to the Advisory Committee Members: Tracey Axelsson of the Cooperative Auto Network, Warren Bell of the Air Resources Branch, Ministry of Environment, Lands and Parks, Cheeying Ho of Better Environmentally Sound Transportation, Robert Hornung of the Pembina Institute for Appropriate Development, Ron Nielsen of Pollution Probe, John Rich of BC Hydro and Stan Liu of Environment Canada. And thanks to the workshop speakers: David Balser, BC Hydro; Michael Beale, Environment; Warren Bell, BC Ministry of Environment, Lands & Parks; Dale Bryk, Natural Resources Defense Council; Brian Currie, BC Ministry of Environment, Lands & Parks; Michael Doherty, BC Public Interest Advocacy Centre; John Duffy; Ron Ezekiel, Russell & DuMoulin; Dermot Foley, David Suzuki Foundation; Erik Haites, Margaree Consultants Inc.; Todd Litman, Victoria Transport Policy Institute; Michael Margolick, Global Change Strategies International Inc.; Ron Nielsen, Pollution Probe; Andrew Pape, Compass Resource Management; Steven Pomper, Alcan Aluminum; Steven Shrybman, West Coast Environmental Law; Cliff Stainsby, BC Government Employees Union; Bill Taylor, Environment Canada; Ralph Torrie, Torrie Smith Associates; and Paul Wilson, Russell & DuMoulin. The workshop was facilitated by Julia Gardner of Dovetail Consulting. These proceedings are organized by the timetable for the workshop. After the list of participants and the agenda, we present a summary of each speaker’s presentation together with any overheads presented. (Overheads not included on web version.) A list of references is included at the end of these workshop proceedings. The Law Foundation The Law Foundation of British Columbia provides major funding for the West Coast Environmental Law Research Foundation. Environment Canada Westcoast Energy BC Hydro Alcan Vancouver Foundation GERT The Vancouver Foundation, Environment Canada, Westcoast Energy, BC Hydro, Alcan Aluminum, the Greenhouse Gas Emission Reduction Trading Pilot Project funded research for the discussion paper and workshop in order to catalyze discussion regarding the role of emissions trading in reducing greenhouse gas emissions. Contents Participants Agenda Day One — Introduction A Federal Perspective on Market Instruments Panel 1 — Opportunities and Threats of Climate Change and Climate Change Responses The Science of Climate Change The Economics of Greenhouse Gas Emission Reductions An Environmental Perspective on Policy Context An Industry Perspective on the Current Policy Context Panel 2 – Introduction to Market Instruments The Case for Market Instruments The Different Forms of Emissions Trading Market Instruments and Competitiveness Panel 3: Trading in the Real World The Toronto Greenhouse Gas Pilot Trade Project — Mobilizing Municipalities The US Sulphur Dioxide Trading Program The NESCAUM and PERT Credit Trading Program Reducing Industrial Emissions: the Alcan example Panel 4: Alternatives to Trading and Concerns Regarding Trading Communities and the Need for Transition Strategies: A Labour Perspective Concerns about Market Instruments Day Two: Credit Trading for Credit Producers Panel 1 – Review of Credit Trading Overview of Credit Trading Introduction to Greenhouse Gas Emissions Trading Pilot Panel 2: The Nuts and Bolts Setting Baselines and Dealing with Additionality Dealing with Lifecycle Emissions and Leakage Who Owns an Emission Reduction? Panel 3: Case Studies Case Study 1: Toronto Greenhouse Gas Pilot Trade Project Case Study 2: The Revelstoke District Energy Project Case Study 3: Challenges of Trip Reductions Projects List of References Participants NAME AFFILIATION CITY Armstrong, David Vancouver, BC Attaran, Amir Sierra Legal Defence Fund Vancouver, BC Atwater, Jim UBC Department of Civil Eng. Vancouver, BC Axelsson, Tracey Executive Director, CAN Vancouver, BC Balser, David BC Hydro Vancouver, BC Bartel, Donna ICBC North Vancouver, BC Barton, Philip North Vancouver, BC Bauer, Sandy Garibaldi Heights, BC Beale, Mike Environment Canada Ottawa, ON Bell, Warren MELP, Air Resources Branch Victoria, BC Bisson, Deborah Caribou Systems Corporation Vancouver, BC Bryk, Dale Natural Resources Defence Council New York, NY Buchanan, Barbara Daishowa – Marubeni International Ltd Vancouver, BC Callaway, Clive Living by Water Project Salmon Arm, BC Caton, Robert Alchemy Consulting Inc. Vancouver, BC Constable, Sandy Vancouver, BC Corman, Richard Vancouver, BC Couture, Marc Helimax International Inc. Toronto, ON Currie, Brian MELP, Beehive Burner Phase Out Victoria, BC de Spot, Michel Assistant Engineer GVRD Burnaby, BC Dierker, Robert Ultimate Bike Gear Vancouver, BC Doherty, Michael BC PIAC Vancouver, BC Dorman, Brant Pottinger Gaherty Vancouver, BC Duffy, John Vancouver, BC Dow, Duncan North-South Trade Investments North Vancouver, BC Edwards, Wayne Levelton Engineering Ltd. Richmond, BC Ergudenler, Ali GVRD Air Quality Burnaby, BC Ezekiel, Ron Russell & DuMoulin Vancouver, BC Fairbank, Brad Vancouver, BC Fenton, Lyle Municipal Councillor Dist. of Squamish Garibaldi Heights, BC Foley, Dermot David Suzuki Foundation Vancouver, BC Fitzpatrick, Catherine Climate change Organizer, David Suzuki Foundation Vancouver, BC Gillespie, Derek Penticton, BC Groves, Sarah Vancouver, BC Habart, Jack North Vancouver, BC Haites, Erik Margaree Consultants Toronto, ON Harris, Hugh Hugh G. Harris & Associates Inc. West Vancouver, BC Harrison, Robert Trilennium Mentors Ltd. Vancouver, BC Ho, Cheeying B.E.S.T. Vancouver, BC Hoog, Vincent Wind Energy Assoc. Squamish, BC Houlihan, Patricia Vancouver, BC Howard, Bill Environment Canada Edmonton, AB Howatt, Tracie Westcoast Energy Vancouver, BC Irwin, Tony Westcoast Energy EHS & SD Vancouver, BC Langdon, Allen Research Consultant GPC British Columbia Victoria, BC Litman, Todd Victoria Transport Policy Institute Victoria, BC Liu, Stan Environment Canada North Vancouver, BC Losito, Nick Richmond Health Board Vancouver, BC Lougheed, Sam Oliver, BC Luesley, Bruce Abbotsford, BC Mackniak, Cheryll B.E.S.T. Vancouver, BC Macoun, Becky Sage Foundation Vancouver, BC Margolick, Michael Global Change Strategies International Inc. Vancouver, BC Martiniuk, Tim Vancouver, BC McDermott, Richard Vancouver, BC McDougall, Scott Ottawa, ON McGuire, Brenda BC Hydro, Manager Corp. Environment Vancouver, BC McMahon, Linda BC Hydro Vancouver, BC Mendis, Asoka Vancouver, BC Miller, Andy Vancouver, BC Morrison, Geoff Canadian Association of Petroleum Producers Calgary, AB Nelson, Chad Lantzville, BC Nielsen, Ron Pollution Probe Toronto, ON Pagani, Freda Director — UBC Sustainability Vancouver, BC Pape, Andrew Compass Resource Management Vancouver, BC Patterson, Zachary Vancouver, BC Peachey, Karen B.E.S.T. Vancouver, BC Peacock, Adrienne Vancouver, BC Pitman, Amber Vancouver, BC Pomper, Steven Alcan Aluminum Montreal, QC Prossak, Bruce Strategic Environmental Management Vancouver, BC Raizada, Rachana Vancouver, BC Richardson, Carl Arise Tech. Surrey, BC Rolfe, Chris West Coast Env. Law Vancouver, BC Ross, Lynn Courtney, BC Rudzki, Alicja BC Ferry Corporation Victoria, BC Sadlier-Brown, Tim Vancouver, BC Sandison, Margot West Vancouver, BC Schellenberg, Joy B.E.S.T. Vancouver, BC Shrybman, Steven Exec. Director, West Coast Env. Law Vancouver, BC Simpson, Mike Sierra Club of BC Smithers, BC Stainsby, Cliff BC Government Employees Union Victoria, BC Stewart, Malcolm Powerex Vancouver, BC Taitt, Mary Delta Farmland & Wildlife Trust Delta, BC Taki, Richard Vanc/Richmond Health Board Senior Env. Health Officer Vancouver, BC Tanchak, Beverly Councillor Sechelt, BC Tarnoff, Richard Friends of the Similkameen Hedley, BC Taylor, Bill Environment Canada Vancouver, BC Tiedemann, Ken BC Hydro Burnaby, BC Tong, John Willis Energy Services Ltd. Vancouver, BC Torrie, Ralph Torrie Smith Associates Ottawa, ON Underwood, Chris City of Vancouver Vancouver, BC Vescera, Mauro Vancouver Foundation. Arts, Culture & Env. Vancouver, BC Wellisch, Maria Managing Director MWA Environmental Consultants Burnaby, BC Whistler, John Vancouver, BC Williamson, Brian GEMCo Vancouver, BC Wituschek, Ed Environment Canada North Vancouver, BC Zielstra, Ron Columbia Power Corporation Victoria, BC Agenda Day One 8:30 to 9:00 Registration 9:00 to 9:10 Welcome to the workshop : Steven Shrybman, Executive Director, West Coast Environmental Law 9:10 to 9:20 A Federal Perspective on Market instruments: Mike Beale, Environment Canada Panel 1 — Opportunities and Threats of Climate Change and Climate Change Responses 9:20 to 10: 45 The Science of Climate Change: Bill Taylor, Environment Canada The Economics of Greenhouse Gas Emission Reductions: Michael Margolick, Global Change Strategies International Inc. An Environmental Perspective on Policy Context: Dermot Foley, David Suzuki Foundation An Industry Perspective on the Current Policy Context: David Balser, BC Hydro Questions. 10:45 to 11:00 Coffee Break Panel 2 — Introduction to Market Instruments 11:00 to 12:20 The Case for Market instruments: Erik Haites, Margaree Consultants Inc. The Different Forms of Emissions Trading: Chris Rolfe, West Coast Environmental Law Research Foundation Market Instruments and Competitiveness: John Duffy Questions. 12:20 to 1:20 Lunch Panel 3 — Trading in the Real World 1:20 to 3:00 The Toronto Greenhouse Gas Pilot Trade Project – Mobilizing Municipalities: Ralph Torrie, Torrie Smith Associates The US Sulphur Dioxide Trading Program: Dale Bryk, Natural Resources Defense Council The NESCAUM and PERT Credit Trading Programs: Ron Nielsen, Pollution Probe Reducing Industrial Emissions: the Alcan example: Steven Pomper, Alcan Aluminum Questions 3:00 to 3:15 Coffee Break Panel 4 – Alternatives to Trading and Concerns Regarding Trading 3:15 to 4:05 Communities and the Need for Transition Strategies: A Labour Perspective. Cliff Stainsby, BC Government Employees Union Concerns about Market Instruments: Michael Doherty, BC Public Interest Advocacy Centre Questions Closing Session 4:05 to 5:00 Wrap Up Comments by Moderator. Identification of Common Themes: Julia Gardner, Dovetail Consulting Day Two — Credit Trading for Credit Producers 9:00 to 9:10 Opening Comments: Steven Shrybman Panel 1 — Review of Credit Trading 9:15 to 10:00 Overview of Credit Trading: Chris Rolfe, West Coast Environmental Introduction to Greenhouse Gas Emissions Trading Pilot: Warren Bell, Ministry of Environment, Lands & Parks Questions. Panel 2 — The Nuts and Bolts 10:00 to 11:20 Setting Baselines and Dealing with Additionality: Andrew Pape, Compass Resource Management Dealing with Lifecycle Emissions and Leakage: Chris Rolfe, West Coast Environmental Law Ownership of Credits: Ron Ezekiel, Russell & DuMoulin Questions. 11:20 to 11:35 Break Panel 3 — Case Studies 11:35 to 1:00 Case Study 1: Toronto Greenhouse Gas Pilot Trade Project: Ralph Torrie, Torrie Smith and Associates Case Study 2: The Revelstoke District Energy Project: Brian Currie, BC Ministry of Environment, Lands and Parks Case Study 3: Challenges of Trip Reductions Projects: Todd Litman, Victoria Transport Policy Institute Questions. 1:00 to 2:00 Lunch Small Group Discussions 2:00 to 3:30 Closing Session Day One — Introduction A Federal Perspective on Market Instruments Presenter: Mike Beale, Environment Canada This introductory presentation provided an overview of the federal government’s perspective on emissions trading. While the federal government has not yet determined its view on the best approach for implementing Canada’s Kyoto commitment, it recognizes the potential economic efficiency benefits associated with broad-based economic instruments. A carbon tax is problematic for a number of reasons, including potential regional and sectoral implications and competitiveness concerns for Canadian businesses. Domestic emissions trading, however, needs to be carefully considered, for reasons such as that: * it has been successfully used in the US with respect to SO2 emissions; * international emissions trading is a key element of the Kyoto Protocol, and it therefore makes sense to consider similar techniques at the domestic level; * the US is moving in this direction, and the integration of the two economies makes it sensible to consider a similar approach; and, * domestic emissions trading is a good fit with credit for early action. There are several issues to be considered with respect to the development of a domestic emissions trading program. The development of such a program will require some form of regulation, and we do not have an existing regulatory regime (this is based upon the assumption that a purely voluntary program will not get us to the six per cent agreed to in the Kyoto Protocol). There are also numerous design issues, including what the trading program would cover in terms of scope; how to allocate the permits; and the extent of the economic impacts of such a program. Another issue is the need to consider what sort of complementary measures would be required to give effect to such a regime. The federal government is supportive of many of the current processes underway to advance thinking on this issue, such as the National Roundtable on the Environment and Economy process, Greenhouse Gas Emission Reduction Trading pilot, Ontario’s Pilot Emission Reduction Trading program, Credit for Early Action, and the newly established working group as part of the National Climate Change process. Panel 1 — Opportunities and Threats of Climate Change and Climate Change Responses The Science of Climate Change Presenter: Bill Taylor, Environment Canada Bill Taylor’s presentation summarized the latest science in relation the causes and the potential effects of climate change. Were it not for the existence of greenhouse gases, which occur in minute amounts throughout the atmosphere, the earth’s average temperature would be –18oC. However, the actual average temperature is 15o C, indicating GHGs play a significant role in the earth’s climate. Prior to the industrial revolution, CO2 concentrations did not vary much. Since that time, atmospheric CO2 concentrations have increased 30% and we have seen an increase in global temperature of 0.6o C. However, there has been considerable year-to-year variability in these temperature changes. Is the upward trend in global temperatures merely a part of the long-term natural cycle or can it be attributed to rising concentrations of greenhouse gases? These issues have been considered at length by the Intergovernmental Panel Climate Change (the IPCC) — the international body of scientists, which advises government on climate change. In 1995 the IPCC concluded that "the balance of evidence suggests a discernible human influence on global climate." This statement is a clear indication that greenhouse gas emissions should be taken seriously. Research also indicates that these warming patterns have been uneven, and that some places are actually cooler. The global climate model developed by the Canadian Centre for Climate Modelling and Analysis shows that future warming will occur during winter, over land and in the north. The IPCC predicts that global surface warming will be anywhere from 1 to 3.5o C. Reduced sea ice and a sea level rise of 15 to 95 cm are also predicted. Climate change projections for BC and the Yukon indicate that we will have warmer, wetter winters and wetter summers in the north, but dryer summers in the south. There are numerous potential impacts, including changes in hydrology: floods, landslides, and erosion; glacier loss; permafrost reduction; increase in summer drought; shrinking salmon habitat; northward migration of ecosystems; coastal erosion and loss of habitat; and, increase in forest fires, pests and disease. While Canada ranks eleventh over all in greenhouse gas emissions, we are second in per-capita usage. In 1995, our emissions stood at nine per cent above 1990 levels, and are projected to grow to 20 to 25 percent of 1990 levels by 2010, therefore the six per cent reduction mandated by the Kyoto Protocol will really require a 30 per cent reduction. The three largest sources of greenhouse gas emissions in Canada are CO2, methane (CH4), and nitrous oxide (N20). Almost ninety percent of our emissions can be traced to production, transport, and consumption of fossil fuels. The Economics of Greenhouse Gas Emission Reductions Presenter: Michael Margolick, Global Change Strategies International Inc. This presentation set out the economic context for emissions trading, keeping in mind the commitments of the Kyoto Protocol. Dr. Margolick suggested that, in the context of climate change policy development, non-experts who take positions and make decisions overestimate the accuracy of economic models and do not understand their limited meaning. For example, while GDP is a well-defined concept and considered a key output, many models which use GDP as a base are "horrifically abstract." An example of lack of certainty is a study by the World Resources Institute on the Economics of Climate Change and/or CO2 taxes, which found that 80 per cent of the variation in results of different models is due to differences in assumptions. Often, economic models are not practical enough to be helpful in analyzing an issue as complex as climate change mitigation. We need a different set of analytical tools to implement the Kyoto Protocol, but Dr. Margolick does not see this happening. Further, much of the current does not address the long-term need for solutions. For example, in the 18th Century sanitation was not a public policy priority — raw sewage ran in the streets. The discovery of bacteria and the recognition of the public health implications of this led to action and investment in sewer systems. We now take it for granted that sewer systems are necessary and worthwhile. But if an economist had applied cost benefit analysis to the need for sewage systems in the 18th century, he probably would have concluded it wasn’t worthwhile. Given this context, it is possible that by the year 2050, the need and benefit of reducing greenhouse gases may be taken for granted and abstract concepts like GDP may no longer be considered significant. The issue of whether emissions trading is based on credits, allowances, or market trading is immaterial, as none of these will have any environmental or economic effect unless there is scarcity. Limiting greenhouse gas emissions through regulation will create scarcity and the degree of scarcity will determine the economic value of whatever is traded. If we are truly concerned about environmental outcomes, we must address scarcity. In the meantime three factors favour some emissions trading in today’s context: * it is a hedge against the risk of future regulations (the assumption being that emission reductions created now will be usable against future regulation); * it is an effective government relations tool as it indicates that some action is being taken; and, * it facilitates speculation by the financial community. An Environmental Perspective on Policy Context Presenter: Dermot Foley, David Suzuki Foundation Dermot Foley provided an environmental perspective on climate change. He sees the six per cent reduction agreed upon at Kyoto as merely a first step, as we will need to reduce greenhouse gases by 60-80 per cent in order to stabilise. David Suzuki Foundation supports the use of economic instruments such as taxes and emissions trading as a means to reduce GHG emissions. They have advocated a cap and trade allowance program for industry which could result in a twenty per cent reduction of emissions by 2010. This program includes a number of flexibility mechanisms, which alone could achieve a ten per cent reduction and will enable Canada to assist with implementation efforts in other jurisdictions. The cap and trade allowance program for industry contains a strictly domestic focus. There are four reasons for this: * the need for an immediate reduction in fossil fuel consumption (according to Health Canada, approximately 16,000 people die prematurely each year from air quality problems); * the need to stimulate the Canadian economy toward innovation and competitiveness; the need to show international leadership; and, * early action to lay the groundwork for the post 2012 world. An Industry Perspective on the Current Policy Context Presenter: David Balser, BC Hydro David Balser outlined the perspective of BC Hydro on climate change. BC Hydro is a Crown Corporation, and the third largest utility in Canada. Most of its focus is hydroelectric power, and its GHG emissions are relatively low. Average emissions at BC Hydro are 30t/GWH, whereas the US utility average is 550t/GWH and the Canadian utility average is 200t/GWH. Climate change presents challenges for BC Hydro as it may be penalized for being good at what it does. BC Hydro emissions are projected to increase. Concerns about protecting fish and wildlife habitat and protecting the land base create limits on the development of further hydropower, meaning that BC Hydro may add more gas turbines. Changes in the North American electricity market also mean that BC Hydro no longer has a captive market, thus BC Hydro is interested in flexible approaches to environmental protection which allow it to meet environmental ends at the lowest possible cost. BC Hydro is currently investigating opportunities to invest in emission offsets — measures that compensate for increased emissions from one source by reducing emissions from another source. BC Hydro sees offsets as a means of mitigating future emissions at a relatively low cost. Offsets also allow BC Hydro to use synergies which exist between offset types and other BC Hydro business incentives (such as electricity trade and customer service). In addition, using offsets will provide transaction experience for future emissions trading programs or the possibility of offset regulations. BC Hydro is keen to invest in offsets now as offsets are consistent with BC Government policy and as a Crown corporation BC would like to support its shareholder. Moreover, BC Hydro competitors are already investing in offsets. There are risks in investing in offsets. First, the value of offsets may be uncertain given the likelihood and costs of future GHG regulations are uncertain. Second, the legitimacy of these offsets may be uncertain in the event that government policies recognizing early action do not materialize. BC Hydro sees a comprehensive offset investment portfolio as premature but would like to participate in public policy development and gain experience in emissions trading. On this latter point, BC Hydro supports credit for early action with respect to offsets, low transaction costs, and a baseline that would accommodate a range of circumstances. Questions: Q: What is the value of a carbon credit? A: The current value of credits is low, because much of this activity is speculative. Panel 2 – Introduction to Market Instruments The Case for Market Instruments Presenter: Erik Haites, Margaree Consultants Inc. The fundamental reason to use an economic or market instrument — an emissions tax or emissions trading — is that once you have set an environmental goal, it should help you achieve the goal at lower cost. The money saved can then be used for other useful purposes. The environmental goals are set by legislators, not the marketplace. To achieve an environmental goal using an economic instrument requires monitoring of compliance, and enforcement in cases of non-compliance, just like any other environmental regulation. An emissions tax is a tax or fee per unit of a pollutant emitted or discharged. Sources subject to the tax pay a specified amount per unit of emissions discharged, for example $1 per tonne of CO2. An emissions tax provides an incentive to reduce emissions. Sources able to reduce emissions at a cost below the tax rate reduce their emissions and avoid paying the tax. Sources facing high emission reduction costs pay the tax. To tax greenhouse gas emissions directly, government would need to monitor and tax all sources of these emissions. There are millions of sources of greenhouse gas emissions, most of them small and costly to monitor. Thus, it would be difficult and costly to implement an emissions tax in this way. But the same result can be achieved more simply. Energy-related CO2emissions account for most of Canada's greenhouse gas emissions. The energy-related CO2 emissions due to combustion of a fossil fuel are determined by the carbon content of the fuel use. Thus, taxing fossil fuels based on their carbon content has the same effect as taxing the CO2 emissions from combustion of those fuels. A tax on the carbon content of fossil fuels used in Canada would involve several hundred producers and importers, most of whom are already required to report their production or imports to the government. Thus a carbon tax would be relatively simple to administer. A tax on the energy content or an ad valorem tax on the market price of fuels is also possible. Such taxes increase the price of fossil fuels to consumers and so reduce consumption and CO2 emissions. But they are much less efficient at reducing CO2 emissions than a carbon tax. Coal has the highest CO2 emission and lowest price per unit of energy of any fossil fuel. To provide the proper incentive to consumers the tax should be proportional to the CO2 emissions. A carbon tax achieves that result, leading to higher price increases for coal than for other fossil fuels. An energy tax would increase the price per unit of energy by the same amount for each fossil fuel. And an ad valorem tax would increase the price of coal less than the prices of other fossil fuels — exactly the opposite of the desired result. Emissions trading can take the form of a cap with allowance trading or credit trading. In the first case a cap is established for total emissions by the sources required to participate in the program. Allowance equal to the cap (total allowable emissions) are distributed to participants. Participants must monitor and hold allowances equal to their actual emissions. Participants are allowed to buy and sell allowances. Sources that can reduce emissions at a cost less than the market price for allowances implement reduction measures. They benefit financially because they can sell the extra allowances (or buy fewer allowances). Every existing trading program has allocated allowances free of charge but this may not be appropriate in the context of greenhouse gases because it tends to penalize new and expanding sources relative to existing and declining sources, and a greenhouse gas trading program might be in place for a century. Instead allowances could be sold at auction or be distributed free of charge based on a formula that reflects changes to the participant population. As in the case of a tax on energy-related CO2 emissions, it would be difficult and costly to implement an allowance trading program for the millions of sources that discharge such emissions. But it is feasible to implement an allowance trading program for fossil fuel producers and importers for the carbon content of the fuels sold in Canada. This would effectively cap energy-related CO2 emissions. This is sometimes called a substance trading system. A credit trading system allows sources to claim credits for actions to reduce their emissions from an agreed baseline. The challenge then is to define a baseline that reflects what the emissions would have been in the absence of the reduction measures. If the baselines for the participants are the same as the allowances received under a cap and allowance system (e.g. both baselines and allocations can be based on historic emissions) the systems are very similar. Emissions trading is similar to an emission tax, except in terms of where the uncertainty lies. With a trading system you know what the emission reductions will be, but not the price of the allowances which determines the cost of the reduction measures that should be implemented. With a tax you know how much sources will pay per tonne of emissions (the cost of reducing emissions) but you do not know the total emissions reduction that will be achieved. Emissions trading, rather than emissions taxes, are being considered for greenhouse gases because the commitments to reduce emissions are expressed as quantitative limits and because taxes are unpopular. Emissions trading requires flexibility in terms of where and, to some extent when, emissions are reduced. Greenhouse gases have no local health or environmental impacts so shifts in the timing and location of emissions reductions do not involve environmental risks so they are well suited to emissions trading. Also the potential cost savings from trading are estimated to be substantial; international emissions trading offers cost savings of over 50% relative to the cost of achieving the same reductions using conventional regulations. Questions: Q: From local government perspective, I question the conclusion that it does not matter where emission reductions take place. From a local perspective there are many other benefits from emissions reductions. A: That is absolutely correct, my comments were an oversimplification. Actions to reduce greenhouse gas emissions often reduce emissions of other pollutants, such as NOx, VOCs, SOx, particulates and toxics, which have local health or environmental benefits. The benefits of the reductions in these ancillary pollutants differ by location. Thus, the location of the reductions may be important for the ancillary benefits. Q: With Canadian permits, what if you give out the permits, and then you have a foreign company that wants to invest in Canada and needs to buy them. Wouldn’t international permits be more equitable? If they pass the Multilaterial Agreement on Investment, how would national permits fit? A. The Kyoto Protocol has three trading options and each country will develop its own domestic system. Any company setting up in the countries with caps will be faced with different but similar compliance requirements. The costs for new companies will depend on how the trading system works. If allowances are auctioned then there is no cost difference between new and old. If they are grandfathered then there will need to be mechanisms which allow new players into the market. Q: It all seems like an end-of-the-pipe solution considering the monitoring that will be required. Why not focus on the source, which would be the fossil fuel producers? Wouldn’t that be easier to control and monitor? A: That option is being studied. Both carbon coupon systems and carbon taxes would be imposed at that level. Q: We can’t cap car emissions, but how do we access the users? A: Two things happen. If you have a trading system or tax at the producer level, prices at the consumer level go up. Prices go up downstream of the trading system or the tax, and that is the signal to be more efficient and to fuel switch. You might want to complement such a policy choice with regulations for increased energy efficiency standards. Q: The actual price on your graph does that reflect the market price of the allowance? How is the market price determined? A: The market is thin in some of the state programs and it is harder to determine the market price; this is due to the minimal number of uses for the credits. They are required to mainly offset the emissions due to large new sources or expansions. The number of large new and expanding sources is relatively small in many areas. The Different Forms of Emissions Trading Presenter: Chris Rolfe, West Coast Environmental Law Market instruments are instruments by which the state harnesses the market to achieve a state mandate goal at lower cost. The following four instruments all provide signals throughout the economy, but their specific design attributes are important for a number of reasons. Under a carbon tax, a charge on the carbon content of fuel would directly affect 72% of Canada’s emissions and could be fairly easily expanded to cover other emissions. A single relatively simple instrument would influence the myriad decisions and behaviours that impact on Canada’s greenhouse gas emissions. Under emission allowance trading — or cap and emission allowance trading — emission rights are allocated to different sources. Allowances represent emission rights. Allowance trading is mainly practical for large industrial sources, but not small sources such as passenger transportation. Unless combined with credit trading, there is no access to the potentially low cost emission reductions that lie outside a cap and trade system. Emission allowance trading is often criticized as involving licences to pollute. This is true, allowances are licences to emit greenhouse gases. But, whereas currently everyone has a licence to emit an unlimited amount of greenhouse gases, cap and allowance trading limits the amount of allowances and the emissions per allowance. In credit trading programs credit is generally given for reductions in emissions from the lower of actual levels or levels allowed by regulation. Credit trading programs do not involve a formal allocation of emission rights. Instead, a de facto allocation occurs through standard setting. If standards are stringent there is a lower allocation. One of the fundamental differences between most allowance trading systems and most credit trading systems is that credits can be created from emission reductions which occur anywhere. For instance, an environmental group might generate credits by carrying out home energy efficiency retrofits to produce credits. The emissions reductions must be real (although avoided increases in emissions may count as a reduction), measurable (i.e., quantifiable with a reasonable degree of accuracy), verifiable (i.e., there must be means of verifying implementation of the action), and surplus to any regulatory requirements. In a cap and carbon allowance trading system a cap is set on the total amount of fossil carbon in fuels that can be imported or produced in Canada. Importers or producers would need to hold carbon allowances for the fossil carbon content of their imports or production. Exporters and users of fossil fuels as inputs into long lived products would receive allowances equal to the carbon content of fuel exported or sequestered in products. This system creates scarcity, and holders of carbon allowances are able to charge a premium on their fuels. The premium is highest on carbon intensive fuels. In the case of emission allowance trading, allocation of emissions on the basis of historic emissions may be considered socially acceptable because those receiving the free allowances are also incurring the cost of emission reductions. Generally this will not be the case in the context of carbon allowance trading. Those holding the carbon allowance would be able to collect the premium on carbon-based fuels and will not necessarily bear the costs of emission reductions. Giving fossil fuel producers and importers the right to appropriate this premium would likely be socially unacceptable, so it usually assumed that government will either auction carbon allowances or tax back the premium. Government can redistribute the revenue in many ways. Often stakeholder’s opinions as to what market instruments are best depends on assumptions regarding burden sharing. For instance, it is often assumed by businesses that emission allowances will be allocated in proportion to historic emissions in a baseline year. It is often assumed that revenue from carbon coupon auctions or carbon taxes will be used to reduce general taxes. Neither assumption is necessarily true. Indeed, most market instruments can be designed to have the same redistributive impacts. For instance, tax revenues might be redistributed to industries that pay the tax. (Sweden’s tax on SO2 is redistributed to utilities.) Emission allowances might be allocated to individuals. In the same way that government can allocate carbon tax revenue to community transition strategies, it can give allowances to community transition funds. Credit trading is an exception to the rule that different market instruments can be designed to have the same redistributive impact. Under credit trading there is no way of allocating auction revenue or distributing allowances to aid sectors. Burden sharing depends on the standards applicable to a firm and their cost of reducing emissions. Firms with large, low cost emission reductions may favour credit trading because they assume they will be able to sell large numbers of credits that are surplus to regulatory standards. One advantage to a carbon tax, or auctioned allowances, is that government has flexibility in how it redistributes revenue. If one sector is reaping windfall profits through a combination of low cost emission reductions and tax credit packages for energy intensive sectors, government can reduce the tax credits and shift revenue redistribution to sectors that need assistance in the transition to lower carbon emissions. For instance, the passenger transportation sector might need investments in transit in order to make the transition. Different instruments raise different issues with regard to the certainty of achieving an environmental goal. The difficulty with the carbon tax is that it is hard to know what level is needed to achieve an environmental goal, and it requires ongoing political will to keep increasing the tax. Credit trading, unless combined with a cap and allowance system, requires ongoing increases to the stringency of regulations, and is thus also dependent on continuing political will. It would be difficult to work out a politically acceptable free allocation of allowances in a cap and emission allowance trading system, but once the system is established it would have momentum and be hard to derail. Cap and carbon credit trading, would be relatively simple to establish and creates momentum as well. Market Instruments and Competitiveness Presenter: John Duffy Macroeconomic modeling has been used to estimate the costs of reducing emissions in the industrialized world. Macroeconomic models have been subject to criticism for being highly dependent on assumptions, but they are the only tools we have. The good news is that the costs of reducing greenhouse gases are less costly in Canada than in Europe and Japan. The bad new is that it is twice as high in Canada as in the US. This is an important conclusion if it is true, as the US is our greatest competitor. The US has lower cost emission reductions mostly due to their use of coal and the easiest way to reduce greenhouse gases is to switch from coal use. The relative lack of low cost emission reductions in Canada will have an impact on our competitiveness. On the other hand, energy is only a small share of the total costs of goods produced in Canada and US. On average energy costs only represent four per cent of total productions costs for Canadian industry. We need to keep the big picture in mind; the costs of greenhouse gas reduction may be a small factor in our overall competitiveness. The main advantage to market instruments is that they provide for flexibility in where emission reductions occur and thus should reduce the cost of compliance for industry. This will help Canada’s competitiveness. Grandfathering allocations (i.e. distribution in proportion to past emissions or productions) would lead to "windfall profits," but these profits are likely to be invested and could lead to increased productivity. Auctioned permits means the profits go to government and the economic effects depend on what the government does with the revenue. Paying down the debt would remove money from the economy. Lowering taxes would free up money for investment, and would also lead to productivity gains. Panel 3: Trading in the Real World The Toronto Greenhouse Gas Pilot Trade Project — Mobilizing Municipalities Presenter: Ralph Torrie, Torrie Smith Associates Local governments are major players in the energy economy: they own and control utilities; they control and operate transit; they regulate energy using activities; their land use planning determines urban form and energy consumption. The International Council for Local Environmental Issues wanted to look at trading to see if municipalities could have a role in trading systems using their levers to reduce emissions. At that time it was only the big energy companies looking at the concept. There was a desire to avoid a polarization in the argument between those steadfastly against trading and those for trading. The Toronto Greenhouse Gas Pilot Trade Project looked at the potential for municipalities to take what they were doing to reduce emissions and look to a potential role for emissions trading. The Pilot looked at a number of issues that relate to whether or not municipalities could realize the potential of reductions from municipal actions. Market instruments have to be designed so that the lowest cost emission reductions can be realized. Programs can be designed to shut out the lowest cost emission reduction opportunities. For instance, additionality requirements can rule out lowest cost emission reductions. The largest opportunities for low cost emission reductions remain through aggregating emission reductions on the demand side. Market instruments have to be designed so that their equity implications are acceptable. There is no right and wrong answer to what is equitable: it is a political decision. However, market instruments will create winners and losers and need to be designed with equity in mind. Market instruments will require government refereeing or intervention. Government must establish an enabling framework so that trading can proceed in an orderly way. In particular, there needs to be government sanctioned protocols for quantification and verification of emissions or emission reductions. There is a particular need to address the quantification protocols for electricity demand measures. Average emissions are simply too poor a proxy for actual emission reductions from demand side management, but the protocols cannot be overly complex and expensive to apply. Transaction costs must not cripple the program. There are a lot of innovative ideas out there to avoid high transaction costs. Municipalities are looking for a way to bring their emissions reductions to a market and minimize the level of transaction costs. The transaction costs will go down as a system becomes established. The market must at the outset not squelch innovation since it will bring down transaction costs. The size and the scope of the cap is all important. An open market trading system is not viable as an effective long-term solution to growing emissions. One of the stressful things that trading brings up is concern that the environmental goal will not be achieved. There are a number of conditions that have to be met for local government to participate in emissions trading, including: strict criteria for quantification and verification protocols, an enabling framework (certification, rules), inclusion of end users, resolution of electricity credit problem, stability, aggregation, brokerage, financial return. Questions: Q: Is emissions trading getting too much attention? A: Any attention to the greenhouse gas issue is a good thing in my view, but I do feel that there aspects of the issue which are more important than emissions trading but which are getting less attention. First among these is the gap between what the climate scientists are telling us is necessary — a 50% to 70% reduction in emissions — and the level of the Kyoto target – only a six per cent reduction in Canada, and even less in many other countries. We are still in denial on the size of the transition we are entering. We need to acknowledge and take responsibility for the size of emission reductions that must be achieved if the emissions trading market is to be relevant to the task at hand. The US Sulphur Dioxide Trading Program Presenter: Dale Bryk, Natural Resources Defense Council In the US, as in Canada, the idea of a carbon tax does not have much political support. On the other hand there is real appetite for trading even though many industries do not want to see a carbon cap or ratification of the Kyoto Protocol. One of the advantages of trading, even in the absence of a cap, is that it provides companies with an opportunity to explore the potential for a competitive advantage in a carbon-restricted environment and incentive to seek out low-cost or profitable emission reductions. Not only does trading allow companies to reduce the cost of compliance with regulatory requirements, it can also result in additional environmental benefits. This happens, for example, when trading makes it cost-effective for a company to over-comply in early years and "bank" credits for future use. The SO2 program is an example of the value of banking. The goal of the SO2 program is to reduce emissions by twenty per cent of 1980 levels in Phase I, and by an additional 30% in Phase II, for a total reduction of 8.5 million tonnes of emissions by the year 2000. In Phase I, many companies decided to over-comply, knowing that they could bank their excess reductions for use in Phase II. As a result, participants reduced total emissions by 35%, rather than merely twenty per cent during Phase I. These early reductions – nearly two million tonnes – benefit the environment by removing acid from the atmosphere immediately, while simultaneously helping companies to reduce future compliance costs. Another lesson learned from the US program was that it is very easy for regulated companies to overestimate the costs of compliance with future emission reduction requirements. This is primarily due to the fact that it is impossible to predict the technological advances that trading will drive. The great advantage of a cap and trade system is that it puts all compliance options in direct competition with one another, lowering costs and driving companies to develop new and cheaper methods of compliance. In the acid rain program, this resulted in cheaper low sulphur coal, technological advances allowing the use of low sulphur coal without capital investments to upgrade plants and cheaper control technologies — scrubber costs fell 50% from 1989 prices during Phase I of the program. In addition, when the acid rain program was initiated, many assumed that companies would only trade emission allowances internally, and did not take into account the efficiencies that companies realized by trading allowances with one another. Projected annual compliance costs for Phase II were expected to be around $2.6 billion, but actual costs have been around $0.7 billion and are expected to peak at $1.4 billion. In a greenhouse gas trading program we can expect even greater opportunities to reduce compliance costs because there will be so many more options for emissions reduction than there were in the acid rain program. Setting baselines and distributing allowances are very contentious processes, as the US acid rain program demonstrated. This is likely to be even worse in the context of greenhouse gas trading because there are far more sources and sectors that can argue they have special circumstances. If allowances are allocated on the basis of emissions during a historic baseline period, as they have been under most existing trading programs, dirtier generators are likely to benefit. In contrast, basing allocation on a single, output-based standard — for example tons of emissions per megawatt-hour — would give an advantage to cleaner generators. Baselines can also effect the speed with which emission reductions occur. California’s Regional Clean Air Incentives Market (RECLAIM) program (a cap and trade system for local pollutants) set its baseline so high that in the first years all sources were in compliance even though emissions had increased. Questions: Q: The actual price on your graph does that reflect the market price of the allowance? How is the market price determined? A: The graph illustrates the average market price for allowances sold in the program’s auction. Companies may participate in the auction or transact directly with other companies. Q: When might some of this be implemented in the greenhouse gas context? A: A number of parties are already experimenting with carbon transactions and exploring the possible frameworks and rules for a greenhouse gas trading scheme. However, there are some valid reasons for caution in this area. If a single bad trade receives a substantial amount of criticism from the environmental community it could tarnish the whole idea of trading. We want to be sure that what companies are doing stands up environmentally. The NESCAUM and PERT Credit Trading Program Presenter: Ron Nielsen, Pollution Probe Under US programs there are essentially two types of trading credit programs and allowance programs. Nearly half of the states in the US are engaged in some sort of trading system, mainly to deal with Clean Air Act "criteria pollutants." The US EPA has encouraged states to experiment with trading in non-attainment areas. Most programs are concerned with ground level ozone. One of the first efforts to look at the open market credit trading was under the NESCAUM (North East States for Coordinated Air Use Management) program. Most of the programs work with the existing legislative and regulatory system. For instance, trading is used to reduce the costs of Reasonably Available Control Technology standards. These standards are essential to creating the scarcity that drives trading. The Regional Clean Air Incentives Market (RECLAIM) program was an exception to reliance on existing regulatory standards. It is an allowance trading system. It was established because the California’s South Coast Air Quality Management District felt they had gone as far as they could with a command and control approach. The elements common to both allowance trading and credit trading are that you have to set a baseline of some form, and there needs to be an incentive causing sources to reduce. Both systems rely on an incentive to reduce. In credit trading the incentive is regulatory standards or targeted emission reductions. In an allowance trading program it is the number of allowances. The two programs are working on the same basic principle; the difference lies in what is quantified, the reduction or the allowable emissions level. In an open market credit trading program any source is eligible to reduce emissions and seek recognition of ERCs. Allowance trading is typically a closed market: a cap is placed on emissions from specified sources. In the states where trading has happened, you are seeing very small amounts of the total emissions being addressed: typically trading programs only deal with about five per cent of annual emissions of pollutants in the state. Without really clear incentives the only people taking advantage are those that are either very low or very high on the cost curve. Volumes have been pretty low. They have contributed to early reductions, but on a small scale. PERT — Ontario’s Pilot Emission Reduction Trading Program — is an Ontario-based pilot initiated by industry but using a multistakeholder approach. It addresses a number of pollutants including NOx, SOx, CO2, and possibly VOCS. A letter of understanding with the Ontario Ministry of the Environment promises some sort of recognition for reductions made under the Pilot. To date it has established a mechanism for creating credits, registering them and trading reduction credits. Two of the six trades have been international. There is an inventory of reductions on the books now. The mechanics involved in setting up a trading system are reasonably straightforward. The primary difficulty is the same in both allowance trading and credit trading: you need to set baselines or allocate allowances. The trading program needs to be integrated with the legislative framework which establish a need to reduce emissions. The trading program itself does not create the need for emission reductions or provide the incentive to make reductions. It is simply the mechanism through which sources can potentially obtain more cost effective reductions, and can do so on a schedule that is potentially more to their advantage, thus providing flexibility as well. Existing trading programs have involved only a limited number of sources (e.g., the US acid rain program began with 263 sources and will expand to approximately 2000 sources in its next phase). Developing a trading program for greenhouse gas, in which there are millions of sources, is an entirely different challenge. Thus one of the key issues to be addressed is: at what point in the system (upstream, midstream, downstream) should a trading program be established? This choice will affect the number of participants in the trading program, which has a direct impact on implementation and administration issues. Questions: Q: The actual price on your graph does that reflect the market price of the allowance? How is the market price determined? A: It is also influenced strongly by the degree of certainty surrounding whether credits will be recognized. Most sources have made their own reductions because there are often questions as to whether the credits will be approved by EPA. If there is concern that the credit may be revoked, then its perceived value will be lower. Q: Is emissions trading getting too much attention? A: The discussion on emission trading is deflecting the discussion from the key issue which is the environmental targets themselves. Q: When might some of this be implemented? A: Five years is a reasonable time line. We have ministers calling for a credit for early action program in place for January 1999, and on the international scene the clean development mechanism is allowed to take place in the year 2000. You could have the developed and developing countries producing credits by that time. Although, you want to proceed with caution to avoid bogus credits, and avoid having the system called into question. Reducing Industrial Emissions: the Alcan example Presenter: Steven Pomper, Alcan Aluminum Alcan will reduce its GHG emissions from 1990 levels but will not likely be a net seller of credits. They intend to gain trading experience but will be for the most part apply credits to their future business activities. The aluminum production system takes bauxite and processes it through an alumina refinery. The aluminum oxide (alumina) is then sent to a primary smelter that uses a great deal of electricity to produce aluminum. The significant part of the process that produces greenhouse gas is the primary smelter. On average aluminum production on a life cycle basis generates about fifteen tonnes of CO2 per tonne of aluminum produced. The majority of that fifteen tonnes, about twelve tonnes, is associated with the electricity used, the carbon anode consumption, and the PFC generation from the smelting process. The carbon anode consumption represents about 1.5 to 2 tonnes. PFCs are very long-lived greenhouse gases. They have a Global Warming Potential (the total impact on global warming over the next 100 years) that is about 6500 to 9200 times greater than CO2. They are liberated from the smelting process during a process upset known as an anode effect. Alcan has reduced PFCs by about 25% since 1990. We see further reductions in the future. Alcan would like to see trading programs designed in a manner that both allows us to take credit for our successes, but also makes us responsible for the full lifecycle of our product. Alcan believes in a consumption-based approach, which implies that Alcan should be responsible for emissions from the electricity they use. Alcan thinks they should be responsible for all upstream effects, including the mining. They will also take responsibility for transporting the product to the consumer. While a production-based approach would make them look better from a global warming perspective, they believe the decision-maker should take responsibility for their decision. Alcan believes in the credit-based approach since it is actions that should be rewarded. Alcan does not see the debate around allocation as a productive discussion. Being firm believers in the open market system, they do not want a small group of people deciding how much it is going to cost them to do business. Alcan believes that the voluntary approach by itself will not be enough to get the job done, they want to use a legally binding covenant. By using a credit-based approach, Alcan hopes to have a number of actions that reduce greenhouse gas. For instance, they would like to get credit for recycling activity: a tonne of recycled aluminum can be produced at about five per cent of the CO2 as for primary aluminum, thereby avoiding about 95% of the emission. The aluminum industry would like to see this credit in order to further encourage recycling. Transportation applications of aluminum is where you see large reductions in emissions through displacing heavy materials and therefore improving fuel consumption. For example, one tonne of aluminum which displaces steel will reduce twenty tonnes of CO2 over the life of an average vehicle. Alcan has spent over $200 million on technology which can be applied to the standard family car. The Ford P2000 mid-sized car is an example where the extensive use of aluminum helped to reduce vehicle weight from 3300 to about 2000 pounds. The fuel economy of this vehicle increased from 27 to 35 miles per gallon. With the lightweight car, the power plant can also be reduced to achieve the same performance while saving addition fuel. . Questions: Q: What was the decision like when you decided to reduce PFCs, given that there was no price for carbon? A: When PFC emissions occur there is a process upset, something that you wanted to avoid regardless. In some cases the investments necessary to avoid these upsets paid for themselves in power and production savings, in others the investments cannot be justified simply on an economic basis. Q: How can you accommodate reductions if your business is growing? A: You will run into a problem in the long run without further technological innovation. For the present, we have a remarkable opportunity to reduce some of these fairly potent gases. Also important is secondary aluminum vs. primary, you can use it for a twentieth of the carbon intensity. We have to remember the Kyoto Protocol was not about growth, but about limits to growth. Q: We have been advocating the same responsibility regarding if you consume it, so does that mean the recyclers get the credit for what they recycle? A: If the action is taken by group that collects the aluminum, they should get the credit. This would create quite an inducement to encourage further recycling. Q: When might some of this be implemented? A: These ideas could be put in place with a credit for early action approach Panel 4: Alternatives to Trading and Concerns Regarding Trading Communities and the Need for Transition Strategies: A Labour Perspective Presenter: Cliff Stainsby, BC Government Employees Union This presentation focused on transition strategies, with particular reference to working people and communities. Cliff Stainsby presented the perspective of the BCGEU, which has about 60,000 members who work and live throughout BC. Climate change is a symptom of a larger problem and we need transition strategies that go beyond climate change. The government response to climate change has so far been "tentative" at best, as many studies based on bottom-up considerations of what can actually be done indicate that substantial emission reductions can be achieved with current technological potential, while maintaining economic growth and creating jobs. Many economists tend to distrust these bottom up models, so they construct their own models which maintain that reducing emissions will be extraordinarily expensive. These top down models are extremely misleading, as they rarely include the benefits of avoiding climate change; they place tremendous weight on current consumer preferences; and, they assume that the current economy operates optimally. In either scenario even if economy-wide impacts are minimal, some communities, workers, and industrial sectors will be affected. It is neither fair nor just for society to simply abandon these communities and workers to the whims of the marketplace. Therefore, we must begin to develop strategies which will fairly share the burden of change, and which will create new opportunities for these people and communities. These strategies should focus on full employment as an economic goal, and should direct resources to assist in community restructuring. Economic instruments, such as revenue-neutral green taxes and emissions trading can aid in facilitating these changes, which will result in a fairer distribution of wealth and income. With respect to tradable permits, initial allocation of such permits should be auctioned, and the economic rent should go to the public purse where it can be used to fund transition activities. This would also help internalize the costs of greenhouse gas emissions. Our current economic situation poses a problem for successful transition strategies as governments are increasingly restrained in their ability to function on behalf of their own citizens. For example, the NAFTA and the proposed Multilateral Agreement on Investment (MAI) remove the ability of government to discriminate in favour of local communities. There are other problems impeding the development of successful transition strategies: the ideology of progress and the religion of humanism. These tenets of progress and humanism are rarely questioned in our society; progress maintains that there are no limits to our ability to increase our material well-being, and humanism holds that as a species, we will be able to solve all problems to our own advantage and betterment. Combined, these theories maintain that we need not worry about the future, as progress will look after things, and nature will always be ours to dominate. We now face climate change because we mindlessly equate more with better, we arrogantly assume that ingenuity will prevail, and we pretend that limits do not exist. A successful transition strategy cannot deal simply with climate change because we face so many problems that threaten workers and communities, and because our way of life is unsustainable. Civil society has withered, and control of the public sphere has been ceded to the corporate sector. Our belief in progress blinds us to the warnings of the world’s top scientists that there are limits to our growth. Therefore, to be successful, any transition strategy must consider abandoning progress and the arrogance of humanism. Simply eliminating the threat of climate change will not result in transitions which provides much hope. A meaningful transition strategy will see us move from worshipping progress to striving for sustainability. Concerns about Market Instruments Presenter: Michael Doherty, BC Public Interest Advocacy Centre This presentation outlined five objections or concerns about economic instruments and more specifically, tradable permits. On a somewhat ironic note, Michael Doherty noted that discussions regarding economic instruments are extremely useful, as they provide great work projects for many in the public policy, economic and environmental communities. The first main concern about economic instruments is the lack of political will to implement them, or adopt serious measures to avert climate change. The policy options exist but to date, governments have failed to endorse them in a serious way. It is a leap of faith to think that governments want to use economic instruments, because they have not yet done so. The second concern pertains to the value of debating economic instruments. While there is no harm in discussing these ideas, one drawback is that these discussions give the illusion that something is happening on these issues, letting decision-makers "off the hook," and providing them an excuse to do nothing. The third problem is that even if a system for tradable permits was established, governments would still find a way to undermine them, as there will always be special circumstances warranting exceptions to regulations. The fourth concern is that discussions regarding economic instruments assume a primacy of economics that may not be warranted or deserved. The assumption that economics prevails over other disciplines in this regard should be reconsidered. Finally, Michael Doherty argues that economic instruments will hurt the poor and that middle class behaviour will not change. For example, the poor in society will have difficulty heating their homes but the middle class will continue to use Sport Utility Vehicles (SUVs). Purchases of these energy-wasting machines has little to do with rationale economics and everything to do with image and status. Image and status will continue to drive demand for SUVs even if they become even less attractive economically. Michael Doherty concludes by stating that if governments wanted to address global climate change, any one of us could write up a plan on the back of a napkin that would achieve change, but that, to date, governments have shown little interest in actually putting economic instruments into effect. Questions: This discussion focused on the need for political will to act on climate change and the need to empower voters, consumers, and organised labour to advocate for change. In this regard, Michael Doherty commented that real change will likely occur when we have a crisis of some sort, and Cliff Stainsby noted that both the right and left sides of the spectrum are enthralled with progress, and until this notion is dismissed little change will occur. Bottom up solutions present a particular challenge because people tend to think more as consumers than as voters. Day Two: Credit Trading for Credit Producers Panel 1 – Review of Credit Trading Overview of Credit Trading Presenter: Chris Rolfe, West Coast Environmental Law Chris Rolfe’s presentation reviewed the reasons for focusing on credit trading and discussed the pros and cons of credit trading. Credit trading is of special interest because it is happening already. Large emitters are shopping for low cost emission reductions either for public relations purposes or as hedges against the threat of future regulation. The latter is the more important incentive. Government has given a vague commitment to recognize the emission reductions that are registered under the Greenhouse Emission Reduction Trading program. There is a strong possibility that under a national Credit for Early Action program, emission reductions from projects which occur after 1998 will receive credit, most likely in the form of a portion of Canada’s allowable emissions budget (Canada’s Kyoto allocation). From an environmentalist’s perspective, credit trading is attractive because it creates incentives for a third party to overcome barriers to no-regrets measures. In a credit trading program a municipality, environmental group or entrepreneur can carry out a program to try and aggregate a large number of small emission reductions. They can potentially sell credits for programs like home retrofits, or trip reductions. The US Environmental Defence Fund is already in the business of generating credits for local pollutant emission reductions from scrapping old high emitting gas guzzlers. This theoretical benefit might be difficult to deliver in practice. Often the best projects from a societal viewpoint are the hardest to quantify. Early credit trading may help overcome political resistance to effective climate policy because early experiments with credit trading could deflate the projections that it is going to cost $300 per tonne to reduce greenhouse gas emissions. Also, companies that have accumulated credits may, in some cases, begin to see a competitive advantage to tough emission reduction targets. The disadvantages of credit trading are significant. Without a cap on emissions, credit trading will require ongoing political will to impose tougher standards. Using credit from a project that would have occurred anyway will reduce environmental effectiveness of regulations. This problem is particularly acute in the context of greenhouse gas emission because many projects which reduce emissions are profitable and they are happening all the time. Simply because of the difficulty of setting baselines and verifying emission reductions at multiple sources, credit trading will likely be much more expensive to enforce and administer. One of the biggest problems with credit trading is that it is likely to lead to an inequitable distribution of the emission reduction "burden." Under a credit trading program, the issue of burden sharing — who profits and who pays — is likely to be an accident. Large emitters who can reduce emissions cheaply may be able to make windfall profits by selling emission reduction credits. Although they can be subject to more stringent standards, they will be able to reap windfalls from low cost emission reductions prior to the development of stringent standards. Such windfall profits are not inherently bad, but they mean that some other businesses or other sectors will have to shoulder a greater share of the emission reduction "burden." Moreover, there is no possibility of using the allocation of emission rights to raise revenue for public emission reduction initiatives like transit or for community and worker transition strategies. Introduction to Greenhouse Gas Emissions Trading Pilot Presenter: Warren Bell, Ministry of Environment, Lands & Parks This presentation was an overview of the Greenhouse Emission Reduction Trading project, which is designed to test the effectiveness of emission reduction trading for greenhouse gases in the Canadian context. It is an eighteen-month partnership between the federal government, and number of provinces, industry, labour, and environmental groups. GERT was under development for several years, and came about because companies in BC wanted to explore the potential for the use of offsets. A pilot project was seen as advantageous because it would provide an opportunity to build good policy though experience. The purpose of GERT is to get as many stakeholders together and learn trading by doing. The pilot has three main objectives: to understand the role of trading; to develop standard approaches; and, to provide practical experience. The key elements of the pilot are the establishment of rules, the existence of a multi-stakeholder review, regulation, recognition, and evaluation. Recognition is particularly important as it provides early credit for trading activity. In this regard, a Memorandum of Undertaking to determine how to recognise trading has been developed. In terms of eligibility, the projects can be located anywhere in the world, but the buyer and seller must be located and registered in Canada. The program began on January 1, 1997, and review criteria have been established to evaluate the success of each project. Several trades are imminent — involving wind energy and the substitution of wood residue for propane. Some of the lessons learned to date are that trading is not easy, as there is much uncertainty around implications of the Kyoto Protocol. Trading is also a lot of work in that it is costly and time consuming. Mr. Bell encouraged those who want to learn more about GERT to visit the pilot web site at http://www.gert.org. Panel 2: The Nuts and Bolts Setting Baselines and Dealing with Additionality Presenter: Andrew Pape, Compass Resource Management As the panel title indicates, this presentation addressed some of the essential technical issues in emission trading, such as the definition of reference cases and additionality. According to the Greenhouse Emission Reduction Trading (GERT) pilot, a reference case is the best possible estimate of the greenhouse gas emissions that would have occurred in the absence of the reduction activity. It is used as the "project baseline" against which actual emissions are compared, to calculate the emission reduction from a project. A reference case is synonymous with a business as usual scenario. It is important that reference cases be carefully defined and include various external factors such as regulatory considerations, as these will be used in calculating registered emission reductions (RERs). An RER will be produced when actual emissions are less than reference case emissions. An RER operates as a form of quasi-credit, as there is no guarantee that RERs will recognized under future regulatory or tax regimes. The success of credit trading will depend upon the success in defining reference cases. There are two key ways to define a reference case: based on historic emission levels, or on projected emission levels. However, there are inherent uncertainties in both approaches, including statistical uncertainties for historic reference cases, and technical, regulatory and economic uncertainties in projected reference cases. GERT uses both approaches, and because its goal is to provide practical trading experience, it is possible that multiple baselines will be created by GERT projects. Where there are multiple baselines the actual number of RERs created by a project will be uncertain. "Additionality" involves a consideration of whether a project would have been undertaken in the absence of emissions credit trading. If it would have happened anyway, it is a non-additional project. It is difficult to determine project additionality, and there is no consensus on the definition in the GERT Pilot. However, additionality is extremely important in some policy contexts. It guarantees an environmental benefit will occur for all project activities. If a company is using a credit from a project as alternative to complying with a regulation, the environmental impact of the regulation will be upheld. If a regulation mandates a certain emission reduction, and that reduction is achieved through credits from a non-additional project, the purpose of the regulation — reducing greenhouse gases — is defeated. Money has traded hands and there has been an emission reduction, but the regulation has not succeeded in shifting the overall emission trajectory. The Pembina Institute has established five criteria for characterizing additionality: * Regulatory additionality. No other laws or regulations require the activity; this is the same as the "surplus" criterion in GERT, so this aspect of additionality is incorporated into GERT. * Emissions additionality. The project results in real atmospheric reductions; again this has been incorporated into GERT through the criteria that emission reductions must be "real." * Financial additionality. Does a project pass regular investment criteria? If it would have been invested in because of its potential cost savings or profitability, it is not financially additional — however, this doesn’t exclude all profitable projects — there are many profitable investments that are not pursued in our economy (see below). * Technical additionality. Does the project exceed the norm for technologies and management in a sector? * Overcoming non-financial barriers to investment. Does the project overcome some political or institutional barrier which stops profitable projects from happening? There is a risk that demanding additionality may mean the most cost-effective projects are not always pursued. However, in the absence of real caps on emissions, you need to consider additionality to maintain environmental effectiveness. Additionality can be incorporated into reference cases by looking at factors such as typical improvements in energy efficiency within a sector. There are several factors to consider in defining a reference case, including the physical project boundaries, the historical emission rate, the sensitivity of the project emissions to technical economic and political factors, the identification of uncertainties, and assessment of the elements of additionality. Andrew Pape then considered various steps in defining historical reference cases and projected reference cases and concluded that the successful credit trading depends on successful definitions of reference cases and a clear understanding of additionality. Dealing with Lifecycle Emissions and Leakage Presenter: Chris Rolfe, West Coast Environmental Law Chris Rolfe discussed what is defined as leakage, gave examples and suggested a general approach to leakage. Leakage refers to the indirect undercutting of emission reductions caused by an emission reduction project. Examples include: * Major improvements in vehicle fuel efficiency may, in the absence of fuel price increases, lead to increases in kilometres driven; * Manufacture of hydrogen for a fuel cell may significantly increase emissions at another location; and, * Telecommuting may decrease the number of days in which telecommuters drive to work, but as a result telecommuters may choose to live further away. Consideration of leakage is not unique to greenhouse gas credits, but because the analysis must be global or national, the analysis becomes more complicated in the case of greenhouse gases. The first step to quantifying leakage is to define the project in a way that includes easily measured indirect impacts. If a project is defined as a measure which decreases energy consumption at one point in a production process without considering the need for increased processing at a later point, the project boundary is too narrow. Beyond the project boundary, the need to consider leakage involves a balancing of the desirability of accuracy with the ability to determine leakage accurately and at a reasonable cost. Development of lifecycle emission factors will help reduce transaction costs and increase accuracy. Work is underway in Alberta on defining a methodology for calculating the emissions avoided by developing new green power sources which reduce the demand for fossil fuel fired electricity. Similar work will eventually be needed to develop lifecycle emission factors for different fuels. Emission factors used to calculate changes in emissions resulting from an emission reduction project should reflect marginal sources of a particular form of energy. Also, with time, rough but conservative adjustment factors for leakage are likely to be defined in approved protocols, with the onus on the project proponent to show why a less conservative adjustment factor should be used for their project. Until more emission factors and leakage protocols are developed, leakage will be a challenge. The first step is a common sense qualitative assessment of leakage. In some cases an initial qualitative assessment may negate the need to consider a certain type of leakage any further. If a qualitative assessment suggests leakage may be significant, proponents could be tasked with developing a defensible leakage estimate. Often rough, back of the envelope, calculations will be as accurate as elaborate computer models. Who Owns an Emission Reduction? Presenter: Paul Wilson and Ron Ezekiel, Russell & DuMoulin This presentation focused on the issues of ownership of greenhouse gas emission credits, recognizing that to get to market based system will require new legal mechanisms. The presenters noted three essential elements of a trading system: that you own what you are trading; that you can prove title; and, that you can trade it for effective use by others. This market system is often taken for granted in our society — titles, deeds, notaries, registries, and last but not least, physical possession are some of the mechanisms we use to determine ownership of things. Yet, an emissions reduction does not fit into these traditional perceptions of property. Clearly it’s not something that you can have physical possession of, and it can not be classified as real or personal property. A credit is somewhat like a licence, in that once you use it, it is destroyed; and it is also like intellectual property in that you can deny its use to others, but its legal nature is uncertain. Emission reduction credits are a recent concept, and until we define ownership and rights in such things through conventions, domestic laws, and common law, we have no guidance as to how or whether they can be owned. In the meantime, the legal solution has been to use contracts with every party who could potentially claim ownership. In many cases, there are multiple claims and getting all parties to agree is key to providing value in the credit. These ownership agreements follow basic contractual requirements. As with any contract you need to be able to identify the property, the parties, and the price; however, identifying specific emission reductions may be more difficult than identifying most other forms of property. Price options can vary in complexity, and can depend on factors such as risk for the buyer depending on the certainty of the emission reductions. The value of credits is dependent upon co-operation and some means of verification to enable the owner to claim, use, and perhaps trade title. The buyer may want to have some right to verify the production of the emission reductions, and this may include a right to enter onto the sellers’ property, check records etc. You also need to define the sharing of risk. Will the buyer have any recourse against the seller if the credits are not recognized under a future regulatory program? The presentation concluded that the market side of market instruments will be extremely important as a measure of developing their long-term effectiveness. Emissions trading contracts must clearly establish representations and warranties in order to anticipate problems which may arise. Finally, if we are to use the market to trade efficiently, we need to focus as much on making the market side work as on the other policy dimensions. Questions: Q: Has there been any litigation on the ownership of emission reduction credits? A: Ron Ezekiel noted that he is not aware of any litigation regarding ownership of emission credits. Panel 3: Case Studies Case Study 1: Toronto Greenhouse Gas Pilot Trade Project Presenter: Ralph Torrie, Torrie Smith Associates Since 1989, Toronto has established a leadership role on the greenhouse gas emission reduction front. Toronto wanted to determine if the reductions it had realized could be traded. If we are going to have carbon trading, is there a way which will be more conducive for municipalities to take part? The city took actual historical emissions reductions to see if you could bundle them in such as way that provided for credible credits. Municipalities have a profound impact on greenhouse gas emissions. They are directly responsible for 4 megatonnes of emissions per year in Canada, plus seventeen megatonnes from landfill gas. If you expand this to what they indirectly control, through land use zoning, transportation and energy planning, energy related emissions for light industry, district energy and green space — over many aspects of the infrastructure in the community — the total goes up to about 295 megatonnes per year. This equates to half of Canada’s greenhouse gas emission inventory. Because of all these different ways for local governments to effect reductions in greenhouse gas emissions, they should be a factor in any emission trading regime which comes into existence. The Toronto Pilot Project was a way to evaluate this potential through an actual trade. Often the primary reason for these investments in energy efficiency is to save money or to realize some other community good. This means that many emission reductions do not meet any additionality rules, but if you have caps additionality becomes irrelevant and it is antithetical to the idea of getting the most cost-effective emission reductions. Under the Toronto Pilot, possible candidate measures were screened according to a number of criteria. Each measure was assigned a low, medium or high score according to how they met the following criteria: * Ownership. Is there a significant issue as to whether the municipal government owns the emission reduction? Were the measures completely paid for by the City or implemented by the City? Have other potential claimants transferred any ownership rights to the City? * Quantity. Larger emission reductions mean more revenue and lower proportionate costs of verification and protocol development. Measures that netted more than 50,000 tonnes of reductions per year were given a high score; those that had fewer than 10,000 were given a low score. * Future Potential. Even if a measure had relatively small emission reductions it might still be a good candidate if there was large potential for future emission reductions. * Quantifiability. The emission reductions achieved by some measures are much easier to quantify then others. For instance, landfill gas quantification is easy because it is metered. Energy efficiency retrofits remain complicated. For each measure we considered issues related to precision of measurement, uncertainty, reproducibility. * Verifiability. Can the emission reductions be independently verified or the quantification reproduced? Landfill gas emission reductions are relatively easy to verify after the fact, but emission reductions from demand side management (DSM) measures are often difficult. It is, for instance, very difficult to know the emission reductions that result from trip reduction programs. * Additionality. Although additionality becomes irrelevant once you have caps in place, in the interim it may be something considered by credit buyers. The Toronto Pilot looked at whether measures were part of plans established under the Cities for Climate Change Campaign or whether they were even partly motivated because of the city’s voluntary cap on emissions. * Permanence. Energy efficiency projects that reduce fossil fuel consumption have a permanent impact because a given amount of fossil fuel is never burned. On the other hand, sequestration projects are only permanent if the sequestration is permanent. * Leakage. Leakage of emissions happens when the emission reduction measures result in offsetting emission increases. Leakage has to be considered on a case-by-case basis. * Cost-effectiveness. Many of the measures are cost effective in their own right, without considering the potential sales of credits. * Environmental co-benefits. Most energy efficiency measures reduce emissions, especially if they are avoiding electricity production at coal or oil fired generating stations, or reducing vehicular energy use. Other measures are neutral and there are a few that can have some negative environmental effects (e.g. some vehicle efficiency measures lead to increased NOx emissions). * Social and Economic Co-benefits. Case-by-case consideration is needed here, but economic development and job creation benefits of greenhouse gas reduction programs are often the most important rationale for implementation. These criteria were then applied to various candidate measures, and each candidate measure was given an overall rating. The following measures were evaluated: * Street and lane lighting retrofit. This involved a retrofit to high efficiency lamps funded by a $15 million loan from Toronto Atmospheric Fund and a $2 million grant from Ontario Hydro. * Landfill Gas Recovery. Three city landfill sites have methane recovery and landfill gas recovery and generators to produce electricity. Not only are methane emissions reduced, but the energy displaces fossil generation at Ontario Hydro. * Waste Reduction and Recycling. Extensive reduction, recycling and composting programs reduce landfill methane generation and emissions from manufacturing virgin paper and other products. The emission reductions associated with the saved upstream energy use from the blue box program is estimated to be in the range of 100,000 tonnes a year. * Water conservation. Water conservation has big energy conservation benefits because of electricity used to run pumping stations. * Carbon sequestration. The trees planted every year by the City of Toronto do not have much direct carbon sequestration, but they help reduce emissions through their shading and wind breaking functions and they serve other community needs. * Community Greening programs. Toronto and the Toronto Atmospheric Fund have fostered a number of neighbourhood based energy and water conservation programs. Some of these are the door-to-door programs, with the energy and water audits. * Building Code amendments. The City of Toronto puts stricter conditions on new developments than exists in the Province. * Expanded cycling infrastructure. Expansion of the city’s bike transportation network would attract commuters to cycling from other modes. * Land-Use Measures for Energy Efficiency. Urban form has a profound impact on energy use. It is possible to quantify emission reductions by using benchmark data. * Deep Lake Water-Cooling. Deep lake water can be used to cool downtown buildings, displacing coal-fired generation for air conditioning. * Transportation Demand Management. Toronto has a Transportation Demand Management Plan for new non-residential developments. All these measures were evaluated to come up with the measures best suited to the Pilot Project. For the Pilot we were looking for measures that had the best chance of succeeding and that scored high on most of the screening criteria. The final short list included: street lighting, land fill gas, community greening and building retrofit. Then we went in with more rigorous criteria, with the help of the Pilot Emission Reduction Trading program, and measured the emission reductions. Specific conclusions about the quantity and value of emission reductions that the City of Toronto may be able to take to a trading market are in a report that is currently being reviewed by the City. The Pilot Project also led us to some general conclusions about local government participation in carbon trading markets. Our work has reconfirmed our view that emissions trading could indeed be a significant source of revenue for local governments and that local governments are in a key position to deliver relatively low cost emission reductions to a trading market. We also concluded that for this potential to be realized will probably require that the technical and institutional capacity for quantifying, verifying and brokering emission reduction credits develop as a specialized service industry. Only the largest cities would be able to develop and maintain the in-house expertise required for quantification, verification and brokering of emission reduction credits. There will need to be some sort of exchange and associated quantification, verification and brokerage services. Finally, the market itself must be designed in a way that facilitates the participation of energy end users, that encourages aggregation of end use results, that stimulates innovation in the reduction of transaction costs, and that is governed by an enabling framework that is clear and no more bureaucratic than necessary. People interested in further information about the International Council for Local Environmental Issues’ (ICLEI) work on climate change, emissions trading or the Toronto Pilot in particular can contact Tanya Imola in ICLEI’s Toronto office (timola@iclei.org). Ralph Torrie can be reached at rtorrie@torriesmith.com. Questions Q: Additionality is of no value in a system with a cap, but if there is no cap isn’t additionally an issue? A: Yes I agree, but it is only relevant in a Pilot and will not be relevant under a program with a cap, so we did not want to focus on it too much in the Toronto Pilot. Q; Did you try and quantify trip reduction programs? A: We did not include trip reduction programs in this particular exercise but we have developed protocols for the quantification of a number of transportation emission reduction measures, including trip reduction, mode switching, vehicle efficiency improvements, alternative fuels, and even land use and other measures that eliminate trips or make them shorter. These measure types are all supported in the Cities for Climate Protection software that we now use for this work. There is a fair literature on trip reduction quantification; employer trip reduction programs are fairly widespread among both government and corporate employers in the US. Leakage of the savings can be a problem with some of these measures, for example if you get an employee to leave their car at home in favour of transit or car pooling (thereby reducing Single Occupancy Vehicle (SOV) trips), is the car parked, or does it end up being used by other drivers in the household who were using transit? Case Study 2: The Revelstoke District Energy Project Presenter: Brian Currie, BC Ministry of Environment, Lands & Parks The BC Ministry of Environment, Lands and Parks is trying to shut down beehive wood-waste burners because of their emissions of fine particulate. Rather than simply incinerating wood-waste, the government is interested in seeing it utilized, either in products or as a source of energy. One of the more interesting proposals is a district heating project in Revelstoke which will use woodwaste to create heat for space heating in Revelstoke, displacing greenhouse gas emissions from propane. District heating is an old concept, involving heating water which runs through the town and heats the buildings. The concept is quite simple, so that it has easy applicability to other towns. There are already three towns in Eastern Canada using this technique. The Revelstoke proposal was the product of the local residents’ Community Energy Plan. Hot water will also be used to heat lumber kilns at the local sawmill. The Revelstoke project involves a heat source that heats and pumps the water that goes through supply pipelines. The community several years ago set up a distribution network throughout the town, and it is mainly uses propane. Generally, wood residue is considered to be a GHG neutral energy source, because the emissions that occur when you burn the wood waste are offset by growing timber. Thus, whenever you can use wood residue to replace a fossil fuel there will be emission reductions, and the potential for credit creation. There is a question of the success of the proposal, since they sold a big part of the town on propane eight years ago, so much relies on whether they can market the project. There is a potential for a financial benefit to the proponents. This whole project would reduce the overall CO2 by about five per cent below the projected baseline. One of the issues that arises with a project like this is who would own the emission reductions? On the one hand, it seems that the person that is building the District Energy System would be the owner of credits. On the other hand, several thousand users in the community that could claim credit since it is their emissions which are being eliminated. Is there a way for them to sign off on the credits? There are a number of ancillary benefits to the project. District heating would use about 25% of the heat produced, and it is possible heat from woodwaste could be used to pasteurize water as an alternative to filtration and disinfection. Waste heat could be used to heat the municipal pool water or help to melt snow on the roads in the winter. Finally, it can consume all the wood residue in the area, eliminating existing high emitting incinerators and improving air quality in Revelstoke. Case Study 3: Challenges of Trip Reductions Projects Presenter: Todd Litman, Victoria Transport Policy Institute Transportation typically represents a quarter to a third of emissions. It is particularly high in BC, because of the clean hydro. It is also growing at a high rate. Transportation has some unique challenges, and some unique opportunities. For transportation emissions reductions, there are three categories of strategies: * Increasing fuel taxes with a revenue neutral tax shift that reduces more economically harmful taxes, such as income taxes. It is the most direct and effective way of achieving emissions reductions. Most objective studies indicate that such tax shifts would provide significant economic benefits, including increased employment and productivity. But the tax remains politically difficult to implement. * Increasing Corporate Automobile Fuel Efficiency (CAFE) standards, and promoting alternative fuels is perceived by many energy conservation advocates as the best strategy for reducing transportation emissions. However, it is not easy to do because the price of gasoline is the cheapest it has ever been, and the market is going towards bigger and heavier vehicles. Also a portion of the emission reductions achieved by efficiency improvements is lost to the take-back effect (also referred to as "leakage" or the "rebound effect"). If you provide consumers with more efficient and thus cheaper energy using equipment, they tend to consume more. For example, if fuel efficiency increases by 30%, reducing the per-kilometre cost of driving, consumers tend to drive five to ten per cent more than they would otherwise, eroding a portion of the energy conservation. Although there is still a net reduction in energy use, this is offset by increases in other external costs, including accidents, traffic congestion, infrastructure costs, sprawl, etc. Many households have two or more vehicles. Convincing households to purchase a fuel efficient or electric vehicle may have modest benefits if such vehicles are not heavily used because they have lower performance and capacity than the household’s older, conventional vehicle. * A third general approach for transportation energy conservation are various win-win" transportation demand management strategies. These strategies are justified purely on an economic basis, through savings such as reductions in infrastructure costs, consumer savings, reduction in accidents, and reductions in local environmental damages. They also tend to increase equity by removing cross subsidies and giving non-drivers more travel choices. There are a number of measures which can be taken by all levels of government. For example, federal governments can reduce oil production subsidies and make employer provided transit benefits tax exempt (most employee parking is currently untaxed). Provinces can adopt distance based vehicle insurance and registration fees, and least-cost transportation planning. Measures that can be implemented at the local and regional level include Parking Cash Out whereby employees are offered the cash equivalent of parking subsidies as an alternative to receiving free parking; local transportation demand management initiatives, school trip management and car sharing. All of these strategies are technically feasible and cost effective. However, most decision-makers are currently unaware of them, overestimate their costs and underestimate their full benefits. They also face resistance from entrenched interests that benefit from the inefficiencies in the current transportation system. In order to reduce greenhouse gas emissions at what is truly the lowest cost, we need to change the approach we use to evaluate policy alternatives. It is insufficient to simply rank measures in terms of their program implementation costs per unit of greenhouse gases. It is also important to consider other costs and benefits. Some measures tend to increase other transportation costs, while others reduce such costs. Questions: Q: How can trip reduction programs be used to earn credit? A: The challenge is to verify the energy savings. You have to be careful to ensure that it really is incremental. 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