Interview with Jean-Yves Benoit, Economist, Office of Climate Change, Quebec Ministry of Construction, the Environment and Parks

[Newsletter] Why did the province of Quebec make the decision to participate in the Western Climate Exchange (WCI) instead of, for example, the Regional Greenhouse Gas Initiative (RGGI), based in the US Northeast?

[Jean-Yves] The RGGI only targets the electricity sector. In Quebec only one per cent of greenhouse gas (GHG) emissions come from electricity generation. The RGGI is a poor means for Quebec to attack GHG emissions and achieve our reduction goal.

Quebec chose the Western Climate Initiative for a number of reasons: First, the WCI aims to target every sector of the economy–it is a more global approach. Secondly, we believe the WCI will most likely constitute the base of a future carbon market in Canada and the United States. Three provinces have already signed on and Ontario is planning to join. Quebec wanted to be part of the development of the initiative that will have the most impact in North America and eventually throughout the world.

Furthermore, Quebec believes in a global market—not only a regional one—that will be created through smaller markets across the world linking up to address climate change. Merging with other markets is a preoccupation of the WCI and members of the Midwestern Greenhouse Gas Reduction Accord, the RGGI and people from the UK engaged in the European Union Greenhouse Gas Emissions Trading Scheme (EU ETS) are all expressing interest in doing the same.

[Newsletter] Quebec has demonstrated that it does not agree with the Harper government’s Turning the Corner plan as an adequate response to climate change. Can you describe the main difference in the approach Quebec is taking through both the WCI and the recent announcement to collaborate with Ontario to partner up on a cap-and-trade system by Jan. 1, 2010?

[Jean-Yves] Basically, the federal government has an intensity-based approach, instead of hard emissions caps. An intensity approach does not guarantee absolute reductions, nor can it guarantee a particular level of reductions by a certain time. Emissions reductions depend on the economic development of different sectors. If a sector grows fast enough absolute emissions will also grow. This is of particular concern with respect to the Alberta tar sands.

Quebec is against the federal approach. Our industrial sector has been reducing GHG emissions since 1991; the federal plan uses 2006 as a reference year. The targeted industrial sector in Quebec has reduced absolute emissions nine and a half per cent from 1990 to 2005. The Alberta tar sands increased 150 per cent in same amount of time. The Harper government is asking the same thing again—to make large reductions in intensity and for the same petroleum producers to reduce 18 per cent regardless of what was done in the past. This is not equitable.

We need another system to accommodate the entire country. Many Quebec industries are equipped with the best technology available worldwide. Under Turning the Corner, we would have to produce aluminum at a lower emission level than the best technology available will provide. Another example is the Technology Investment Fund (TIF), which doesn’t suit Quebec. It is a barrier to a robust and fluid market. In Quebec, we are mainly manufacturing, mature industries; there are no new awesome technologies. But, the TIF can be very good for western Canada. Carbon Capture and Storage needs large investments to develop technology and the TIF is the best way to get money from private sector. In a way it is good, but it doesn’t suit Ontario or Quebec’s needs.

Finally, the plan does not guarantee real reductions and will serve to isolate Canada in the global market. Given Canada is the only country with this type of program, we will be prevented from linking to other systems.

[Newsletter] Do you see a conflict with having the Turning the Corner plan, the Western Climate Initiative and other programs in place within the same jurisdiction?

[Jean-Yves] Yes, it is definitely a problem. You cannot have two or three different systems; it will be a nightmare for industry. For example, a chemical company with plants across Canada will face different standards. Alberta and Saskatchewan will have intensity-based standards, and BC will be slightly different than Ontario and Quebec. It can be quite hard for industry.

Many Canadian provinces are against the federal approach. Sixty-five per cent of the population, and roughly the same per cent of the Canadian GDP, rest in BC, Manitoba, Ontario and Quebec. Currently, BC and Manitoba are working to create a waiver equivalency accord to prevent the federal government from regulating in their territory. Capping Canadian emissions in absolute value would make the Canadian system linkable with all the major North American systems and eventually to EU ETS.

The objective of Ontario and Quebec is to have Canadian provinces sit down with the federal government and say that we don’t like an intensity-based approach; it only suits Alberta and maybe Newfoundland given their recent discoveries of natural gas. Quebec and Ontario will eventually invite BC and Manitoba and then other provinces to join us. The Canadian government should listen to what we have to say.

[Newsletter] How do these two commitments and the Montreal Climate Exchange (MCeX) interact together?

[Jean-Yves] The MCeX is currently a voluntary emissions trading market, as soon as any regulated market seizes the day it will increase the MCeX’s trading volume. The exchange will be better off once any cap-and-trade emissions trading system is in place.

[Newsletter] How will provinces and states that neglect to sign onto the WCI be affected?

[Jean-Yves] The level of direct impact the WCI will have on neighboring jurisdictions will depend on how we phase the electricity sectors. Decisions are being made as to where we can regulate electricity in order to address ‘leakage’. Many WCI partners are big importers of electricity—California especially. If electricity was simply regulated at the source then it would be possible to say, put in place coal plant just outside of WCI limits and then import the electricity into WCI at a lower cost for the consumer. We are still developing this aspect of the WCI.

The First Jurisdictional Deliverer (FJD) approach puts a cap on the distribution of electricity based on emissions, acting as a tax on dirty electricity imports. BC already has a carbon tax they are putting in place based on carbon content. As time goes on we will find leakages in other targeted sectors and we remain unsure of how we will address that issue, we may or may not use the electricity model for different sectors.

The other impact that WCI might have in North America is the opportunity to link up in the future with the Midwestern GHG Reduction Accord, the RGGI and others to create a global market. We hope to influence the federal GHG plan in both the US and Canada.

[Newsletter] What sector will feel the most impact from the WCI?

[Jean-Yves] The Western Climate Initiative aims to cover 90 per cent of carbon emitters by 2020. This will include all sectors in Quebec except agriculture. Collectively, we are still designing the system and we are not sure if someone will be more affected than anyone else. We do want to achieve our global goal, but at the same time, a key factor in the design is avoiding over-burdening any sector or business.

[Newsletter] What advice do you have for businesses?

[Jean-Yves] There’s no choice anymore, there will be a regulation to reduce GHG emission. This is a reality. It is important to keep in mind for your next investment that there will be a price on carbon emissions. For example, the price for hydro carbons is getting higher and higher. The better planned your investment is with that new reality, the better financial decision you will make overall. What we tend to see now is that companies that have changed their practices to invest in greener technologies are already gaining a competitive advantages in the worldwide economy.