Friday, December 18, 2009

Haida, B.C. hope to cash in on carbon credits

From Copenhagen to Haida Gwaii, climate change is in the news and bringing big economic shifts.
The B.C. government has just signed "reconciliation protocols" with the Haida and six coastal First Nations.
They agreements are like treaties-lite, an effort to bring some certainty to development and economic benefits to the communities. The big obstacles to treaties - land, cash, finality - are left to be negotiated later. It?s a reasonable approach.
It was striking that both protocols included commitments on "carbon-offset sharing" between the province and First Nations. Agreements are supposed to be in place within 10 months.
You can draw a pretty direct line from the coastal communities to the Copenhagen climate summit, where there is support for a cap-and-trade system on emissions.
That's where B.C. and First Nations figure there is money to be made. Cap and trade is a big part of the provincial government's bid to reduce greenhouse gases by one-third by 2020.
It might sound a little, well, tedious.
But it's likely going to cost you money, so why not pay attention?
The goal is to let the market drive innovations that reduce greenhouse gases.
But it starts with government setting all the rules.
It's straightforward in theory. The government, or a group of governments, would set greenhouse-gas emission caps for economic sectors and individual companies. The caps would be reduced each year in line with overall reduction targets for the country or province.
So Paul's Homegrown Tomato Greenhouse might start with a government-allocated cap of 2,500 tonnes of carbon-dioxide emissions a year, based on the natural gas and electricity to keep the tomatoes cozy.
But I might decide to install heat-retaining curtains for use at night and on really cloudy days. They could reduce my use of gas and cut emissions by 500 tonnes.
Under the cap-and-trade system, I could then sell my unused emission allowance to some other business that needed to exceed its cap by the same amount. We'd negotiate a price and all would be well.
Companies that wanted to produce more greenhouse gases - perhaps to expand their businesses - could. They would have just have to buy the offsets from someone reducing emissions.
Overall, greenhouses gas production would fall as caps were reduced. Companies would be encouraged to invest in greater efficiency and new processes, because they could sell their emission allowances to others.
As the caps got lower, the market value of emission allowances would climb and the incentive to cut greenhouse gas production would increase.
In the real world, it all gets much messier. In setting caps, governments can provide big advantages or big penalties to specific sectors and companies.
And calculating and verifying emission reductions is tricky. If Paul's Tomatoes are tasteless and I'm going out of business anyway, closing the greenhouse and selling the emission credits to an oilsands company that wants to produce more greenhouse gases isn't really reducing greenhouse gases.
It's even trickier when it comes to the kind of forest carbon offsets envisioned in the recent deals with First Nations. Plants, as we learned in Grade 9, take in carbon dioxide and release oxygen. Trees store the carbon in the wood. If they burn or rot, the carbon dioxide is released.
If you cut them down and make two by fours, the timber still stores carbon. But sawmill waste, stumps and branches all release carbon dioxide.
So if the province and the Haida decide not to log forests, they reduce emissions. Under cap and trade, they can sell the allowance to the highest bidder.
But the calculations are complex. They depend on how efficient the harvest and replanting would have been and the age of the forest, even how fast replacement trees would have grown.
We are entering a new world and the rules - which bring big financial benefits and penalties - are being written on the fly.
I'll look at more at the forest potential in a future column.
Footnote: B.C. is already experimenting with carbon credits and the greenhouse example is based on a real project. The curtains cut emissions by 500 tonnes. The Pacific Carbon Trust, a new Crown corporation paid something like $12,000 to the company. It then resold the credits to government and a couple of businesses that want to offset their carbon emissions.

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