EDMONTON, AB, Jun 3, 2014/ Troy Media/ – During the height of the “great recession” there were very few politicians or business leaders who were focused on anything but short-term economic recovery. By 2010, both the Western Climate Initiative’s cap-and-trade program and the European Emissions Trading system (ETS) were mired in economic and structural problems; most people believed that greenhouse gas (GHG) reduction and cap-and-trade programs were all but dead.
Today cap-and-trade is being resurrected. Political decisions in the EU have stabilized the ETS, Quebec and California have established a multi-jurisdictional carbon trading program that not only demonstrated cap-and-trade can work across borders but it provided a model for new carbon reduction rules announced this week from the Obama Administration.
Cap-and-trade provides a market-based approach to controlling pollution through economic incentives. A central body sets a limit on pollutants which are then sold to firms in the form of emission credits. These limits are reduced over time and firms must hold permits for what they emit. If companies need more permits, they must buy them from others who have reduced their emissions, thus creating a market value for the credits and an economic incentive to reduce carbon emissions.
Cap-and-trade will put America on a course to meet its international climate goal, and put it in a better position to influence other big polluter nations, including Canada. As Obama said in a recent speech: “I intend to make sure America is out front in a global framework to preserve our planet” and “We cannot exempt ourselves from the rules that apply to everyone else.”
The new U.S. emission rules will cut greenhouse gas emissions from power plants by nearly 25 per cent over the next 15 years. The cornerstone of the plan is cap-and-trade and then letting each state determine how best to achieve these cuts. The likely outcomes will be the closure of the least efficient power plants, increased wind and solar power, and new energy-efficiency technology.
These changes initially sound negative for Canada, but Alberta already has a cap-and-trade program that could be modified to match U.S standards. A recent study by the Pembina Institute backs this up, showing that, within a well-structured cap-and-trade program, gross domestic product would continue to grow at 2.1 per cent per year and Canada could meet the 2-degree celcius climate target set out in Copenhagen.
New U.S. efficiency standards and technology will also be positive for our mining industry, specifically, Ontario’s Ring-of-Fire, and Canada’s nascent rare-earth industry. The economics behind these projects will improve as demand increases for chromite, platinum, palladium, nickel, copper, and rare earths – all needed to make more efficient consumer electronics, aerospace, automotive, lighting, medical device, solar products, and defence industries.
If we follow China’s example, the Ring-of-Fire will not only be a boon for mining but become a catalyst for vertically integrated manufacturing that has the potential to renew Ontario’s lagging manufacturing sector.
China is the leading manufacturer of hybrid and electric vehicles, wind turbines and high efficiency lighting. It achieved this by reducing exports of rare earths and forcing manufacturers from other countries to open factories in China to access them. Canada could offer an alternative not only in rare-earths but in the wide variety of minerals found in the Ring-of-Fire.
America may be leading by example with their new emission standards, but they are not standing alone. Canadians played a central role in the Quebec-California cap-and-trade program and will be central in supplying the raw materials needed to produce the next generation of energy efficient products.
If the federal government does for the ring-of-fire and Ontario manufacturing, what it did for the Alberta oil sands, Ontario will stand at the vanguard of a new green boom. However, if governments choose to ignore cap-and-trade and carbon reduction, what could have been a boom for Canada will be a bust, and other countries, most likely China, the EU and the U.S. will reap all the economic benefits of cap-and-trade.
Ryan Lijdsman is a Canadian-based international business consultant. Follow Ryan on twitter @ryanlijdsman
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