Regulating Carbon Emissions in Canada – Options

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The problem is that when measured against 2005 levels, the intensity improvements contained in the three proposals are likely to deliver little, given ongoing improvements that the oil and gas industry has already achieved.  Based on Statistics Canada published direct plus indirect GHG intensity ratios the oil and gas extraction sector has reduced its GHG emissions by 27 percent from 2005 to 2008.

Even so, against today’s emission performance, a more likely benchmark, the 2020 compliance demand would be significant and could do much to address the Government of Canada’s emission gap.

Cost Curve

However, cautions the report, recent analysis by IISD indicates that it is unlikely the sector can achieve much more than a 20 per cent intensity improvement by 2020 at costs short of $100 per tonne (See Figure Left).

Scenario 2 is more ambitious relative to Scenario 1. The sector has significantly higher costs, with total costs doubling when the 20 per cent intensity standard rises to 30 per cent.

Compliance in the Scenario occurs primarily below the first-tier price, with 31 Mt of the 32 Mt target achieved. Then, with the second-tier price in play, in-sector abatement delivers an additional tonne of reduction. With Scenario 3, the 40/40 proposal, costs rise quickly as the intensity standard increases, again reflecting the limited abatement opportunities in the sector and the importance of the price ceiling.

In this scenario, tech fund compliance is significant and in the order of 46 per cent of total compliance. Whether or not these “in-lieu” payments to the tech fund deliver future reductions is an open question, with concerns raised by environmental non-governmental organizations that the current proposals provide little incentive to reduce emissions.

“Such a policy could deliver 42 megatonnes (Mt) of compliance in 2020, at an average cost of $28 per tonne or $0.42 per barrel of oil produced,” he said, adding that it would bring Canada considerably closer to meeting the target agreed to under the Copenhagen Accord. See Table 2.

“While all proposals on the table will deliver emission reductions at costs that seem reasonable, a 40 per cent intensity standard with pricing in the range of $40 per tonne of CO2 could strike a good balance,” said David Sawyer, report author and IISD vice president for climate and energy.


Table 2


 

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