(Nov. 04, 2010) California’s proposed cap-and-trade and offset system regulation kills any potential for BC or Ontario linkage to the Western Climate Initiative (WCI) market without major changes.
Proposition 23’s defeat was as we predicted. My contacts tell me, however, that the successful passage of California Proposition 23 creates significant problems for the full implementation of the state’s climate change agenda.
In general, Proposition 23 bars the state from borrowing or taking money earmarked for transportation, redevelopment or local government projects and services and apply those funds to finance state government activities that are only loosely connected to “transportation”, “redevelopment” or “local government services”. As reported in the media: “Voters support for Prop 23 means the state lawmakers will no longer be able to dip into local funds to solve state budget problems”…
Earlier this week I reviewed and analyzed the proposed detailed CA cap and trade and offset system regulation (published last Friday and subject to public hearing on December 16), with a particular interest in its potential implications for BC and Ontario in particular, but also Canada as a whole.
In summary: it kills any potential for BC or Ontario linkage to the WCI market without major changes. At issue is a series of major conflicts between the Provinces’ stated objectives/needs and the CA cap and trade/offset law as proposed. Over the next couple of days I am completing a detailed write up and will pass it on to you guys when it is done.
I completed this analysis for a third provincial government that asked me to consider and make recommendations as to whether that province might want to link to the WCI market. My recommendation (filed yesterday) was that they do not make any moves for now.
What is obvious is that the BC-proposed cap and trade and facility-level reporting rules cannot be reconciled with the CA-proposed rules without substantive shifts that each jurisdiction currently appears unwilling/unable to make in the foreseeable future. I base that opinion on telephone interviews with California, Washington and BC representatives.
So while the WCI partners have successfully created the appearance of an agreement on carbon market linking principals, no real agreement exists, even at the most basic level. I have advised my other provincial client to focus on the further development of its domestic market and not to waste resources—for now—on WCI process.
This might explain the fascinating paucity of details in the BC cap and trade and offset system regulation consultation documents (see here). If you put the California pre-regulation consultation documentation (see here) next to the BC documents, the difference in scope, details and analysis is astounding. I have never seen a BC pre-regulation consultation document so lacking in specifics in 30 years of policy consulting.
I am now guessing (but I really do not know the facts in respect to Victoria and could be very wrong) that BC officials have not drafted a more meaningful set of cap and trade and offset system design strategies because they suspect their cap and trade proposal is going nowhere and further investment in regulation development would be a waste of limited public resources. If this is the case, the BC cap and trade consultation documentation actually reflects a prudent preservation of precious public resources.
With respect to the proposed BC offset regulation, as recently as a couple of months ago a key official in the BC Climate Action Secretariat stated directly to me his view that “the offset market will likely be dead within 36 months”. If this is the prevailing wider view in Victoria, it would also explain the limited meaningful development of the BC offset system design proposal to date.
Please note that I do agree that both cap and trade and offset market systems—in Alberta, as outlined in the CA and BC consultation documents, for WCI and RGGI—are unlikely to survive another 36 to 60 months as currently designed. I continue to try to push Canadian provinces to be the first governments in the world to develop and implement sustainable carbon market designs. Real opportunity still exists to pull that off in Alberta and BC, as well as any other province that has not yet made as major moves in offset and carbon quota market development.
In fact, sustainable carbon market designs are more transparent, easier to implement, less costly to administer and more likely to garner greater private sector and NGO support than the designs that are proposed or in place in RGGI or CA and destined for failure today. I think there are 1.5 provinces listening to my advice—to greater and lesser degrees—at this time, but they do not include BC or Ontario.
Most of last year, I was quick to advise politicians and bureaucrats to continue to label any carbon market regulatory proposals they advance “cap and trade”, even if the proposals were substantively different from any current version of US-style cap and trade. My intention was to advise them against starting a pro-cap and trade media attack on any regulatory proposals they might advance, when a debate over the term “cap and trade” would be unconstructive. (Most pro-cap and trade media have formed no concept of what “cap and trade” is, in detail. So as long as decision-makers stick with the label that the media likes, they are still free to adopt best design options.)
I am no longer certain about that bit of advice.
I am not any longer clear whether or not “cap and trade” is a label that paves the way for positive media coverage of any regulatory proposal. It may be time (though I remain unsure) to drop “cap and trade” from the labels attached to any regulatory proposals about which leaders are serious.
I remind you that I have been advising governments and decision-makers to drop “carbon neutral” from their lexicons for many years, now. This remains a very important bit of advice. “Carbon neutral” has the potential to become a real and substantial liability for any government or private sector entity that continues to formally commit to it. Please select different language and drop this term.
Note that both the Alberta government and BC/Pacific Carbon Trust offset systems generate from 2 to 14 offset credits per TCO2e of real reduction that might be reportable in their respective provincial GHG inventories. When offset credits that do not have any or have limited underlying GHG reduction value are applied to address a “carbon neutrality” objective, carbon neutrality is not achieved.
I anticipate that it is only a matter of time before provincial and federal Auditors General opine that every false GHG credit that governments make and then apply towards their own carbon neutrality goal represents a real outstanding obligation for the Province to realize a further 1TCO2e reduction in the physical, reportable GHG inventory.
With governments currently issuing 2 to 14 offset credits per TCO2e of reportable inventory reduction, they are building up a substantial future unfunded liability for the tax base.
Aldyen Donnelly, Energy Probe, November 4, 2010