Josephine V. Yam

Offsets as Imperative for Canada’s Competitiveness

I believe that Environment Canada should include offsets (Certified Emission Reductions - CERs) as one of the compliance mechanisms for a future Canadian cap and trade scheme. This is because Canada will need a suite of flexible mechanisms, like offsets, that will enable Canadian firms to choose from a buffet of cost-containment options in order to maintain competitiveness.

Sec. 2.4 of the ISSD report notes: “The overall societal cost of carbon policies can be significantly reduced with the use of offsets as a compliance mechanism. Average offset prices of existing systems reviewed were found to be in the range of 42 per cent to 89 per cent less expensive than other compliance options.”

The feature of offsets as a mechanism that reduces compliance cost is very significant for Canada’s overall competitiveness. This is because one key aspect of Canada’s climate policy is its greenhouse gas (GHG) emissions growth.

According to the National Round Table on the Environment and the Economy (NRTEE) report, Canada is projected to have a faster, higher emissions growth relative to the US. This relatively faster emissions growth in Canada implies a greater level of effort and consequent higher carbon prices to reduce emissions and meet the stated targets of Canada. Moreover, Canada’s industrial emissions account for a much higher share of overall GHG emissions. This is because of the higher emissions intensity of Canada’s industrial sectors, particularly the mining and oil and gas extraction sectors, which have shown strong growth in the past decade and are predicted to continue growing substantially. For example, industrial emissions are forecast to account for nearly 50 % of total GHG emissions in Canada in 2030 (as juxtaposed to around 15 % of total GHG emissions in the US

Thus, given the greater effort that Canada needs to reduce its total GHG emissions and the fact that 50% of such total GHG emissions comes from its industrial sectors, then it is imperative for Environment Canada to enable such industries to use offsets so that they can meet their compliance obligations in a cost-effective manner. In failing to do so, Environment Canada will stifle the opportunity of inudstries to find low-cost options, to the detriment of the Canadian economy and Canadian end-users.

Reference:
National Round Table on the Environment and the Economy. (2011). Climate Prosperity, Parallel Paths: Canada – US Climate Policy Choices, Report 03, 1-160.