Quebec has set aggressive targets to reduce greenhouse gas emissions and it plans to start a cap-and-trade system by 2013 that will allow companies to trade emission credits.
About 100 large industrial emitters will be given free pollution quotas and an overall emissions ceiling will be established. Additional permits would be auctioned off until the ceiling is reached and these credits, or derivatives on them, would be traded on the Montreal Carbon Exchange.
In taking action, the province describes itself as a “pioneer” in North America. But some aren’t so sure it’s the right move.
“I think we could be going way out on a limb on this,” said McGill University economist Chris Green. There’s always the possibility that an energy intensive manufacturing company could shift production to a location with no carbon regulation, he warns.
While stressing that he hasn’t studied Quebec’s proposal in detail, Green said the cap-and-trade system in effect in Europe has had a limited impact on emissions. Any success in reducing greenhouse gas so far was mostly because of other factors.
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Green argued that under cap-and-trade, speculative traders could buy up permits and attempt to corner the market, driving up the cost of pollution permits for companies.
A carbon tax would be more transparent and offer fewer opportunities for gaming the system.
It’s true that a carbon tax by itself offers no guarantee that an emissions ceiling will be reached. But the advantage, besides establishing a clear price, is that revenues could be dedicated to developing new technologies that would cut greenhouse gas emissions.
While such revenues could also be raised from auctioning off carbon permits under cap-and-trade, the amounts available to government could be less.
Advocates of cap-and-trade point to the success it had in the U.S. in bringing down sulphur dioxide emissions that caused acid rain."
