Course:ECON371/UBCO2011WT1/GROUP8/Article 8: Alberta Needs a Better Way to Monitor Cap-and-Trade
Alberta needs a better way to monitor cap-and-trade
Summary
The Alberta government is still lacking the ability to properly monitor and police greenhouse gas emissions from oil sands. They haven’t been able to manager the biggest industrial polluters to purchase carbon offsets in order to reduce their carbon footprints. According to the recently published auditor’s general report the Alberta government have been unsatisfactory in clarifying how the offset system works and they haven’t followed through creating a validity test.In order to decrease the carbon emissions Alberta Climate change and Management Fund was designed in 2007.Companies who produce more that 100,000 tonnes of carbon per year would be expected to pay $15 per excess tonne and in addition to that they would have to trade with other companies and buy offsets from alternative energy producers. According to the 2009 auditors general report large industrial companies started buying on to the biofuel projects because the provincial government checks to ensure the off set system. The report showed some concerns that companies could buy offsets which are not valid and “guidance to facilities, verifiers, offset project developers and offset protocol developers is not clear. The report mentioned that policing emissions and emission reduction is also important as in the year ahead Alberta fund scheme will play a major role to reduce the greenhouse gas emissions. Also, the “fugitive emissions” from the tailing ponds are problematic because there is no proper approach of measuring the emissions given off. There are a lot of environmental concerns over the oil sands development and the critics are watching carefully how Alberta copes up with the greenhouse gas emissions. However, Alberta is one of the few jurisdictions to put a price on excessive carbon emissions. Through the emission measurement and fine system, the provincial government have been able to raise $257 million for a clean energy technology and $126 million for 26 projects which are been set up to reduce emissions. The provincial government is willing to increase the $15 per tonne emission fee but they are hoping the same to be done from United States otherwise Alberta business would be in a disadvantage. The Canadian Association of Petroleum Products is in support of the emission program if in case the entire fund is utilized properly for new research and technology that will reduce the emissions.
Economic Analysis
Monitoring GHG emissions from tailing ponds is one of the biggest problems the oil industry has faced. The top GHG producers, who contribute to over half of Alberta’s carbon emissions are now one of the only jurisdictions in the world to have a cap-and-trade system in place. This is otherwise known as transferable permit trading/emissions trading. In theory, those who can reduce their emissions in a cost efficient way do so and in turn sell their permits to those who cannot reduce their emissions to the targeted cap. Overall, emissions are seen as an externality because they affect the welfare of another entity outside the market. There are many ways to control the emissions levels of corporations, however finding the effective way and implementing a successful plan as well as monitoring it diligently, is difficult. A few of the various ways are emissions fees, cap-and-trade (as they are planning to use), and command-and-control regulation.
In 2007, the Alberta’s Climate Change and Emissions Management Fund put in place a system that required companies who released more than 100,000 tonnes of carbon a year to pay $15 per excess tonne. Our thoughts are that the government should use the tax helping small companies to use clean energy. Usually, small companies are facing problems with the cost of producing green energy; in alternate, they will use energy that my cause high pollution, or sell emissions permits to bigger companies. On the other hand, the bigger companies may produce more emissions by buying emissions permits. Thus, the government is not decreasing the level of pollution but just raising the price of energy. This is only beneficial to big energy companies. However in 2009 the Emissions Management Fund realized that there were few checks in place to ensure the program was working properly. This is a key example of putting potentially effective program in place, but not following up with it therefore not penalizing companies for their lack of accord. A concern that the auditor general’s office found was that the offsets companies were buying were not valid. In order for an offset to be valid, it needs to be “real, demonstrable and quantifiable”. Overall we believe that the government needs to make more strict rules about the investigation on emissions producing companies.
A very important aspect of implementing such policies is that if it’s going to be a province wide, or uniform standard or tax for every company contributing to the pollution of tailing ponds, their marginal abatement cost curves (MAC) all need to be equal. This makes it easier for the government to find the efficient point and a set an effective policy – however, getting companies MAC curves all the same is next to impossible. With that being said individualized programs are needed to control pollution, and in this particular case we personally believe that a cap-and-trade system is the best option because every company is unique to their surroundings and company growth making pollution control an individual challenge that can either be taken for granted and bought with money, or taken to heart, and used to better the environment. However this system require diligent supervision and harsh punishments if the rules are not followed. If regulation is not an option, then perhaps a tax would be a bit easier; however a tax also requires regulation of emissions per company. With that being said nothing is ever regulated easily, but measuring a companies overall emissions level may be easier to monitor rather than their emissions level, their permits bought and traded, as well as other companies emissions levels and permits.
Overall, Alberta is one of the few jurisdictions that put a price on excess carbon emissions. The have raised over $257 million dollars for clean energy technology by measuring emissions and fining companies for going over their allowed limit. The Alberta government has also raised $126 million dollars for 27 projects aimed at reducing emissions.
Prof's Comments
You seem to have missed the fact that a tax necessarily results in all firms having the same MAC. That is the advantage of a tax over a standard.
One issue mentioned a couple of times in the article is the insistence that funds raised be used to reduce emissions in Alberta. This is inconsistent with the least cost way of reducing emissions. It may be more cost effective to reduce emissions in BC or Ontario or Atlantic Canada than to reduce it in Alberta. Politics trumps cost effectiveness.
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