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Canada eyeing eventual hookup with EU carbon trading scheme |
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Written by Steve Rennie, THE CANADIAN PRESS
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Thursday, 08 May 2008 |
OTTAWA - Canada has its eyes on a possible hookup with the European Union's carbon trading system as it crafts its own mechanism for exchanging emissions credits.
Environment Canada is developing a carbon trading system that is "easily connectable" with the EU's trading scheme, should the government opt to go that route. "We might need to make adjustments in due time when we know more about the different infrastructures," a senior department official said.
"But, at this time, we don't see on our side impediments to the possibility of really making the connections in the future."
The official, speaking on condition of anonymity, suggested it could be about 15 years before a "network of trading systems" emerges.
In the meantime, the Conservative government has said it plans to limit the trading of credits to the domestic market.
The Tories unveiled more details last month of their plan to cut greenhouse gas emissions by 20 per cent below 2006 levels by 2020. The plan includes carbon trading, offsets, a technology fund, and a credit for early reductions.
The concept of carbon trading rewards those who meet set emissions targets and gives others financial incentives to follow suit. Those with a surplus of credits can sell them in the market.
The Montreal Climate Exchange, a joint venture of the Montreal Exchange and the Chicago Climate Exchange, is set to open at the end of the month.
When the exchange opens, companies will trade futures contracts in carbon dioxide equivalent units. That will allow polluters to offset their emissions by buying carbon credits from other companies.
Trading on similar public carbon markets has grown in recent years. The global carbon market is valued at about US$60 billion and is projected to reach US$92 billion by the end of 2008, according to industry statistics.
The average price of carbon is expected to rise to US$37 per ton by 2010 and up to US$54 per ton by 2020.
Europe currently has the only monetary carbon market for greenhouse gases, the European Union Emission Trading Scheme, which was set up in 2005.
The first phase of the European model was criticized for an oversupply of allowances and how they were distributed, which drove down prices.
More stringent targets for the future are expected to drive up prices and make the system more effective.
Henry Derwent, president and CEO of the International Emissions Trading Association in Switzerland, says the basic economic tenet of supply and demand could complicate an infusion of the Canadian and EU systems.
The price of carbon credits hinges on scarcity in the market, he explained. So, the more credits on the market, the lower the price - and vice versa.
"You can imagine that if people within those two systems had an equal chance through the linking of buying at a high price or a low price, they'd all rush to buy at the low price," Derwent said.
The Environment Canada official stressed that the notion of linking Canada's trading system to the EU's is still in its infancy.
"The stage in which we are right now is more of a distant look at how the systems will be able to connect," the official said.
"But the intention is to be able to do it once we have our system developed enough."
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Last Updated ( Thursday, 08 May 2008 )
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