Feature

What is Cap And Trade And Why Isn’t New Brunswick Talking About It?

Irving Oil Refinery. Image: Mark Leger/Huddle.

The federal government is getting ready to impose a carbon pricing plan on New Brunswick consumers next month because the province – along with Saskatchewan, Ontario, Manitoba – failed to propose carbon pricing systems that met federal standards for reducing greenhouse gas emissions.

On January 1, large industrial emitters started paying a new tax at a rate of $20 per tonne this year, rising to $50 per tonne in 2022.

Now it’s the ordinary citizen’s turn to begin paying more in the effort to pay fight carbon pollution.

As a result, New Brunswickers will start paying an additional 4.42 cents per litre on their gasoline purchases, beginning April 1, and an extra 3.91 cents per cubic metre on natural gas for their homes, according to a federal primer on the carbon pricing system.

Though many people think of carbon pricing in the form of a tax, there is another pricing system that economists like UNB’s Rob Moir argue is more effective, has less impact on everyday people, and perhaps give businesses more incentive to go green: cap and trade.

Last month, Moir posted the following note to Facebook:

A cap and trade system hasn’t been a top-of-mind issue in the province, so we decided to reach out to Moir and have him explain why he thinks it’s the most sensible way to lower the province’s carbon emissions.

What is a cap and trade system?

Cap and trade is a government-implemented system that caps the number of carbon emissions allowed and issues credits to companies indicating exactly how much emissions a company is allowed to have.

If a company wants to emit more greenhouse gases than its defined limit, it must buy more credits from companies that have emitted under their specified amount. The idea is that businesses will lower their emissions to sell their credits, while other companies will cut their emissions so they won’t have to buy more credits. Typically, province/jurisdiction will set the minimum price the credits can be sold for.

“It’s a rationing mechanism,” says Moir, associate dean and professor at the University Of New Brunswick’s faculty of business. “We’re using the market to sort out who should do what. What it’s saying is, ‘let’s fix the quantity and allow the firms to determine what the right price of carbon is.’

“Whereas the carbon tax model that we have says, ‘here’s the price of carbon. Now, you guys decide how much you’re going to pollute, but you are going to be paying for it.”

Who is using it and how?

Most of the conversation around carbon pricing in New Brunswick has been in the context of some sort of tax on businesses and consumers. Currently, the provincial government has joined Saskatchewan and Ontario in launching a legal challenge towards the federally imposed carbon tax.

Premier Blaine Higgs argues that New Brunswick companies aren’t getting credit for the work already done to reduce emissions and that the federal-imposed plan would put the province at a disadvantage.

But the cap and trade system is a different model and one province in Canada has already been using it with much success. Quebec has been using the cap and trade system since 2014 in partnership with California. As the CBC recently reported, the province added another $215 million in revenue from auctioning off carbon credits.

On January 1. Nova Scotia adopted a cap and trade system, setting a floor price of $20 per credit. But unlike Quebec, Nova Scotia credits can only be bought and sold within the province, with the allowed amount of credits decreasing every year.

Moir, who has been a long-time proponent of the cap and trade system, says if New Brunswick wanted to adopt a cap and trade system it could go either the Quebec or Nova Scotia route. But given the province’s small size, partnering and linking markets with other jurisdictions would be more effective.

“We’re small both in population and overall production, and the problem itself is big. What we pollute and produce in New Brunswick leaks outside of our borders and other borders leak into us. What gets produced by coal power plants in Nova Scotia have a negative effect on us too,” said Moir.

“So a different model might be [an agreement with] the Atlantic region or it could be an international agreement, like New England and the Atlantic provinces decide they’re going to enter into a cap and trade agreement.

“It’s probably going to have to be a regional thing at the very least to make any great deal of sense. We’re dealing with a problem right now that’s really global.”

There are possible revenue opportunities with the cap and trade systems that span multiple jurisdictions and countries.

Businesses can sell the credits they don’t use – a source of revenue to big businesses but smaller ones too. New Brunswick-based Canadian Forests International (CFI) have argued that such a system could provide a new revenue stream for the province’s private woodlot owners after a successful experiment with a Sussex woodlot they purchased in 2011.

CFI said it would like to see New Brunswick adopt a cap and trade system similar to Quebec which is linked to California’s cap and trade system. Linking a cap and trade system with other provinces and states in North America would provide maximum revenue opportunities for woodlot owners.

“If we went the cap and trade route with those provinces, then we’d gain access to a huge market that would allow us to develop more stability to capture and store carbon and then export those carbon credits to jurisdictions like California,” Dale Prest, ecosystem service specialist for CFI, told Huddle back in 2016. “That would bring those export dollars back and invest them in the most rural parts of our economy, which of course are the parts of the economy that need it the most.”

Why isn’t New Brunswick talking about it?

Though the possibility cap and trade in New Brunswick hasn’t been discussed much recently, Moir says he and his fellow researchers have been talking about it as far back as 1996 when he first came to work at UNB.

He said they held public lectures and discussions back in the late 1990s and early 2000s about cap and trade and invited executives from the province’s biggest carbon emitters. He says none of them came.

“We’ve waited almost 20 years. We’ve done nothing and now we’re playing catch up. The big corporations didn’t want to even sit in on a lecture,” says Moir.

“Nobody was listening. Now here we are at carbon taxes. I have a preference for cap and trade, but heck, price carbon for the love of God, is more how I feel.”

One of the reasons he believes people don’t talk as much about cap and trade is that that New Brunswick, like many other provinces and jurisdictions, are just simply behind on the realities of climate change. The carbon tax route is more simple to implement and is easier for industries to plan for.

“Business is much more amenable to a carbon tax,” says Moir. “There’s security knowing a price plan.”

So…?

Whether or not New Brunswick will stay with the federal carbon tax system or figure out a new one that meets federal guidelines has yet to be seen. We also don’t know how the province’s legal challenges of the tax will play out.

But whether it’s a tax or cap and trade, Moir says he is sure on one thing. Climate change isn’t stopping and we need to price carbon, now.

“I’m a cap and trade proponent. That said, I have also signed the national letter from economists for a carbon tax. I don’t feel guilty or mixed up,” he says. “More important than fighting a debate on whether we have a carbon tax or a cap and trade system is that we have a price on carbon.”