March 19, 2007

Interprovincial emissions trading market could be worth up to $12 billion, says CIBC

An inter-provincial market in greenhouse gas (GHG) emission credits could be worth as much as $12 billion annually, says a new study by CIBC World Markets. The leading buyers of emissions credits would likely be the economies of Saskatchewan, Alberta and New Brunswick, it says, with Quebec and Manitoba likely sellers.

The report notes that Saskatchewan and Alberta account for 60% of national GHG emissions growth since 1990, making them the most emissions-intensive provinces, relative to Gross Domestic Product (GDP). These two provinces together represent less than 15% of the country's population.

"Saskatchewan produces more GHG emissions per unit of GDP than any other province, with an emissions intensity more than three times the national average," said Jeff Rubin, chief strategist and chief economist for CIBC World Markets. "Emissions from the labyrinth of pipelines that crisscross the province as well as from its coal-fired power plants make the seemingly green prairie province the most carbon-intensive in the country."

On the other hand, the Manitoba and Quebec economies would be the most obvious sellers, "given their already low emissions intensity and planned expansion of emission-free electricity generation," he noted.

Saskatchewan, Alberta and Nova Scotia, which rely on coal for 60%, 74% and 63% of their electricity needs, respectively, face significant aggregate carbon vulnerability. British Columbia, Manitoba, Quebec and Newfoundland and Labrador are less exposed to carbon costs, as they all rely heavily on emissions-free hydro power, the report adds.

The study found that electricity generation tends to be the single most important determinant of a province's potential exposure to carbon emission costs. Coal-fired generation is the chief offender, emitting roughly twice the GHG emissions per unit of power produced than gas-powered plants. Gas plants themselves are relatively heavy emitters when compared to effectively emissions-free sources of electricity like hydro and nuclear.

The oil and gas industry is also a large contributor to GHG emissions. Growth in this sector's emissions since 1990 has been in excess of 50%, a rate easily twice as brisk as that from remaining GHG sources combined. The report says the carbon profile of Canada's oil industry will worsen materially in the next decade as oil sands production rapidly eclipses conventional oil production.

Producing a barrel of synthetic oil from the oil sands generates three times as much GHG emissions as an equivalent amount of conventional crude, mainly because of heating requirements. Alberta already accounts for roughly two-thirds of direct emissions from fossil fuel industries, and that figure will rise substantially, given the planned doubling or even tripling in oil sands production over the next decade. Even with continuing improvements in emissions intensity, the scale of production increases could see oil sands emissions rise from roughly 30 megatonnes (Mt) today to more than 100 Mt over the next decade.

"The regional disparities in emissions growth could lead to some pretty hefty inter-provincial flows of emissions credits under any future cap-and-trade system established along the lines currently being implemented by a growing number of U.S. states," said Rubin.

Based on what is considered the minimum price of $30 a ton to stabilize emission growth, the report forecasts that the more than 410 Mt of annual CO2-equivalent emissions (2004 figures) that come directly from identifiable industrial and commercial sources would have a market value of over $12 billion.

"It remains to be seen how a cap-and-trade system would be implemented in Canada - or how much of that $12 billion in emissions credits would be traded across provincial borders," Rubin added. "But with an already-skewed distribution of GHG emissions looking to become even more unbalanced in coming years, it's easy to envision a healthy inter-provincial trade in carbon permits.

The study found that Quebec has contributed only 3% of the emissions growth in the country since 1990 and has the lowest GHG emissions per unit of real GDP of any province in Canada. Manitoba has contributed only 1% of the nation's emissions growth since 1990 and is the fourth lowest province in emissions per unit of real GDP. Although Ontario has driven 17% of emissions growth during this period, it ranks as the second-lowest province in emissions per unit of real GDP, says the report.

While Ontario relies on coal-fired utilities to provide 18% of its power (including the largest coal-fired plant-and single biggest emitter-in the country at Nanticoke), an even greater reliance on nuclear and hydro helps limit electricity-related emissions. Like hydro, nuclear is essentially a carbon-free source of power. While no new facilitates have been approved, Ontario is exploring enhanced nuclear capacity over the next decade.

Expanding transmission linkages, meanwhile, will facilitate the import of power from neighbouring provinces. That is seen as a potential avenue for lessening Ontario's reliance on coal-fired plants, which currently account for some 30 Mt of GHG emissions-about 15% of total provincial emissions. At the same time, over 30% of the province's emissions come from the transportation sector, compared to little more than 20% for the rest of the country. The substitution of mass transit for private vehicle transportation would have a greater impact in Ontario than in any other province.

New Brunswick, together with Saskatchewan, are the only two provinces that have failed to record a decline in emissions intensity relative to 1990 levels. New Brunswick, home to Canada's largest oil refinery, has seen emissions from fossil fuel industries more than double since 1990. Planned increases in refinery capacity would materially affect the province's emissions profile.

The full report may be viewed on-line at More information is available from Jeff Rubin at CIBC World Markets, 416/594-7357, E-mail

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