Nova Scotia proposes ETS program

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Nova Scotia has released design options for its proposed cap-and-trade programme, with the premier saying he was in talks with other Atlantic provinces about forming a regional market.

Nova Scotia, with 2014 greenhouse gas emissions of 16.6 million tonnes of CO2 equivalent, is developing the system to comply with the federal government’s pan-Canadian climate change plan, which requires all provinces and territories to implement carbon pricing by 2018.

While design options propose that the ETS does not link to other schemes, Premier Stephen McNeil said he had begun discussions with the three neighbouring provinces – Newfoundland and Labrador, New Brunswick and Prince Edward Island – about joining Nova Scotia’s market.

“We’re entered into talking to the other provinces to see if we could potentially do a regional one,” McNeil told reporters in Halifax on Thursday, according to the CBC.

“We’re giving them access to what our negotiations were and what our negotiations continue to be. If if works, we’ll do an Atlantic model. If it doesn’t, we’ll continue on our own model.”

Nova Scotia’s government is now seeking feedback from stakeholders until Mar. 31 on the draft design, which if unilaterally implemented is forecast to regulate approximately 90% of the Atlantic province’s emissions in what will be one of the world’s smallest carbon markets.

Assuming similar coverage, a regional market in the Atlantic Canadian provinces would regulate an estimates 40-45 million tonnes between the four provinces, still a relatively amount compared to other schemes including RGGI, the nine-state northeartern US scheme just to the south.

PARTICIPANTS

As suggested last year, Nova Scotia will set itself a new emissions reduction goal of 30% below 2005 levels by 2030, which is below the 35-45% target it committed to reaching under a pact with other Eastern Canadian provinces and New England states.

To meet this new goal, Nova Scotia proposes that its carbon market cover industrial installations emitting more than 100,000 tonnes of CO2e annually, as well as the electricity generation sector, at the point of emission.

In addition, petroleum product suppliers selling more than 200 litres of fuel annually would be covered at the point where the fuels are first placed into the provincial market for local consumption, while natural gas distributors would be regulated where gas is transferred from pipeline into the local distribution network.

Nova Scotia’s agriculture and waste sectors are expected to be exempt.

The government said it forecasts fewer than 20 mandatory participants in the market, and proposes to restrict voluntary opt-ins with a view to re-examining this in 2020. However, it also notes that voluntary participation for emitters with output above a certain level could be also considered if supported by stakeholders.

In 2014, Nova Scotia emitted 29% below 2005 levels, with the power sector accounting for 44% of output, transportation 27%, building heating 13%, and other segments of the economy including oil & gas, agriculture and waste each making up 5% or less.

The federal government last year announced that all provinces must introduce carbon pricing either in the form of a tax that must rise from C$10/tonne ($7.41) in 2018 to C$50 in 2022, or a cap-and-trade scheme that achieves comparable emissions reductions to a tax.

THE RULES

Nova Scotia’s design options appear to borrow heavily from WCI’s rules, including respective annual June 1 and Nov. 1 reporting and compliance deadlines.

Below are some of the main proposals and issues for consideration in the draft:

The annual emissions cap will be set at a level that helps the scheme achieve a carbon price in line with the federal government’s requirements for minimum per-tonne tax levels, but Nova Scotia is still in consultation with Environment and Climate Change Canada over the issue.
The government proposes three-year trading phases, with the first two running over 2018-2020 and 2021-2023. Covered entities would be obliged to surrender permits equal to 30% of last year’s emissions each year, with the balance for the three years due at the end of each period.
The majority of allowances would be handed out for free to emitters rather than auctioned, in a bid to avoid carbon leakage. A government spokesman said the province may at some point consider measures in an attempt to prevent the emergence of ‘windfall profits’, as were seen during the first and second phases of the EU ETS (2005-2012) when a similar allocation approach was employed.
Nova Scotia proposes setting aside a number of permits annually in a strategic reserve that would be available for purchase at pre-determined prices. This would create a safety valve for the market during periods of high prices/low supply, with any proceeds potentially being invested in carbon-cutting initiatives within the province. The government has vowed to not use the scheme to fill its coffers.
The draft recommended that banking of allowances be allowed from one phase to the next, subject to holding limits to ensure no single market participant can dominate or manipulate the market. The draft takes no position on borrowing from future phases.
The draft calls for offsets from Nova Scotia-based emission reduction projects to be allowed to be used to meet a portion of companies’ obligations, but the government stopped short of proposing a usage limit.
The draft is open to adopting offset protocols from other jurisdictions including WCI in order to get projects up and running faster.
Nova Scotia has in the past decade made large reductions in its power emissions thanks to hard caps imposed on the sector, forcing utilities to cut from 2007 levels of around 10 million tonnes to 7.5 million tonnes by 2020 and to 4.5 million tonnes by 2030.

As a result, the province now sources more than 30% of its electricity from renewables.

Nova Scotia also last November inked an ‘equivalency agreement’ with Ottawa that would allow it to keep its 1.3 GW in coal-fired power plants open past 2030, the phase-out deadline set by the federal government late last year for the four provinces that still burn the CO2-intensive fuel for electricity.

By Stian Reklev and Mike Szabo – stian@carbon-pulse.com

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