Green Spot: CO2 Agreements

Well I had an interesting question the other day at work I thought I would share the answer with you all.

Q: So do you think federal government is going to come out with some detailed CO2 regulations?

A: I honestly don’t know when but I can tell you likely they will have changed dramatically from the Turning the Corner system which used ‘intensity based’ targets.

Intensity based targets are supposed to be about keeping the economy going while slowly converting over to a low CO2 economy.  Basically the targets are tied to production.  So as long as your emissions per unit of production goes down you could technically emit more CO2 in total by just producing more product.  Overall it’s not a great system for real change, since Turning the Corner has lots of exceptions and loopholes.

Meanwhile the European Union, Australia, and two other regional groups in North American (which includes between them about half the provinces in Canada and a third of the US states) are going Cap and Trade.  Oh, also likely after Jan 20 the US will be going Cap and Trade as well within six months.

So what is Cap and Trade?  Basically you set an absolute limit on CO2 to be emitted in any given year.  So if your company, for example, emits 1000 Mt of CO2 in a year you need 1000 Mt of CO2 permits to hand in by the end of the year to avoid stiff penalties.  So if your company was only allocated or bought from an auction 800 Mt of permits you need to pick up another 200 permits from other companies that don’t need their permits.  So by good old supply and demand we now have a price to emit CO2.  Then each year you keep reducing the amount of permits issued to reduce overall emissions.  Now a bunch of planners can evaluate plans to find out if it makes sense to do them right now or wait till later versus the price of CO2.  Also consumers will actually start paying the real costs associated with their choices.

Sounds simple, but trust me the devil is in the details.  Yet in general it likely means Canada will face steep pressure to join a Cap and Trade system which would effectively kill any hope of Turning the Corner from being used for anything other than a stop gap solution until a Cap and Trade system is up and running.

It’s going to be a very interesting year in 2009 for CO2 regulations. Let me know if you have questions.  I’ll do my best to answer them.

4 thoughts on “Green Spot: CO2 Agreements”

  1. So with Cap & Trade could existing forestry companies that own large areas of treed forest that absorb tons of CO2 then sell the CO2 credits from their trees to companies that are emitting? Then if they cut them down and reduce their CO2 absorption they would be a way be charged? Or is the government the only one allowed to sell the credits?

  2. I’ll preface this by saying I don’t fully understand the cap and trade system.

    As I thought about your post I wondered if there a known limit of CO2 credits available then couldn’t someone/company purposely buy up significant portions with the single intent to resell them after the market price has been raised by simple supply & demand?

    Also if this is true then couldn’t an organization like green peace buy up credits simply to limit the supply available to polluter?

  3. Jordan,

    Sorry for the delay on your last questions. I’ve been a little swamped at home the last few days.

    It is possible that a forestry company could do that if there is an approved offset protocol developed (they basically apply to the government to get credits to sell). The trick is to actually prove that the forest did some good. After all when a tree decays it releases methane which will be covered by the cap and trade. So overall it is complicated and nothing is set yet.

    As to supply and demand, yes that is possible, but most agreements allow banking of credits over a series of years to prevent market spikes. Basically you could get some extra credits in the first few years to carry forward when your cap is going to be lower. The idea is to buffer any given years demand and reduce the odds of a artificial market spike. Of course a ‘true up’ year is likely going to be needed so it could still happen anyway.

    It is unlikely green peace could afford to significantly short fall the system due to the costs involved, but they could try.


    That is a risk with cap and trade. It could be used to extract extra money from consumers if the government doesn’t put in place some balances on the whole system (trust me I’m even worried about that).

    CO2 may cause some increased plant growth, but that is going to be a drop in the bucket compared to what we are currently dumping into the atmosphere. The article you posted mentioned 50Mt of CO2. Which is about 3 times what my company emits annually to provide power for just 1 million people. Times that out over billions of people and you don’t have enough land mass to counter the effect of burning coal.


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