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Carbon Credits: 'Cure Worse Than the Disease'

Kevin Dougherty

Carbon credits - to package and trade offsets to greenhouse gas emissions - won't work, says McGill University economist Christopher Green. (Photograph by: J.P. Moczulski/Reuters, J.P. Moczulski/Reuters)

QUEBEC - Carbon credits - to package and trade offsets to
greenhouse gas emissions - won't work, says McGill University economist
Christopher Green.

"This cure could be worse than the
disease," says Green, rejecting the argument of Premier Jean Charest,
who wants the Montreal Exchange to be the carbon market for all of

As an alternative to Charest's "cap and trade" proposal for carbon credits, Green proposes a carbon tax.

carbon tax would cost less, he says, and would pay for "an
energy-technology revolution," finding ways to use less carbon, or no
carbon for industrial processes, transportation, heating and cooling.

he laments that the Copenhagen conference this December, the followup
to the 1997 Kyoto gathering on climate change, seems bent on setting
"absolutely unrealistic targets" for greenhouse gas reduction, relying
on the carbon markets he distrusts.

"We are going to waste another decade," Green said.

June, the National Assembly adopted Bill 42, which empowers the
province to call on industrial emitters to quantify the greenhouse
gases they spew out.

By 2012, Quebec will impose caps on
the level of greenhouse gases industries can emit, forcing them to turn
to the carbon market.

To explain his plan, Charest
hearkens back to the 1990s, when Canada took the initiative in dealing
with sulphur dioxide given off by coal-fired power generators in the
United States, creating acid rain.

"The government of
Canada and the provinces decided this issue had to be addressed,"
Charest said. "Canada went ahead with a cap on sulphur dioxide
emissions and did the regional distribution within Canada and didn't
wait for the Americans to act on this issue." Subsequently, the
Americans adopted cap and trade.

This time the Quebec tail wants to wag the Canadian dog, in co-ordination with Ontario, Manitoba and British Columbia.

four provinces belong to the Western Climate Initiative (WCI), started
by California Governor Arnold Schwartzenegger, to push the
cap-and-trade agenda.

Six states - Arizona, New Mexico,
Utah, Montana, Washington and Oregon - have joined California in using
the WCI to sway the U.S. government to cap and trade.

rejects the parallel Charest has drawn between cap and trade for
climate change and the success of cap and trade in resolving the acid
rain problem. In 2007, sulphur dioxide emissions had fallen 50 per cent
from 1980 levels.

"It certainly worked very well," Green
admitted, noting that reducing sulphur dioxide was limited to about 300
coal-fired plants, at a time when cheap, low-sulphur coal arrived on
the market.

"There are too many emitters to put a price on
carbon," Green said, adding that cap and trade "sounds like something
neat" at first glance.

"But the devil is in the details."
With our cars, lawn mowers and gas barbecues, we are all carbon
emitters. As well, major industries and Alberta's oilsands, which
consume the equivalent of one barrel of oil to produce three barrels of
synthetic crude oil, make a carbon cap-and-trade system more complex.

Green is also worried about the "subprime" potential of carbon offsets in developing countries.

instance, banks could package the non-tillage of agricultural land, a
way to absorb carbon, just as they packaged dubious mortgages in
asset-backed commercial paper.

Planting trees, generating wind energy and carbon capture would also generate tradable carbon credits.

But Green wonders whether the United Nations policing process, to vouch for carbon credits in developing countries, would work.

"There could be counterfeit bills in the carbon market," he said.

points to the National Round Table on the Environment and the Economy,
an advisory body to the Canadian government, which projects that carbon
credits would trade at $200 a tonne in 2050.

Ottawa aims
to reduce greenhouse gas emissions 65 per cent below 2006 levels by
2050. In 2006, the emissions were 721 million tonnes a year. The Harper
government's target is 469 million tonnes by 2050.

National Round Table projects such a high carbon price because drastic
reductions are needed to meet the greenhouse gas reduction target.

Green notes that countries like Poland depend on coal for 95 per cent of their electricity.

Coal costs about $50 a tonne now.

tonne of coal combusted gives off 2.86 tonnes of CO2," Green said,
explaining that adding $200 per tonne for the carbon given off would
raise the cost of coal in Poland to an unrealistic $622 a tonne.

"What planet is anyone on?" Green asked.

proposes instead a more modest carbon tax of $10 a tonne, much less
than the $40 a tonne proposed by former federal Liberal leader Stephane
Dion in his Green Shift policy.

"So a $10 a tonne tax implies a tax on coal of $28.60," Green said.

Green is not alone in decrying the Kyoto-Copenhagen process and carbon markets to reduce greenhouse gas emissions.

He is one of 12 international economists who signed a recent paper titled How to Get Climate Policy Back on Course.

authors noted that, in 2001-2006, as the attention of Kyoto Accord
signatories focused on reducing greenhouse gases, the amount of carbon
grew globally by 0.53 tonnes for each additional $1,000 of output.

during the period in which the most concern has been expressed about
the need to reduce emissions, the world has become more carbon
intensive," the paper notes.

Why? Because emerging
economies, such as China and India, rely on coal to generate
electricity and do not have the same greenhouse gas reduction targets
the advanced industrialized countries face.

capital naturally prefers to invest where there are neither emissions
restrictions, nor environmental standards," the paper notes. "If
production is transferred to areas, like China, with looser emission
norms, then emissions increase overall." Trading carbon credits would
please financial derivative traders, Green says, but he rejects the
premise that polluters would simply embrace new technologies to reduce
their carbon credit costs.

First, the technologies have to
be developed, Green said. A carbon tax would finance the quest for
green solutions. "I am extremely depressed. It just doesn't make
sense," he said.

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