NRT-2001263

Domestic Emissions Trading:
Key Design Options
Mitthew

Bramley Ph.D.

Director, Climate Change
Pembina Institute, Ottawa
January 2002

Overview
what type of system?
who would participate and how?
* impacts and opportunities:

l

l

l

permit allocation
revenue recycling
international trading
credit creation

when could it happen?

What type of system are
governments
looking at?
l

l

a emissions permit trading system
two important “safety valves”:
- iink to international trading
- possible credit creation

Who would
l

and how?

“large final emitters”
l

l

participate

about 35% of Canada% emissions

“broad as practical” / “upstream”
l .about 75% of Canada% emissions

l

credit creation outside covered sectors?

Impacts~ and opportunities:
permit allocation
l

l

Auction
free (“gratis”) proportional to:
- past emissions (“grandfathering”)
- current production

l

allocation to provincial govemments?

Impacts and opportunities:
revenue recycling
l

l

l

e.g. 300 Mtonne at $lO/tonne = $3 billion
federal/provincial shares?
several options for recycling

Impacts and o~pportunities:
distribution
of costs
l

purchaseslsales of permits / credits /
international units

l

increases in energy costs

l

changes in prices of other inputs

l

recycled revenue e.g. reduced taxes

l

savings from investment in new equipment

l

pass ‘on costs to suppliers, customers

Impacts and opportunities:
international
tradhg
l

Canadian emitters likely allowed to usée
international units
- large supply at low-cost
- restricted use?

l

status of trading with U.S. unclear

Impacts and opportunities:
credit creation
l

l

l

in sectors not covered by permit trading
need rules for additionality, baselines,
registration etc.
may differ from current practice

Whe.n could it~happen?
l

l

l

in 2008, or earlier?
other countries are starting now
issues:
- start reducing emissions
- hands-on experience, certainty
- recognition for current credit purchases

Summary:
l

key q,uestions

who would participate and how?

l

how to allocate permits?
how to recycle permit auction revenue?

l

nature of linkage to international trading?

l

credit creation outside covered sectors?

l

date of implementation?

l

Domestic
Emissions
Trading:
Key Design Options
Matthew Bramley Ph.D.
Director,
Pembina

Climate

Change

Institute,

Ottawa

Janimy

Overview
* what

type of system?

* who

would

What type
governments

participate

Who

would

* “large

final

could

* about
* credit

participate

* a emissions
* two

permit

important

trading

“safety

- link to international
- wssiblc

crcdit

system

valves”:
trading

creation

Impacts
and opportunities:
permit allocation

and how?

emitters”

as practical”

outside

emissions

* Auction

/ “upstream”

75% of Canada’s
creation

are
at?

it happa?

* about 35% of Canada’s
* “broad

of system
looking

and how?

* impacts and opportunities:
- pcmli, Gxation
- revenue recycting
- inlsma,io”al tmiing
- eredit cmtion
. when

2002

*

emissions
covered

free

(“gratis”)

proportional

- past emissions
sectors?

-curent
* allocation

to:

(“grandfathering”)

production
to provincial

govemments?

Impacts and opportunities:
revenue recycling
* e.g. 300 Mtonne at $lO/tonne = $3 billion
- federaliprovincial shares?
* several options for recycling

Impacts and opportunities:
international trading
* Canadian emitters likelyallowed to use
international units
- largesupp,yat low-cost
- restlicteduse?
* status of trading with US. unclear

When could [t happen?

impacts and oppottunities:
distribution of costs
* purchases/sales
of pamits / credits/
internationalunit.5
. increascsin energycost.5
* changesin pricesof othcr inpuis
* recycledrevenuee.g. reducedtaxes
* satings from investmentin new equipment
* pas on coststo supplien, customers

Impacts and opportunities:
credit creation
- in sectors not covered by permit trading
* need rulcs for additionality, baselines,
registration etc.
* may differ from curent practice

Summary:

key questions

* in 2008, or earlier?

* who would participate and how?

* other countries are starting now
* issues:
- startreducingemissions
- hands-onexperience,certainty
- recognitionfor cunent creditpurchases

* how to allocate permits?
* how to recycle permit auction revenue?
- nature pf linkage to international trading?
* credit creation outside covered sectors?
* date of implementation?

2