Federal-provincial climate change negotiation resumes as McGuinty, Charest announce cap-and-trade intention: will Ontario coal closures qualify for emission credits?

In their zeal to out-Kyoto the Harper Conservative government, the premiers of Ontario and Quebec on Monday trotted out an emission cap-and-trade scheme they claim will reduce greenhouse gas (GHG) emissions. Not surprisingly for a political announcement on environment policy, it is long on politically correct platitudes and short on the critical specifics. Not to be outdone, the federal environment minister fired back, touting the federal emission reduction plan and matching the premiers platitude for platitude: “climate change is real, we must act for the good of the planet,” etc.

So whose approach to climate change policy is better? I have called many times for carbon cap and trade, as a politically salable way of easing industry and the public into accepting higher prices for commodities like electricity.

But the critical question for anyone evaluating a cap and trade or carbon taxation scheme is what the scheme proposes to do with the revenues it brings in. In the case of electricity generation, if the proceeds go toward financing low- or zero-emission generators—and if the “low- or zero-emission” category includes nuclear power—then it will achieve meaningful emission reductions.

Otherwise it is just smoke and mirrors. And, like the European Emission Trading Scheme which the premiers touted as the leading edge of emission reduction efforts, this carries the danger of building expectations that are impossible to meet. Germany is facing real embarrassment because of rising emissions after years of platitudinous pronouncements on climate policy; see article.

Neither McGuinty nor Charest got this specific. But John Baird, the federal environment minister, said something that might give a clue as to the feds’ view on what kind of technology would be eligible. Ever the Common Sense Revolutionary, Baird credited Mike Harris’s privatization of the Bruce nuclear plant for recent GHG emission reductions in Ontario’s electricity sector, and criticized McGuinty for claiming that the Ontario Liberals’ coal phase out caused the reductions.

Baird is partly right: there hasn’t actually been a coal phase out in Ontario. As I write this, just after ten a.m. on Wednesday June 4, Ontario coal plants are cranking out over 3,400 megawatts of electricity.

What is at issue, in the case of Ontario at least, is the $538 million Paul Martin promised Dalton McGuinty in May 2005 to help offset the costs of closing the Ontario coal plants. The coal closures were to be, according to the Martin–McGuinty deal, Ontario’s contribution to Kyoto.

When the Harper Conservatives won power in 2006, they said they would honour Martin’s promise.

Until early March of this year, the terms on which the feds would finally fork over the $538 million depended on negotiations over emission reductions from Ontario electricity up to the end of 2010 (see article). The feds developed a sector-by-sector target of 18 percent from the 2006 level. Everybody knew Ontario’s only hope of achieving such a reduction in its electricity sector depended on nuclear output from the very same Bruce plant. What the feds really wanted was for Ontario to buy Canadian when the time came to build new nuclear reactors.

But in early March, Ontario put the new reactors to a competitive bid. Suddenly, the feds faced the prospect of holding a crown asset—Atomic Energy Canada Limited, the maker of all of Canada’s power reactors—whose value could rapidly depreciate in the event of a losing bid in Ontario.

So Baird’s message to McGuinty the other day was, don’t count on Canadian taxpayers underwriting the construction of a foreign-built reactor.

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