Nova Scotia’s cap-and-trade system to go easy on big corporate polluters

Legislation introduced by the McNeil government to enable setting up a cap-and-trade system to reduce Greenhouse Gas (GHG) emissions as part of a Trudeau directive to slow climate change was debated briefly in the Legislature this week.

What is missing from Bill 15 — “An Act to Amend Chapter 1 of the Acts of 1994-95, the Environment Act”  — is any actual “cap” or defined emission targets that will require 20 large Nova Scotia companies to reduce their carbon footprint, nor any indication how that change will affect people who heat their homes and drive their cars.

Environment Minister Iain Rankin called climate change “the defining issue of our time” and “an existential threat.” He then described the Liberal cap-and-trade bill as the “most cost-effective way to protect both the environment and consumers,” referencing the fact power bills have risen more than 60 per cent over the past decade — that is, since provincial legislation forced Nova Scotia Power to move away from coal and toward renewable energy.

Rankin promises lower caps for the province extending to 2030 will be announced late next year by regulation — in other words, by a stroke of the pen without further debate in the Legislature. Further consultation with industry and the public is planned for late spring.

“The final insult to Nova Scotians is that so much of this bill is to come in the future, in the form of regulation,” said PC leader Jamie Baillie. “‘Trust us’, the government says, just as it told the film industry and the doctors. Or five years ago when it promised a definition of clearcutting.”

“Just ‘trust us’ is not going to cut it this time,” continued Baillie. “I challenge the government to introduce the regulations before the House closes.”

Tough talk but that’s unlikely to happen since the Liberals have the majority of the votes.

Jason Hollett, executive director of Climate Change policy for the Nova Scotia Department of Environment, says the main reason why the province hasn’t yet set emission targets is because it needs more  information from companies in the transportation and fuel distribution business (e.g. companies such as Irving Oil and Heritage Gas) to “quantify and report” their GHG emissions. In Nova Scotia, that sector accounts for an estimated 27 per cent of the province’s carbon output.

Federal and provincial data is needed to conduct mathematical modelling that will ultimately determine how much companies need to cut GHGs and link that to higher prices for carbon, estimated at $50 per tonne by 2022.

Bill 15 provides for the establishment of a new registry for Nova Scotia companies who must self-report their production of greenhouse gas emissions in order to receive offset credits or allowances provided by the province — free of charge, at least for the first three-year period. Cap-and-trade is the method Nova Scotia has chosen (as has Ontario and Quebec) to comply with Ottawa’s directive to cut overall Canadian emissions by 30 per cent from 2005 levels.

Hollett says Nova Scotia has already reached that benchmark because of earlier and aggressive legislation by previous governments that forced Nova Scotia Power (the province’s largest polluter, responsible for more than 40 per cent of all GHG emissions) to replace coal with wind and hydro. That said, ongoing, declining caps on emissions (NS Power must reduce its GHG emissions by 50 per cent between 2005 and 2030) will still be necessary.

In Nova Scotia, the tension is over how low caps need to be set to encourage companies to cut back on carbon emissions. NDP Environment critic Lenore Zann says the legislation is “a do-nothing bill without teeth.”

“This bill is designed to minimize the impact on our biggest polluters,” Zann told the Legislature during debate. “The initial allowances are free and then if they go over their cap, the government will maintain a reserve they can draw from. Instead of making polluters pay, we’re paying polluters. Private companies may even be in a position to sell at a profit any extra allowance they don’t use.”

While the NDP is concerned the bill doesn’t go nearly far enough to fight climate change, PC leader Jamie Baillie worried the proposed cap-and-trade system may go too far.

“God forbid if Oxford Frozen Foods becomes one of the government’s unintended consequences,” said Baillie. “Businesses like Oxford in my riding who recently converted their operations to cleaner-burning natural gas could wind up paying more for that fuel if their suppliers have to recover costs tied to meeting stricter pollution controls. Compare that with a very similar blueberry plant over the border in Maine that does not have to concern itself with this type of environmental regulation.”

According to the Environment Dept’s Jason Hollett, Nova Scotia’s total GHG emissions have dropped from nearly 25 million tonnes a year in 2005 to 16.7 million tonnes a year today. That’s a notable achievement. But it’s a level of pollution (roughly 17 tonnes per person) on par with the United Arab Emirates, according to Julian Boyle, operations manager for Killam Properties.

Boyle made that striking observation last spring during a panel discussion at Dalhousie University on Nova Scotia’s proposed cap-and-trade system. At the time Boyle suggested “taking a stick of dynamite to cap-and trade” because he predicted it would have “a minimal impact on daily operations” unless caps were low enough to create “real pain” for companies and consumers, a point echoed by some other panellists including economist Elizabeth Beale.

Bill 15 gives the provincial government the option of selling or giving away carbon credits or allowances to companies which exceed the carbon limits the province eventually sets. In California, Ontario, and Quebec, carbon credits are auctioned or traded among companies which can’t reduce pollution fast enough to meet the targets — creating pain. Money from the sale of credits goes to offset higher fuel costs for low-income people.

Nova Scotia’s legislation creates a Green Fund which can also be used to offset costs for consumers and/or carry out more research on technologies to cut emissions. But in at least the first three years of the cap-and-trade system, there won’t be any revenue because the credits are free to companies that apply. The only money would come from fines to companies that fail to file the required paperwork.

Instead of forcing polluters to buy credits, the McNeil government plans to ease their pain (and their customers) by offering free carbon allowances in the early going.  Cap-and-trade will apply to NS Power, Irving Oil, the Lafarge cement plant, and Heritage Gas among other companies—but not to Michelin Tire or the two paper mills which operate mostly on electricity.

“A carbon pricing system that doesn’t actually put a price on carbon, support low-income people, or incentivize clean growth truly misses the point,” says Stephen Thomas, Energy coordinator with the Ecology Action Centre (EAC).

“Unlike other provinces, there’s not a massive demand for new programs to help business or low-income energy consumers; they already exist through Efficiency One,” says Hollett in response to Bill 15’s critics. “And without the offer of carbon credits, there is a risk the province could lose a cement plant that’s part of a global organization and might move elsewhere.”

The Lafarge Canada cement plant in Brookfield burns petroleum coke and employs 70 people. It will be eligible for free credits under Nova Scotia’s proposed cap-and-trade regime.

“A missed opportunity” is how Wayne Groszko, the EAC’s renewable energy coordinator, describes the Liberal plan to hand out allowances rather than sell them. And he questions why Nova Scotia isn’t planning to link up with other jurisdictions such as Quebec and Ontario that also have cap-and-trade systems.

“From a population perspective, Nova Scotia creating its own carbon trading system is like the city of Ottawa creating its own system,” says Groszko. “A larger system can be more effective by allowing trading between more emitters, and by sharing regulations that have been built over years.”

Bill 15 gives the province that option, but Jason Hollett says the federal government’s “compressed timeline” to roll out emission targets in 2018 didn’t allow harmonizing. Hollett promises there will be “continual monitoring” over the initial three-year period to figure out what’s working and what needs to be changed, including the prospect of joining other provinces and states in a larger trading pool.

Watch for more debate when the cap-and-trade Bill comes before the legislature’s Law Amendments committee. So far, fines are the only mechanism to prevent companies that receive free carbon allowances from also raising their prices to consumers. Amending the bill to provide some type of third party oversight of the emissions reporting by companies  and allowances disbursed by government could go a long way to making the cap-and-trade system more transparent and accountable.