The Paris Agreement Emissions Trading Regime: What’s in it — and not — for Canada?

The rules for international emissions trading now being negotiated at COP25 in Madrid have the potential to make or break the Paris Agreement. Strict rules that prevent double counting, prohibit carry forward of questionable Kyoto Protocol credits, and ensure that projects eligible for credit surpass business-as-usual performance could reinforce the ambition of the Paris Agreement.

Rules that fall short of those goals could gut the treaty, leaving only the pretense of emissions reductions.

What’s at stake for Canada of the emissions trading rules in “Article 6” of the Paris Agreement?

Canada is among the countries pushing for integrity of emissions trading and protection of human rights in the current negotiations. However, with relatively high-cost emissions reductions, Canada like other wealthy countries is expected to be a purchaser of lower-cost reductions from developing countries. That creates contrary incentives to resist some proposals that would increase prices for emissions credits, for instance setting aside a more generous “share of proceeds” for adaptation in developing countries under both Articles 6.2 and 6.4 of the treaty.

It’s noteworthy that Canada is already engaged in emissions trading. The Quebec and California cap-and-trade programs have been linked since 2014. Canada is counting on credits purchased from California for roughly 20 percent of the reductions projected to be achieved by 2030. However, the US’ scheduled withdrawal from the Paris Agreement in November 2020 would render those credits ineligible. US withdrawal would almost certainly be reversed if a Democrat wins the 2020 Presidential election, but for now that remains a big uncertainty for Canada’s climate plan.

Another issue concerns the potential for Canada to earn international credits by exporting liquified natural gas (LNG). The Conservative Party has argued that Canada should be able claim international credits for LNG exports on the grounds that natural gas will replace coal in destination countries, thus reducing global emissions. Canada is doing the world a favour and should get credit for that, or so the argument goes.

There’s lots to debate here, starting with the assumption of global emissions reductions. Canada’s LNG may replace coal, but it could also replace renewables and thus increase global emissions. In any case, it’s just not how the climate treaty works. Each country is responsible for the emissions released within its own borders. It follows that any reduction flowing from a shift to lower-carbon fuels would be “owned” by the country in which those fuels are burned.

Canada may be able to purchase credits from those or other countries to offset the significant increase in our own emissions to produce and liquify natural gas. But let’s be clear: we would be paying, not getting paid.

The related issue is the argument that Canada can claim credits for reducing the emissions intensity of oil sands extraction. The oil sands are by far the largest contributor to Canada’s emissions growth since 1990, and expected continuation of that emissions growth presents the greatest challenge for Canada’s climate plan going forward.

We’ve been hearing a lot recently about decline in emissions per barrel of bitumen extracted from the oil sands, and the Canadian industry’s ambition to match the least-intensive crudes in the world. While reductions in emissions intensity are good news, we should not kid ourselves that we’re anywhere close to achieving that goal. A 2018 study in Science, a top-ranked peer-reviewed journal, found that Canada’s oil sands have among the highest carbon footprints in the world. It’s also questionable that tar embedded in soil can ever be delivered and refined as efficiently as free-flowing, light crudes.

As with LNG, while the emissions from combustion of Canada’s oil exports appear on the ledger of destination countries, emissions associated with extraction of bitumen are our responsibility. Under the Paris Agreement, Canada would get credit should there be a reduction in total emissions (not just emissions per barrel) associated with oil sands production. However, that would count toward our own emissions target. Any suggestion to sell those credits internationally as well would be prohibited as double counting under the Paris Agreement.

Last, there is a looming question of how Canada will fill the gap to meet our current Paris Agreement target, let alone the more ambitious target the Liberals promised during the election campaign, which is sorely needed if the world is to meet the goal to limit climate change to well below 2C. This week’s throne speech promised several additional measures, including promotion of electric vehicles, tree planting, subsidies for home retrofits, and investments in transit. However, no details have been provided to suggest that these measures will be sufficient to close a growing gap to Canada’s 2030 target.

Purchase of international credits may provide a way forward — though only if the rules negotiated this week ensure meaningful reductions. International emissions trading could reduce Canada’s compliance costs, though with a consequence of delaying transition of our own economy.

That’s an important trade-off that should be acknowledged and discussed openly, rather than proceeding with a plan we know to be insufficient, then pulling international credits out of the global hat at the last minute.