The New - 20/20 Magazine

Facing the Carbon Challenge
By Anthony D’Agostino
Director, Emissions Markets,
Royal Bank of Canada
Climate change and greenhouse gas
(GHG) emissions aren’t just environmental
issues – they’re also business issues.
That’s how they need to be considered if
the manufacturing sector is to effectively
reduce its emissions.
The sector’s contribution to GHG
emissions in Canada is about 15%,
according to a 2009 CME paper.
Thanks to improvements in energy
efficiency, replacement of industrial
processes, fuel switching and other
measures, the CME notes that
emissions in manufacturing have
been falling since the 1990s (Climate
Change Policy in 2009, CME 2009).
Industry leaders realize that getting a
handle on emissions is simply smart
business. Carbon is – or will be – a risk
for any manufacturer. Customers
(whether end consumers or other
businesses), shareholders, financial
markets and ultimately regulators will
all demand action – concrete steps to
quantify, disclose and control your
carbon footprint. The key question:
are you prepared?
Mix of reduction approaches
Start with the current regulatory
landscape. Much of the world is
watching to see what the U.S. will do
when it comes to regulating carbon
emissions. These proceedings will
heavily influence legislation in other
jurisdictions, including Canada.
advErTorIal
The latest talk in the U.S. Senate
involves a utilities-only carbon bill.
That narrows the group of emitters
affected, including some carbonintensive
industries. That’s how the
political winds are blowing now – but
the utilities plan, if enacted, may be
just a start.
In Canada, we already see a mix of
approaches.
Currently, there is no national regulation
on GHG emissions reduction; however,
the federal government has taken action
to promote energy efficiency and
technological developments in the field,
outlined a domestic GHG offset system
and established GHG reporting systems.
The federal commitment remains to
reduce Canada’s GHG emissions by
17% from 2005 to 2020, which is
aligned with the U.S. target (and
subject to adjustment to remain
consistent with the U.S. target).
on the provincial front, B.C. has a
carbon tax. alberta’s Specified Gas
Emitters regulation requires facilities
emitting over 100,000 tonnes/year to
reduce their carbon emissions intensity.
and the Western Climate Initiative –
involving six U.S. states plus B.C.,
Manitoba, ontario and Quebec –
proposes launching a regional cap-
and-trade system on Jan. 1, 2012.
Markets manage cap-and-trade
Carbon is usually priced in metric
tonnes, with prices varying depending
on the program. For example,
allowances from the Chicago Climate
Exchange program trade at US$0.10/
metric tonne, whereas EU emission
allowances (EUas) trade at €14.50/
metric tonne. Many programs and
jurisdictions fall between these price
levels. The wide ranges are due to
different perceptions of value and
whether there is a compliance need.
When companies see a price on
carbon, they can make informed
decisions about how to abate it.
That’s why market mechanisms like
cap-and-trade can be so effective.
With cap-and-trade, for instance,
governments set caps on carbon
emissions, and it’s up to the
emitters to find ways to stay within
their cap. often, the government
allocates or auctions an amount of
carbon credits that equals the cap.
If you fall below the cap, you can
sell excess credits; above, you can
buy credits from an emitter that
doesn’t need all its credits.
The worldwide value of carbon
trading was US$136 billion last
year, more than double what it
was two years ago. as an example
of this growth, rBC has traded
over 225 million tonnes of carbon
instruments globally, helping
companies hedge their exposure
to the carbon market through
instruments like forwards, futures
and options.
Europe currently has the world’s
biggest carbon market. Their
cap-and-trade plan covers sectors
that include oil and gas; pulp and
paper; public power and heat
(industrial/district heating);
cement, lime and gas; metals;
and “other” – a wide swath of
manufacturing companies that
have to be part of the program.
North american lawmakers are
examining the European model
closely, and we can learn from its
successes. Supply and demand tells
us that as caps get tighter and the
supply of carbon credits (allowances
and offsets) goes down, the price
of carbon goes up – meaning an
increased incentive for factories
to reduce their emissions.