The federal government, recognizing that the cost of meeting the greenhouse gas reductions targets under the Kyoto Protocol will be significant, has put its faith on a worldwide emissions credit trading system to cushion the adverse economic impact.
But last week Dr. Robert Watson, the chairman of the UN Intergovernmental Panel on Climate Change, put a big hurdle in Ottawa's path. He insisted that Canada won't be able to trade emissions credits with the United States because our southern neighbour is refusing to sign the Kyoto deal.
If Dr. Watson is right in his assessment, then the rules ought to be changed. They're based on a technicality, and will be an impediment to creating an efficient market for emissions trading.
Specifically, they'll hurt Canada. Our companies won't be able to reduce emissions in a cost-effective manner if the U.S., one of the biggest generators of greenhouse gases in addition to being our nearest neighbour and greatest trading partner, isn't part of the trading system.
Emissions trading allows firms to buy and sell emission permits. Once the allowable emission levels are set, governments can sell or grant firms a permit to pollute up to that amount. Then any companies that can cheaply reduce emissions are allowed to sell their permits, and those facing higher costs can buy them.
There's plenty of evidence that adopting this market-based mechanism can result in an over-all reduction in greenhouse gases without major economic dislocations.
But for an emissions trading program to succeed, the market has to be competitive. That happens only if three important conditions are met. First, there must be lots of firms participating from various parts of the world. Second, there must few barriers for firms to enter and exit the marketplace. Third, the transaction cost of trades must be low.
Without the U.S. in the picture, it's difficult to imagine that these conditions will be fully met. So the UN must not allow itself to get hung up on a technicality rather than focusing on the larger of goal.
Pollution doesn't respect national boundaries. Sound strategies to combat it can't be constrained by these boundaries, either. And they shouldn't be based on politics.
The Americans may have irked Kyoto supporters in the UN by refusing to ratify the accord, but they've signalled their intention to curb greenhouse gases nonetheless.
So rather than leaving the U.S. on the outside because it hasn't signed this accord, the UN should work with it in every way possible. That means encouraging the Americans to be part of the global emissions trading market.
If Canada agrees to ratify Kyoto, it will have to reduce greenhouse gas emissions by more than 27 per cent over the next decade. And Canadians are bound to feel the economic pinch from such a massive reduction.
Dr. Watson's narrow interpretation of the rules has seriously pulled the rug out from under he federal government, which has been trying shore up public support for Kyoto based on the premise that our country will get a lot of credit for selling clean energy to the Americans. And since our government hasn't ratified the Kyoto accord yet, he just handed it another reason not to.
We doubt that's what he intended to do. He may want to reconsider his position.
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