SHADES OF GREEN: Obama's doomed carbon plan should please Ottawa Peter Gorrie - March 07, 2009

U.S. President Barack Obama's climate change plan is, by his country's standards, a dreamy wish list.

His cap-and-trade system to reduce greenhouse gas emissions would be tougher than any tried or contemplated elsewhere.

But Obama, despite sky-high popularity and the Democrats' strong grip on the Congress, isn't likely to get what he's seeking.

Which would be good news for our federal government – no need to distinguish any longer between Conservatives and Liberals on this issue – and some of our industries.

Not so good, though, for anyone concerned about climate change.

Even Obama's plan wouldn't come close to the emission cuts scientists say are essential by 2020.

And what's likely to emerge from the American policy brawl is far less.

Here's what we're dealing with:

In cap-and-trade systems, governments limit total greenhouse emissions and require that refineries, power plants and other emitters obtain permits for every tonne they spew. The cap and, therefore, the number of permits, are gradually reduced. In theory, the shrinking supply raises the value of permits, so sources choose to cut emissions instead.

Europe launched cap and trade four years ago. Each source included was assigned a quota, based on its emissions at the time, and given enough permits to cover it. From then on, those that got below their quota could sell excess permits to those who went above.

The venture covered only major emitters, too many permits were issued, some companies made windfall profits before the price of permits plummeted, and emissions rose.

Our government wants to emulate Europe, except that its system would likely be even weaker.

Obama's plan would cover more sources of pollution and offer no freebies. From Day One, each emitter would have to buy, in an auction, permits for every tonne. This system is extremely efficient from an economist's point of view, says Lisa DeMarco, an expert in emissions trading law at the firm MacLeod Dixon.

But it would spell trouble for Canada, a major reason Environment Minister Jim Prentice was in Washington this week. U.S. industries fear it would favour competitors from countries without strong cap-and-trade systems. The likely solution: The U.S. would impose "border adjustments" on goods from countries with weak plans, based on the amount of greenhouse emissions they're responsible for.

Given Canada's poor performance and plans so far, these "adjustments" would apply to our exports, thus our angst over violations of free-trade agreements.

But most observers say there's no chance anything close to a 100-per-cent auction system will get through the U.S. Congress. It's expensive: Obama's budget estimates an annual cost of $80 billion starting in 2012. With industry leaders squawking, and critics projecting an initial gasoline price hike of 45 cents a litre, and 160-per-cent increases in electricity bills by 2020, it's also political quicksand.

DeMarco and others suggest, and Prentice likely was assured, the outcome will resemble the plan recommended last fall by negotiators for the seven states and four provinces, including Ontario, that make up the Western Climate Initiative. "They've done the heavy lifting," DeMarco says.

It, too, would begin in 2012 but at first cover less of the economy and, the crucial feature, give away most permits. While it would soon be expanded, the proportion of permits to be auctioned would rise to only 25 per cent by 2020. The cap and its rate of decline remain to be set.

Such a scheme would do little to slow climate change. We might do better if Ottawa led an effort for something more effective. So far, though, it's waiting to follow, and all indications are that the weaker the American plan, the happier our government will be

Peter Gorrie is the Star's former environment reporter. He can be reached at:

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