A fifth study concludes that the carbon market in which Quebec participates will not allow it to achieve its greenhouse gas reduction objectives in its current form. This time, a committee of experts mandated by the provincial government is recommending that it significantly reduce the emission rights currently traded.
“We’re going to end up running out of time if we don’t accelerate decarbonization and the fight against climate change,” says Alain Webster, president of the Advisory Committee on Climate Change. “We’re entering a period where we have less and less opportunity to make a rapid reduction in emissions.”
The carbon market in which Quebec participates with California – the cap-and-trade system for greenhouse gas emission rights – is an essential tool for reducing greenhouse gas emissions.
“The system works, but we can push it further with certain tightenings,” says Charles Séguin, professor of economics at UQAM and member of the committee.
In its report published on Wednesday, the committee notes a surplus of emission rights in circulation. Emission rights are units that allow their holder to emit one tonne of CO equivalent.2“The surplus that can theoretically be associated with Quebec is 17 million units,” or the equivalent of 17 million tonnes of emissions, we read in the report.
Over the past six months, the final price of emission rights at auction in the carbon market has fallen by 27%, from nearly $56.61 per tonne in February to $41.50 in August.
Several studies, same observation
Several studies have documented the surplus of units allocated in this carbon market over the years. Since 2018, energy specialist Mason Inman of the Near Zero organization – based on the Stanford University campus – has participated in two studies that detail this reality.
The same goes for economist Chris Busch, from the American think tank Energy Innovation, who wrote in a 2017 study: “New data shows that the excess supply of carbon emission allowances has increased […]which would lead to higher emissions than expected.”
A study published last spring by Pierre-Olivier Pineau of HEC Montréal and Noémie Martin of CIRANO also noted an overallocation of emission rights: “Our main conclusions show that the overallocation is caused by ceilings that are too high to encourage sufficient reductions in emissions.” [de gaz à effet de serre] “, it reads.
The government should reduce the supply of units, according to the authors. “In most of the scenarios considered, climate targets are not met: emissions remain well above the targets set for 2030.”
In interview with The Press Regarding his study, Pierre-Olivier Pineau puts forward solutions to reduce the units in circulation, such as a reduction in the rights allocated each year. “The government could also, for example, buy back part of the surplus of existing rights.”
In the report published Wednesday, the Advisory Committee on Climate Change argues that Quebec will have to adjust its course so that “the system plays the role it is supposed to play” by 2030, namely to promote the reduction of greenhouse gas emissions.
As a first step, it recommends significantly reducing the ceilings on rights that are put into circulation annually to absorb the surplus of units currently in circulation in the coming years.
Nearly 10 billion since 2013
Furthermore, the committee believes that the number of units currently allocated free of charge to industrial emitters must be reduced by 2030, faster than previously planned. These free allocations correspond to 99% of the current emissions of these companies.
The government should consider eliminating the use of offset credits by 2027. These credits, which are granted to project managers who voluntarily reduce their emissions, have the effect of increasing the number of units currently available.
Obviously, the implementation of these measures could have an effect on the revenues that Quebec receives from this market, due to a reduction in the units in circulation, the committee members remind us.
Since its deployment in 2013, the carbon market has generated revenues of $9.5 billion, which has been transferred to the Electrification and Climate Change Fund.
“A band impact”
Revisiting the functioning of the carbon market would not be without effect, indicates Sonia Marcotte, CEO of the Association of Energy Distributors of Quebec.
This concerns both companies that hold rights and those that do business with them, believes Mr.me Marcotte: “The impact will be felt in the background. If the number of emission rights decreases, their price will increase. And if the price increases, it will translate into an increase in the price of fuel.”
For its part, Équiterre welcomes an adjustment to the carbon market, “an effective tool for fighting the climate crisis,” says Charles-Édouard Têtu, the organization’s climate policy analyst.
He believes that an automatic adjustment mechanism for emission ceilings should be integrated: “Basically, we would no longer have to wait for the political will to be there to adjust the course.”