Pricing GHG emissions from the industrial, transport and building heating sectors and ensuring that the sums collected are fully reinvested in the fight against climate change: this is how Québec is moving towards a green and carbon-neutral economy by putting businesses and contributing citizens.
One of the most effective ways to reduce greenhouse gas emissions is to put a price on carbon. This is the daring gamble of the cap-and-trade system for greenhouse gas emission rights (SPEDE), set up by the Government of Quebec in 2013. For businesses, the carbon market is a economic incentive that places the reduction of their carbon footprint at the heart of their business strategy. Thus, by investing in a new green technology, a company can reduce its GHG emissions to reduce its carbon cost and gain a competitive advantage. The carbon market targets industrial companies that emit CO2 equivalent of 25,000 metric tonnes or more per year (including aluminum smelters, cement works, refineries, chemical plants, steel mills and mines), producers and importers of electricity, as well as distributors of fuels and fossil fuels. Together, these sectors (industry, transportation, building heating) are responsible for approximately 80% of Quebec’s GHG emissions.
On the citizen side, the cost of GHG emissions is transferred in the price of fuels and fossil fuels by distributors subject to the carbon market. This is particularly the case for transport and building heating. In addition, various programs implemented by the government aim to help citizens adopt more low-carbon behaviors. Let us think in particular of the rebates on the purchase of electric vehicles.
UNDERSTANDING THE CARBON MARKET
The workings of SPEDE
The Quebec system associates a cost with GHG emissions, that is to say a tariff that obliges targeted companies and citizens to make a choice: reduce their GHG emissions or pay the cost. To do this, the carbon market obliges companies that are subject to it to remit to the government an emission allowance for each ton of GHGs they emit into the atmosphere. Three points to understand how it works.
1 – Emission ceilings
All emitters subject to the carbon market have access each year to a limited quantity of emission units, known as annual emission caps. These caps gradually decrease over the years, putting upward pressure on the price of each tonne of GHGs. This is what encourages companies and citizens to reduce their consumption of hydrocarbons, and companies to innovate and improve their manufacturing processes.
2 – Emissions trading
Emitters subject to the rules of the carbon market can adopt the emission unit acquisition strategy that best suits their situation. Emission units are available on the primary market, ie government auctions, which take place four times a year. Emitters can also purchase on the secondary market emission units from another company participating in the carbon market or offset credits issued to promoters who have carried out GHG reduction projects in sectors not subject to the SPEDE. Financial markets specializing in derivatives (purchase or sale options, forward contracts) are also developing to offer more flexibility to companies.
In 2021, on a global scale, approximately 22% of the carbon emitted was subject to a price.
3 – Free allocation of emission units
The carbon market takes international competition into account by adapting the burden it imposes to prevent companies from simply deciding to pollute elsewhere rather than reduce their emissions. Thus, these industrial companies exposed to national and international competition are granted free GHG emission units. Those that reduce their emissions below the number of units allocated for free (for example, by improving their production efficiency or by integrating less polluting green technologies) can accumulate the units for later use or monetize them by selling them.
A WINNING PLAN
To fund climate action
The carbon market is an important source of revenue for Quebec. Over $6 billion has been raised since the launch of SPEDE, and these funds have been fully reinvested in climate action. The Government of Quebec pays all of the revenue from auctions into the Electrification and Climate Change Fund to finance measures to support businesses, municipalities and citizens in the fight against climate change. An initiative that supports the shift towards a strong, resilient, innovative economy that is increasingly moving towards carbon neutrality. As a result, most of the measures contained in the Plan for a Green Economy 2030 are made possible thanks to the revenues generated by the carbon market.
STIMULATE BUSINESS CREATIVITY
Innovation at the heart of the transition
The carbon market encourages businesses to be creative and find innovative solutions to reduce their GHG emissions and use energy more efficiently. It also contributes to the development of expertise in new niches such as clean technologies, energy efficiency or transportation electrification, while promoting economic growth in Quebec. In short, the carbon market is an effective lever to support a transition towards a modern, prosperous, low-carbon and resilient economy.
To find out more about the carbon market: quebec.ca/carbonmarket
The cap-and-trade system for greenhouse gas emission allowances (SPEDE) is an economic tool for sustainable development developed by the Government of Quebec. This market mechanism introduces a carbon cost into the economy, which encourages companies and citizens to adopt less emitting behaviors and reduce their consumption of hydrocarbons. As an indication, the price per tonne of CO2 reached $39.59 at the May 2022 auction.
Concrete benefits
This content was produced by Le Devoir’s special publications team in collaboration with the advertiser. Le Devoir’s editorial team had no role in the production of this content.