I had forgotten this important, essential, intriguing detail. In Quebec, only 126 companies are responsible for three-quarters of our GHG emissions.
You read that right: not 126,000, but 126. Isn’t that telling?
This detail is what an expert report published this week reminded us of, a report requested by the Quebec Ministry of the Environment. And this report recommends being more demanding of these 126 companies, essentially1.
How? This is where it gets interesting. In Quebec, there is no carbon tax imposed on businesses, unlike in other provinces. Instead, the government decided 10 years ago to impose a GHG cap on each of these large emitters, a cap that decreases each year between now and 2030.
To comply, companies essentially have two choices: either they find solutions to reduce their GHGs, or they buy a stock that gives them the right to emit the GHGs set by the government for the year. Securities are auctioned four times a year by the government, with a minimum price per tonne of GHGs.2.
This market is called SPEDE, or the GHG Emissions Cap and Trade System. Quebec shares this market with California.
But in light of the results, it turns out that the annual ceilings set 10 years ago until 2030 are not demanding enough.
This is because among the 126 polluters, there is one category – large industrial companies – which are granted rights each year by the government allowing them to emit GHGs without paying, in short, to pollute for free.
Among the 126 companies, these industrial companies number 81. They emit some 21 million tonnes of GHGs per year – 27% of the Quebec total – which is equivalent to 7.2 million cars, more than the passenger vehicle fleet in Quebec.
According to the report, the free pollution rights represented 99% of the GHG emissions of these manufacturers at the last count. In short, the system is still very, very unconstraining for them, even after 10 years.
How is this possible? The creators of SPEDE wanted to prevent carbon pricing linked to the purchase of rights from disadvantaging local manufacturers, who face fierce international competition from companies in other countries where emissions are not priced.
Very well. Except that the situation is eminently unproductive, in a context where global warming is accelerating and where our GHG targets are far from being achieved.
It is also unfair. In addition to the manufacturers, there are also the gasoline distributors who have GHG ceilings to respect. These distributors who fuel our cars – Suncor and Valero – do not receive government freebies and must therefore purchase rights each year for the equivalent of approximately 40 million tonnes of GHGs, double the amount of the manufacturers. The bill is passed on to motorists.
The increasing scarcity of pollution rights is increasing their price, but not fast enough. At the last auction, the price of rights sold by Quebec and California was $41.50 (US$30.24) per tonne. By comparison, the federal carbon tax imposed on other provinces is much higher, at $80 per tonne.
That’s not all. According to the report, given the context, the 126 emitters have managed to accumulate surplus rights in recent years, which represent 17 million tonnes. These rights can be used in the coming years to cancel part of their GHG emissions. They are equivalent to almost 4 months of emissions from the 126 companies…
In short, the report concludes that the rules are too flexible. They make several recommendations, four of which are more important.
First, they believe that the 17 million tonnes accumulated must be erased, and to do this, they propose to reduce the permitted ceiling each year between now and 2030.
In 2024, the GHG cap for the 126 large emitters is 51.6 million tonnes. By 2030, the cap will gradually increase to 44.1 million tonnes, under current rules, and the report proposes reducing it to around 41 million tonnes.
Another suggestion: a faster reduction in the volume of freebies offered to manufacturers. The government’s plan is to reduce them by 2.7% per year, but the report proposes a reduction of 4%, in line with the GHG targets that Quebec has set for 2030.
The authors also believe it is time to bring medium-sized emitters under the microscope – there are 84 of them – even though their emissions only amount to 1.3 million tonnes, compared with some 60 million for the 126 large emitters.
They also believe that it is necessary to stop allowing emitters to buy so-called offset rights, which come from external companies – notably American forestry companies. These companies put them on the market because they have succeeded in having their contribution – contested – to the reduction of GHGs recognised.
All these measures, in collaboration with California, should increase the price of a tonne of GHG in 2030 to around $127, according to the most likely scenario, closer to the level considered optimal to promote a sustainable reduction in GHG.
Professor Alain Webster, one of the authors of the report, tells me that “there is an openness from the governments of Quebec and California to tightening the carbon market.”
The game will not be easy, however. Major emitters are important companies in Quebec. And for some, reducing GHGs involves a profound transformation of their processes, and not just a simple change in energy supply (from natural gas to electricity). This is the case for the aluminum smelters that, in Quebec, are developing the Elysis project.
Aluminum smelters are also the largest emitters of GHGs in Quebec, by far (6.1 million tonnes). Rio Tinto alone emitted 4.8 million tonnes in 2022 with its aluminum smelters and other companies, the equivalent of 1.6 million cars.
The tightening of the market also comes with a bill, which is added to several others, complains Jocelyn Allard, president of the Quebec Association of Industrial Electricity Consumers.
“It just adds to the other bills that are rising, like electricity,” he says. Industrialists have seen their electricity rates increase by 8% over the past two years, rates that are set to increase significantly in the coming years with Hydro-Québec’s development projects.
Some companies may want to move to less expensive climes or with less stringent environmental standards, he said.
Nothing is won, then, but do we have the luxury of waiting, seeing the increasing costs and the dramas linked to climate change? Please, answer me no.
1. Consult the report submitted to the Quebec Ministry of the Environment
2. This title can also be purchased from other companies – those which emit less GHG than their ceiling – or on the secondary carbon market, in particular.