Should Canada have a cap-and-trade system?

Three out of four parties in the House of Commons support introducing a cap-and-trade system to control carbon emissions. But very few Canadians understand how such a system would work and some provincial leaders think it is just an excuse for thefederal government to tax their energy industries.

In its simplest form, cap-and-trade is a market-based system where the government puts a cap on the total amount of pollution industry is allowed to emit. Each company would receive permits for how much pollution it could produce. If a company produced less than its limit, it could sell or trade permits to other companies that have gone over their limit.

"My concern is that if there is going to be a new environmental policy like cap and trade, which has questionable results in terms of reducing CO2 but has an unintended consequence of effectively knee-capping the parts of our economy that are working well. How is that good policy?" asked Saskatchewan Premier Brad Wall.

According to some experts, a cap-and-trade system if properly designed should not have that effect on the economy.

"Right now, more of the emissions in Canada are in the Western provinces. So if the government, initially, allocates some of those permits here, that valuable property stays here," said Andrew Leach, a professor of environmental management at the University of Alberta's School of Business.

Alternatively, Leach said,Ottawacould give provincial governments the right to issue emissions permits.

"It's a complex system," he said."Simple in theory, but when you start to implement it, it does become quite complex."

The Liberals, NDP and Bloc Qubcois all included a cap-and-trade system as a plank in their environmental platforms. The Conservatives said they would introduce one in their 2008 budget, buthave since backed away from the idea of cap-and-trade in favour of a rules-based industry-specific emissions.

British Columbia has no such qualms about cap-and-trade. The province is a full member of the Western Climate Initiative a union of seven American States, including California, and four Canadian provinces that hope to have a cap-and-trade system up and running in 2012.

"Cap-and-trade really provides certainty over targets," said B.C. Environment Minister Terry Lake. "So, when you're dealing with industry, when you provide certainty over the targets that you hope they will achieve and a market in which they can achieve that, then they can make long term plans."

While WCI hopes to have its system up and running next year, there is already a cap-and-trade system for power utilities in the northeastern United States.

But the only jurisdiction in North America with a cap-and-trade-like regime for all industries is Alberta, which has intensity targets on all industrial emissions.

Companies in the province must achieve a 12 per cent yearly reduction in the amount of energy they use to produce a product. To hit these targets,businessescan trade credits among themselves.