Unit 7: Cap

and Trade
What we cover in unit 7

• Acid Deposition Introduction

• Eastern Canada Acid Rain Program
• US Approach (Cap and Trade)
• Cap and Trade vs Taxes and Subsidies
1979
Sudbury smelter was constructed in 1929 and by 1965 was
releasing 2,500,000 tons of SO2
5
Vegetation

100 kms2 around Sudbury

barren of vegetation
350kms2 around supported
only shrub & herbaceous
cover (~)
Vegetation affected within
1700 square mile area
(~4000ks2)
Aquatic Life
In 1966 Fisheries
Researcher Harold Harvey
discovered that the 4000
pink salmon he had
stocked in Lumsden Lake
had disappeared

He found that the lake

(and many others) had
undergone 100 fold
increase in acidity

In 1980, Environment
Canada Scientists
estimated that 600,000
lakes in Canada would be
dead by 2005 without a
dramatic reduction in Acid
Deposition
Buildings
Estimated health impacts of SO2 and NO on Human
Health are over $100 billion USD in the USA.
Chestnut, L. AND D. M. Mills. A Fresh Look at the Benefits and Costs of the US Acid Rain Program. JOURNAL OF ENVIRONMENTAL
MANAGEMENT. Elsevier Science Ltd, New York, NY, 77: 252–266, (2005)

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 1970s Dilution
Approach

1972 A new 381m tall

“superstack” smelter
built at Sudbury

Superstacks
everywhere
1983
Civil Society
• The Canadian Coalition on Acid Rain
began in 1981
• Raised awareness of the acid rain
issue, through advocacy, educational
programs and by lobbying the
governments of both Canada and
the United States
• With the passage of amendments to
the U.S. Clean Air Act in 1990 the
Coalition's mandate was completed
and the group disbanded.
1984
Who are the doomsdayers, environmentalists or
those who seek to resist policies to protect the
environment?
“ Million dollar problem – billion dollar solution?”
Nature -1977

“Can we afford risking 4 million jobs for marginal gains in air

quality and fighting bugaboos like acid rain?”
--Pat Buchanan, Los Angeles Times article 1990

“…the President’s proposal to cut sulfur dioxide emissions has no

ecological, health, or economic justification.” --“Billions We Don’t
Need To Spend:
The Acid Rain Scandal,” Washington Times
1987
1991
Acid 1985 - Eastern Canada Acid Rain Program

Set target load of 20

kilograms per hectare per
year (kg/ha/yr)
This was a total Eastern
Canada cap of 2.3 million
tonnes/year.

NOTE: This level was

significantly above what
scientists considered to
be the critical load
Target Load

“A target load is the amount of pollution that is deemed

achievable and politically acceptable when other factors
(such as ethics, scientific uncertainties, and social and
economic effects) are balanced with environmental
considerations.”
Eastern Canada Acid Rain Program

Instituted in 1985 – Program

surpassed its goals by 14%

Achieved through intensive

command and control Technology
and Procedural Standards

Each province developed its own

regulations, and undertook
negotiations with individual
producers

“Held the industries hand through

the process”
U.S. Acid Rain Policy Approach

1990 – Clean Air Act Amendment to reduce

emissions from electric generating plants by
50%

In 1991 Canada-US Air Quality Agreement

was signed

US system initiated system based upon

tradable quotas (aka Tradable Permits or
Cap and Trade system)

More than 4000 producers involved in USA

 U.S. Policy
Allocation was given to plants based upon
historical emissions and current approaches

Emissions monitoring equipment installed

on all producers

At end of year, companies must have

enough permits to cover their actual SO2
Emissions. (tradable and bankable permits)

Estimates of total cost of following Canadian

approach in US were $7.4 billion

American model ended up costing about

$0.9 billion with similar success

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Why was the cap and trade solution more
efficient than the regulatory monitoring
system?
Competition encourages
continuous incentive to
innovate least cost reduction
strategies through innovation.
The ability to bank permits
means that firms can invest in
‘over-achieving’ improvements,
knowing that they will receive a
payoff for doing so.
No need for all firms to make
adjustments, those that can
most efficiently improve their
emissions can do, while those
less able can purchase permits.
 Other
Examples of
Cap and
Trade
• Alberta’s Technology
Innovation and Emissions
Reduction Regulation
(TIER) Program
• Quebec, California, and
Ontario’s Carbon Market
• Individual Fishing Quota’s
(in many fisheries now)
• China’s new Cap and
Trade system

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 Quebec’s System
• Industrial establishments that emit 25,000 metric tons of CO2
equivalent (t CO2 eq.) or more annually (aluminum smelters, cement
plants, refineries, chemical plants, steel mills, mines, etc.);
• Electricity producers and importers, for which the GHG emissions
associated to the production of electricity equal or exceed 25,000
metric tons of CO2 equivalent annually;
• Distributors of fossil fuels used in Québec (gasoline, diesel fuel,
propane, natural gas, and heating oil). Note - Distributors are
required to cover the GHG emissions resulting from the products
they distribute.
• Since 2019, industrial establishments that report annual emissions
equal to or greater than 10,000 t CO2 eq. but less than the threshold
of 25,000 t CO2 eq. can voluntarily register to the carbon market to
become emitters subject to the C&T system.

https://www.environnement.gouv.qc.ca/changementsclimatiques/marche-carbone_en.asp
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 Quebec System
• The government establishes the
annual GHG emission unit caps
(maximum emission limit).
These caps are progressively
lowered over time in order to
generate GHG emission
reductions.
• The government sells emission
units at auction four times a
year w/a minimum price. Only
emitters and participants
registered to the market can
participate in these auctions.
• Emitters can sell their units to
other emitters

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Quebec System

• Industrial emitters exposed to national or international competition

receive most of the emission units they need free of charge in order
to prevent what is called “carbon leakage,” that is, the offshoring of
companies to places without a carbon pricing system.
• Starting in 2015, however, the number of units allocated free of
charge to these emitters has been dropping about 1% to 2% a year,
notably for combustion emissions, in order to encourage them to cut
GHG emissions further.
• Electricity producers as well as fossil fuel distributors do not receive
free allocations since they are able to pass the cost of carbon pricing
onto consumers.

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Carbon Leakage

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Cap and Trade
• More complicated and
expensive to administer
• More certainty in terms of total
amount of emissions
• Less certainty in terms of cost
for emitters
• Usually not revenue neutral
(though it could be)
• Appear to be more politically
resilient
• Easy mechanism to address
trade exposed industry (free
permits)
Carbon Taxes
• Very simple to administer
• More certainty in terms of cost
per tonne of emissions
• Less certainty in terms of total
amount of emissions
• More commonly revenue
neutral (though it need not be
such as BC’s or Alberta’s C-tax)
• More politically fraught –
Alberta repeal, Australia repeal,
USA abandonment (died on hill
in 1993, 2009, 2010, and Biden
has no interest), etc.
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The End

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