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Economy

Credits where credit is due: LNG exports and carbon credits

Published

1 year ago

6 minute read

From the MacDonald Laurier Institute

By Jerome Gessaroli

Canada should announce its intent to use Article 6 as a tool to help meet its emissions reduction targets

In this new paper, LNG exports and carbon credits: Credits where credit is due, MLI Senior Fellow Jerome Gessaroli makes the case that Canada can earn ITMOs ( Internationally Transferable Mitigation Outcomes) based on exports of British Columbia-sourced Liquified Natural Gas (LNG). With the potential to significantly lower global carbon emissions and displace coal power in the Asia-Pacific region, such a strategic move by Canada to harness BC’s LNG offers a transformative solution.

Executive Summary

Under the basic current climate accounting rules to which Canada and all other UNFCCC parties have agreed, countries are responsible for reducing GHG emissions within their own national borders. If a country supported a project in another country, it would receive zero credit, no matter what help it may have provided. Therefore, countries have a big incentive to fund projects only within their own borders to help meet their own national carbon reduction goals. That is unfortunate for the planet’s emission reduction efforts. The focus on emission targets within national borders is a shortfall in the nationally based climate accounting system.

To address this shortcoming, the UNFCCC has adopted a framework covered in Article 6 of the Paris Agreement enabling countries to cooperate and share emission reductions. This framework allows carbon credits (known as internationally transferable mitigation outcomes, or ITMOs) to be transferred from the country where the reductions occurred to the country that helped undertake the emissions reduction project.

Sharing emissions reductions through Article 6 is possible when liquefied natural gas (LNG) replaces coal in power generation. This substitution is especially important because coal-fired power plants are expected to produce large amounts of the world’s energy (and GHGs) over the next several decades, even though coal emits much more carbon than other primary fuel sources. Even more troublesome is that new coal plants are still being built in significant numbers. Those new plants alone are expected to emit over 1,415 Mt CO2e (mega tonnes of CO2 equivalent) per year, which dwarfs Canada’s national targeted reductions of approximately 310 Mt CO2e per year by 2030.

Canada, meanwhile, is preparing to become a supplier of LNG. New LNG projects within British Columbia are amongst the least carbon-intensive sources of LNG in the world. BC’s LNG exports could lower global carbon emissions by displacing coal power, particularly in the Asia-Pacific region. Developing markets in Asia would welcome rapidly rising LNG imports. Realistically, BC LNG should be fully used as a substitute fuel to mitigate the carbon emissions impact of existing coal-based power plants, especially those currently used for heating.

While the concept of Article 6, where carbon credits are shared for collaboratively developed projects, is straightforward, the criteria and rules for implementing it are complex. This paper makes the case for how Canada can earn ITMOs based on exports of British Columbia-sourced LNG. An important criterion for making projects ITMO eligible is that the project would not have gone ahead without carbon credits being available. This suggests deals should be structured involving LNG exports along with some other value-added Canadian participation that assists a developing country in switching from coal to LNG as a fuel source. The ITMOs Canada receives could offset any incremental costs we would incur.

If Article 6 is used, the assertion that British Columbia’s pursuit of LNG production would prevent the province from meeting its emission reduction becomes inaccurate. Just over half of LNG Canada’s Phase 1 production capacity in British Columbia would result in approximately 1.2 Mt CO2e emissions annually. Using the same production capacity to replace coal for power generation in Asia has the potential to significantly reduce emissions, ranging from 14.9 to 35.2 Mt CO2e per year. Such outcomes underscore the importance of international collaborative efforts.

Canada should announce its intent to use Article 6 as a tool to help meet its emissions reduction targets. The federal government should then work with industry to identify candidates for bilateral agreements. Common methodologies for measuring, tracking, and verifying carbon mitigation outcomes would all need to be developed as would a registry for tracking and transferring ITMOs. These are complex issues, but we can learn from other countries that have already established processes for managing such projects.

Jerome Gessaroli is a senior fellow with the Macdonald-Laurier Institute and is the project lead for the British Columbia Institute of Technology’s Sound Economic Policy Project. He writes on economic and environmental matters, from a market-based principles perspective.

PDF of paper

 

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Economy

COP 29 leaders demand over a $1 trillion a year in climate reparations from ‘wealthy’ nations. They don’t deserve a nickel.

Published on November 16, 2024

By

From Energy Talking Points

The injustice of climate reparations

COP 29 is calling for over $1 trillion in annual climate reparations

  • A major theme of COP 29 is that the world should set a “New Collective Quantified Goal” wherein successful nations pay poor nations over $1 trillion a year to 1) make up for climate-related harm and 2) build them new “green energy” economies. In other words, climate reparations.¹
  • What would $1 trillion a year in climate reparations mean for you and your family?Assuming the money was paid equally by households considered high income (>$50 per day), your household would have to pay more than $5,000 a year in climate reparations taxes!²
  • Climate reparations are based on two false assumptions:1. Free, wealthy countries, through their fossil fuel use, have made the world worse for poor countries.

    2. The poor world’s main problem is dealing with climate change, which wealth transfers will help them with.

But free, fossil-fueled countries have made life better for poor countries

  • Free, wealthy countries, through their fossil fuel use, have not made the world worse for poor countries—they have made it far, far better.Observe what has happened to global life expectancies and income as fossil fuel use has risen. Life has gotten much better for everyone.³
  • The wealthy world’s fossil fuel use has improved life worldwide because by using fossil fuel energy to be incredibly productive, we have 1) made all kinds of goods cheaper and 2) been able to engage in life-saving aid, particularly in the realms of food, medicine, and sanitation.
  • Without the historic use of fossil fuels by the wealthy world, there would be no super-productive agriculture to feed 8 billion humans, no satellite-based weather warning systems, etc. Most of the individuals in poor countries would not even be alive today.

Free, fossil-fueled countries have made the poor safer from climate

  • The wealthy world’s fossil fuel use has been particularly beneficial in the realm of climate.Over the last 100 years, the death rate from climate-related disasters plummeted by 98% globally.

    A big reason is millions of lives saved from drought via fossil-fueled crop transport.⁴
  • The “climate reparations” movement ignores the fact that the wealthy world’s fossil fuel use has made life better, including safer from climate, in the poor world.This allows it to pretend that the poor world’s main problem is dealing with rising CO2 levels.

The poor world’s problem is poverty, not rising CO2 levels

  • The poor world’s main problem is not rising CO2 levels, it is poverty—which is caused by lack of freedom, including the crucial freedom to use fossil fuels.Poverty makes everything worse, including the world’s massive natural climate danger and any danger from more CO2.
  • While it’s not true that the wealthy world has increased climate danger in the poor world—we have reduced it—it is true that the poor world is more endangered by climate than the wealthy world is.The solution is for the poor to get rich. Which requires freedom and fossil fuels.⁵

Escaping poverty requires freedom and fossil fuels

  • Every nation that has risen out of poverty has done so via pro-freedom policies—specifically, economic freedom. 

    That’s how resource-poor places like Singapore and Taiwan became prosperous. Resource-rich places like Congo have struggled due to lack of economic freedom.

  • Even China, which is unfree in many ways (including insufficient protections against pollution) dramatically increased its standard of living via economic freedom—particularly in the realm of industrial development where it is now in many ways much freer than the US and Europe.
  • A crucial freedom involved in rising prosperity has been the freedom to use fossil fuels.Fossil fuels are a uniquely cost-effective source of energy, providing energy that’s low-cost, reliable, versatile, and scalable to billions of people in thousands of places.⁶
  • Time and again nations have increased their prosperity, including their safety from climate, via economic freedom and fossil fuels.Observe the 7X increase in fossil fuel use in China and India over the past 4 decades, which enabled them to industrialize and prosper.⁷
  • For the world’s poorest people to be more prosperous and safer from climate, they need more freedom and more fossil fuels.The “climate reparations” movement seeks to deny them both.
  • The wealthy world should communicate to the poor world that economic freedom is the path to prosperity, and encourage the poor world to reform its cultural and political institutions to embrace economic freedom—including fossil fuel freedom.Our leaders are doing the opposite.

Climate reparations pay off dictators to take away fossil fuel freedom

  • Instead of promoting economic freedom, including fossil fuel freedom, wealthy climate reparations advocates like Antonio Guterres are offering to entrench anti-freedom regimes by paying off their dictators and bureaucrats to eliminate fossil fuel freedom.This is disgusting.⁸
  • The biggest victim of “climate reparations” will be the world’s poorest countries, whose dictators will be paid off to prevent the fossil fuel freedom that has allowed not just the US and Europe but also China and India to dramatically increase their prosperity.
  • The biggest beneficiary of “climate reparations” will be China, which is already emitting more CO2 than the US and Europe combined. (Though less per capita.)While we flagellate and cripple ourselves, China will use fossil fuels in its quest to become the world’s superpower.⁹
  • The second biggest beneficiary of “climate reparations” will be corrupt do-gooders who get to add anti-fossil-fuel strings to “reparations” dollars and dictate how it’s spent—which will surely include lots of dollars for unreliable solar panels and wind turbines made in China.

Leaders must reject reparations and champion fossil fuel freedom

  • We need leaders in the US and Europe who proudly:1. Champion the free world’s use of fossil fuels as an enormous good for the world, including its climate safety.

    2. Encourage the poor world to embrace economic freedom and fossil fuels.

    Tell your Representative to do both.

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1  Scientific American – COP27 Summit Yields ‘Historic Win’ for Climate Reparations but Falls Short on Emissions Reductions
2  Global population was about 8.02 billion in 2023.

World Bank data

About 7% of world population are considered high income, which translates into about 562 million individuals. Considering 3 people per average household in high income households, this translates into about 187 million households.
Pew Research – Are you in the global middle class? Find out with our income calculator

$1 trillion per annum paid by 187 million households means the average household would pay about $5,300 per year.

3  Maddison Database 2010 at the Groningen Growth and Development Centre, Faculty of Economics and Business at University of Groningen
4  UC San Diego – The Keeling Curve

For every million people on earth, annual deaths from climate-related causes (extreme temperature, drought, flood, storms, wildfires) declined 98%–from an average of 247 per year during the 1920s to 2.5 in per year during the 2010s.

Data on disaster deaths come from EM-DAT, CRED / UCLouvain, Brussels, Belgium – www.emdat.be (D. Guha-Sapir).

Population estimates for the 1920s from the Maddison Database 2010, the Groningen Growth and Development Centre, Faculty of Economics and Business at University of Groningen. For years not shown, population is assumed to have grown at a steady rate.

Population estimates for the 2010s come from World Bank Data.

5  UC San Diego – The Keeling Curve

Data on disaster deaths come from EM-DAT, CRED / UCLouvain, Brussels, Belgium – www.emdat.be (D. Guha-Sapir).

Population estimates come from World Bank Data.

6  Our World in Data – Energy Production and Consumption
7  BP – Statistical Review of World Energy
8  UN News – ‘Pay up or humanity will pay the price’, Guterres warns at COP29 climate summit
9  Our World in Data – Annual CO₂ emissions from fossil fuels, by world region
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Business

Ottawa’s emissions cap another headache for consumers and business

Published on November 14, 2024

By

From Resource Works

Ottawa’s emissions cap for oil and gas aims to cut emissions but risks raising costs for consumers and disrupting industry stability.

Ottawa has brought down a new emissions cap for the oil and gas industry, with a mandate to reduce emissions by 35 percent from 2019 levels by 2030 to support the federal government’s climate targets. While the federal government is celebrating the cap as a big step towards a more sustainable future, it is going to make life harder for consumers and businesses alike.

This cap is coming in at a time when the oil sector is finally gaining greater stability due to the expanded Trans Mountain pipeline (TMX), and the mandate would undermine that progress and press greater costs upon households and industries that are already adjusting to high inflation and uncertainty in world markets.

Now that TMX is operational, Canada’s oil producers have grown their access to international markets, most importantly in Asia and the West Coast of the United States. Much-needed price stability now exists for Western Canadian Select (WCS), cutting the discount against the U.S. West Texas Intermediate benchmark, enabling Canadian oil to compete more effectively.

Newfound stability means that Canadian consumers and businesses have benefited from slightly lower prices, and that industry has grown less dependent on a more limited domestic demand. However, Ottawa’s emissions cap does threaten this new balance, and the sector now has to deal with compliance costs that could be passed down to consumers.

In order to meet the cap’s targets, Canadian oil producers must heavily invest in carbon capture and storage (CCS) technologies, which is costly but essential. Major CCS projects include Shell’s Quest and the Alberta Carbon Trunk Line, both of which are already operational.

The Pathways Alliance is a coalition of six major oil sands companies and is preparing to invest in one of the world’s largest networks for carbon storage. These efforts are crucial for reducing emissions, despite requiring vast amounts of capital.

Those in the industry are worrying that the emissions cap will push resources away from production and, instead, towards compliance, adding costs that will be borne by fuel prices and other consumer products.

Ottawa has portrayed the cap as an essential measure for meeting the federal government’s climate goals, with Environment Minister Jonathan Wilkinson labeling it “technically achievable.” Nonetheless, industry players argue that the timeline does not align with the practicalities of scaling CCS and other strategies aimed at decarbonizing.

Strathcona Resources executive chairman Adam Waterous pointed out the “stroke-of-the-pen” risk, in which shifting political landscapes imperil ongoing investments in carbon capture. Numerous oil producers feel that without certainty in carbon price stability, Ottawa’s cap will result in an unstable business environment that will push investment away from production.

Business leaders do not share the federal government’s optimism about the cap and see it as a one-sided approach that fails to reckon with market realities. The Pathways Alliance, which includes companies like Suncor Energy and Canadian Natural Resources, has been frustrated in its multiple attempts to get federal support to fund its $16.5-billion CCS project.

Rather than imposing these new limits, energy industry advocates argue that the government should provide targeted incentives like “carbon contracts for difference” (CCfDs), which help to stabilize carbon credit prices and reduce financial risk among investors. These measures would enable the energy sector to decarbonize without putting a greater burden on consumers.

The cap’s timing also raises concerns about the Canada-U.S. relationship. Canada has traditionally been a stable supplier of energy and helps to bolster U.S. energy security. However, as the U.S. increases its reliance on Canadian oil, the cap could disrupt this trade relationship. Lowered production levels would leave the economies of both the U.S. and Canada vulnerable, potentially disrupting energy prices and supply stability.

For households across Canada, the emissions cap could mean further financial strain. The higher costs of compliance passed to oil producers will mean higher prices at the pump and more expensive heating costs at a time when Canadian consumers are already struggling financially.

Businesses will also face increasing operating costs, which will be passed down to consumers via more expensive goods and services. Furthermore, higher costs and reduced production will erode Canada’s competitive advantage in the global energy market, slowing economic growth and risking job losses in the energy sector.

So, while Ottawa can laud its emissions cap as a necessary action on the climate, the implications for consumers and businesses are tremendous. Working with industry to find pragmatic, collaborative solutions is how Ottawa can avoid creating more financial burdens for Canadians.

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