Worldwide: Climate Change Essentials: Navigating Carbon Pricing Mechanisms And Guide To Canadian Federal And Provincial Regulatory Framework

Introduction

Over the years, climate change policy has experienced its ebbs and flows. Climate change arrived on the international stage at the Rio Earth Summit in 1992, where 154 countries signed the United Nations Framework Convention on Climate Change (UNFCCC) to stabilize atmospheric concentrations of greenhouse gas (GHG) emissions at a level to prevent "dangerous anthropogenic interference with the climate system". The UNFCCC entered into force on March 21, 1994 and 195 countries have ratified the UNFCCC to date. Subsequent international negotiations led to the Kyoto Protocol, an international treaty which extends the UNFCCC and commits its signatories to reduce GHG emissions. The Kyoto Protocol was adopted in December 1997 and came into force on February 16, 2005. There are currently 192 signatories to the Kyoto Protocol. While Canada withdrew from the Kyoto Protocol effective December 2012, a newly elected federal government has indicated its willingness to re-engage in international talks to reach a new global climate change treaty for the post-Kyoto era.

Following the anticlimactic outcome of the 15th session of the Conference of the Parties to the UNFCCC (COP 15) which produced the non-legally binding Copenhagen Accord in 2009, there is cautious expectation of a legally binding successor agreement — or at least certain legally binding components of an agreement — to the Kyoto Protocol as countries gather for the next round of international climate change talks to be held in Paris from November 30 to December 11, 2015 (COP 21). So what has changed since the Copenhagen climate talks? There are four key international drivers:

  1. Pressure from sub-national and local governments around the world, many of which have undertaken their own initiatives to implement policies and programs to reduce GHG emissions and are now calling for more coordinated national strategies to address climate change. From energy efficiency standards and green building codes, to investments in clean energy and infrastructure, Canadian provinces, territories and municipalities have been leading the way on climate change action.
  2. Calls from industry leaders and investors around the world for governments to put a price on carbon, aimed not only at reducing GHG emissions, but also at facilitating business planning, an "even playing field", and risk management. The 2014 Global Investor Statement on Climate Change, signed by 385 investors with more than $24 trillion in assets, sets out steps institutional investors (both asset owners and asset managers) can take to address climate change, and calls on governments to support a new global agreement on climate change in 2015. In addition, many companies already operate in countries that have carbon pricing systems in place, so they are incorporating a real or internal carbon price into business planning and investment decisions. According to the CDP (formerly the Carbon Disclosure Project), in 2015, 437 companies are using an internal carbon price ranging from US $6 to US $89 per tonne of carbon dioxide equivalent (CO2e); an additional 583 companies have indicated they will start carbon pricing within 2 years.
  3. The world's two biggest emitters – China and the United States – have recently made significant commitments to reducing their GHG emissions. In November 2014, the two countries issued a Joint Announcement on Climate Change, pursuant to which the US set an economy-wide emissions reduction target of 26%-28% below 2005 levels in 2025 and committed to make best efforts to reduce its emissions by 28%, while China will achieve peak emissions around 2030 and will make best efforts to peak early. China will also increase its share of non-fossil fuels in primary energy consumption to around 20% by 2030. In August 2015, the US finalized its Clean Power Plan, which will reduce emissions from the power sector to 32% below 2005 levels by 2030. In addition, China plans to a introduce national cap-and-trade program between 2018 and 2020 (covering major industrial sectors) and has committed US $3.1 billion to help developing countries adapt to climate change
  4. Limiting the rise in global temperatures to no more than two degrees Celsius (2°C) has become the de facto target for global climate change policy, which is the level scientists of the Intergovernmental Panel on Climate Change (IPCC) say is needed to avoid the potentially adverse consequences of climate change. The concept of the two degree threshold first emerged in the 1970s, when Professor William Nordhaus suggested that warming of more than two degrees would push the climate beyond the limits that humans were familiar with. The two degree limit was formally enshrined into international climate policy in the 2010 Cancun Agreements, which commits governments to "hold the increase in global average temperature below 2°C above pre-industrial levels". As the British Met Office reports that global temperatures for 2015 are on track to be 1.02 Celsius above the 1850-1900 average, there is a sense that the window is quickly closing for collective action on climate change.

Together, these factors are pushing climate action to the top of the policy agenda and boosting the anticipation for a meaningful international agreement on climate change.

Purpose of this Guide

This guide provides an overview of key climate change issues, focusing on the market mechanisms for addressing climate change as well as the context for climate change concepts such as the global carbon budget and the social cost of carbon. In addition, an overview of Canadian federal, provincial and territorial climate policies, and regional climate change initiatives is provided. While a discussion of municipal climate change initiatives, climate change mitigation and adaptation plans, air quality regulations, and provincial renewable energy policies and incentives is outside the scope of this guide, such initiatives and policies play a key role in the fight against climate change.

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