CIBC World Markets forecasts $12 billion greenhouse gas emissions trading market in Canada, according to new report
Alberta and Saskatchewan likely buyers, Manitoba and Quebec sellers TORONTO, March 13 /CNW/ - CIBC (CM: TSX; NYSE) - CIBC World Markets foresees an inter-provincial market in greenhouse gas (GHG) emission credits that could be worth as much as $12 billion annually. The new study predicts that the economies of Alberta, Saskatchewan and New Brunswick would be big buyers of emissions credits, with Québec and Manitoba likely sellers. The report notes that Saskatchewan and Alberta account for 60 per cent of national GHG emissions growth since 1990 while representing less than 15 per cent of the country's population. Relative to GDP, the two provinces are the most emissions-intensive in the country. "Saskatchewan produces more GHG emissions per unit of GDP than any other province, with an emissions intensity more than three times the national average," says Jeff Rubin, Chief Strategist and Chief Economist at CIBC World Markets. "Emissions from the labyrinth of pipelines that crisscross the province as well as from its coal-fired power plants make the seemingly green prairie province the most carbon-intensive in the country." The report finds that electricity generation is often the single most important determinant of a province's potential exposure to carbon emission costs. Coal-fired generation is the chief offender, emitting roughly twice the GHG emissions per unit of power produced than gas-powered plants. Gas-plants themselves are relatively heavy emitters when compared to effectively emissions-free sources of electricity like hydro and nuclear. Given that the provinces of Quebec, Manitoba, Newfoundland & Labrador and British Columbia all rely heavily on emissions-free hydro power, they are less exposed to carbon costs. On the other end of the spectrum are Alberta, Saskatchewan and Nova Scotia who rely on coal for at least 60 per cent of their electricity needs. The oil and gas industry is also a large contributor to GHG emissions. Since 1990, the growth in oil and gas emissions has exceeded 50 per cent, easily twice as brisk as growth from remaining GHG sources combined. The carbon profile of Canada's oil industry will worsen materially in the next decade as oil sands production rapidly eclipses conventional oil production. Due mainly to heating requirements, producing a barrel of synthetic oil from the oil sands generates three times as much GHG emissions as an equivalent amount of conventional crude. Alberta already accounts for roughly two-thirds of direct emissions from fossil fuel industries, and that figure will rise meaningfully given the planned doubling or even tripling in oil sands production over the next decade. Even with ongoing improvements in emission intensity, the scale of production increases could see oil sands emissions rise from roughly 30 megatonnes (Mt) today to more than 100 Mt over the next decade. "The regional disparities in emissions growth could lead to some pretty hefty inter-provincial flows of emissions credits under any future cap and trade system established along the lines currently being implemented by a growing number of U.S. states," notes Mr. Rubin. Based on what is considered the minimum price of $30 a ton to stabilize emission growth, the report forecasts that the more than 410 megatonnes of annual CO2-equivalent emissions (2004) that come directly from identifiable industrial and commercial sources would have a market value of over $12 billion. "It remains to be seen how a cap and trade system would be implemented in Canada - or how much of that $12 billion in emissions credits would be traded across provincial borders," adds Mr. Rubin. "But with an already-skewed distribution of GHG emissions looking to become even more unbalanced in coming years, it's easy to envision a healthy inter-provincial trade in carbon permits. "Saskatchewan, Alberta and New Brunswick could be the biggest buyers of emissions credits, with the Manitoba and Québec economies the most obvious sellers, given their already low emissions intensity and planned expansion of emission-free electricity generation." The full CIBC World Markets Monthly Indicators report is available at http://research.cibcwm.com/economic_public/download/mimar07.pdf. CIBC World Markets is the wholesale and corporate banking arm of CIBC, providing a range of integrated credit and capital markets products, investment banking, and merchant banking to clients in key financial markets in North America and around the world. We provide innovative capital solutions and advisory expertise across a wide range of industries as well as top-ranked research for our corporate, government and institutional clients.