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.

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