Prime Minister Stephan Harper, US President Barak Obama, and Mexican President Felipe Calderón met at the North American Leader’s summit in Guadalajara in early August to discuss trilateral issues facing the three countries. Among security, economic and trade issues, the leaders discussed a coordinated approach to managing climate change and energy issues. On August 10th, they released the North American Leaders' Declaration on Climate Change and Clean Energy to reaffirm their commitment to tackling climate change and coordinating trading regimes and energy efficiency standards.
Arguably the most important outcome of the declaration was the leaders’ commitment to “building capacity and infrastructure with a view to facilitate future cooperation in emissions trading systems.” A future trading system would be legitimized by the development of “comparable approaches to measuring, reporting, and verifying emission reductions.”
Also of note was the mention of “sustainably managing our landscapes for GHG benefits,” which includes forest, wetland, and cropland protection and enhancement. This clause might portend increasing monetization of ecosystem services, which are already being valued and marketed internationally through initiatives like the UN-REDD Programme (Reducing Emissions from Deforestation and Forest Degradation). Mexico already boasts among the world’s largest share of these projects.
All three countries stand to benefit from the possible inclusion of landscape management in an offset system. Such a system would offer protection to Mexico’s vast and threatened tropical forests and Canada’s Boreal forests and temperate rainforests. Modifying the three countries’ agricultural practices could generate significant sequestration opportunities. The US has a penchant for agricultural offset projects and is giving them special attention as it continues to develop the American Clean Energy & Security Act (ACES).
Rules on pollution are more lax in Mexico and labour is less expensive than in either Canada or the US. It is therefore believed that Mexico holds many opportunities for achieving GHG reductions at a lower cost than would be possible for many projects in Canada or the US. Cheap reductions could translate into inexpensive carbon offsets, which could be purchased by firms in Canada and the US to help them comply with forthcoming domestic greenhouse gas regulations at a lower cost.
Both Canada and the US are in the process of developing national cap-and-trade legislation, and a general framework for domestic emissions trading was announced in April by Carlos Muñoz, director-general for international cooperation at Mexico’s environment ministry. All three systems are being designed for easy integration, and carbon offsets are expected to factor heavily into the suite of possible compliance options for industrial emitters. Harmonized reporting, verification and measurement standards might also help to obviate the complications associated with differing eligibility rules, prices and values for ‘domestic’ versus ‘international’ offsets. The current draft of ACES discounts the value of international offsets after 2017 because it is argued that they are more difficult to verify and could be of lower quality. But harmonization might allow for offsets to be treated equally across the continent, therefore decreasing cost, bureaucracy, and risk.
If and when a North American continental trading system gets up and running, some experts predict it will become a $1 trillion market by 2020, which would dwarf the European Union’s Emissions Trading System, now valued at over $100 billion annually. But a North American system hinges on the passage of ACES, which would form the centerpiece of the program. Canada and Mexico have a few cards they can leverage when hammering out a fair deal with the US, including their significant energy resources and protections offered under NAFTA, but the US will most likely dominate the regulatory conversation. Before there is any certainty, however, each country must get its own house in order and pass legislation that allows for offsets and that clears a path toward a coordinated and integrated continental emissions trading system.
By Jeff Beyer, .(JavaScript must be enabled to view this email address)
