Alberta Greenhouse Gas Simulation Event

Purpose/Goal:

The goal of the Alberta Greenhouse Gas Simulation Event is to provide participants with an understanding of emissions trading and an appreciation for the impacts that alternative regulatory policies can have on the cost of compliance for Western Canadian firms.

Other key goals of the event are to:
*provide insights into the Alberta trading position within Canada, North America and the world;
*test policy options in the context of a greenhouse gas emissions market relevant to the Alberta economy; and
*increase participants understanding of the potential for and functioning of emissions markets.

The Event:

The two-day simulation provides Alberta companies with a unique insight into how greenhouse gas trading might operate in a future where industrial emissions are curbed. Operating in a virtual environment that spans 12 years, participants will develop strategies for buying and selling emission credits, based on realistic western Canadian scenarios. Organized by Climate Change Central, the simulation will help companies design flexible, market-based options for responding to growing global demands to reduce greenhouse gas emissions.

During the simulation, two virtual scenarios will be modeled - a cap-and-trade scheme and a rate-based program - both using existing western Canadian data. Under the rate-based scenario, for example, participants will have an emissions deficit or surplus between their allowed and actual emissions. If, say, one megawatt-hour of electricity produces 1.1 tonnes of CO2 equivalent, and the government regulation allows only 0.8 tonnes, then a 0.3-tonne deficit is created and the emitter must buy an equivalent reduction from another player.

To help participants understand various domestic and international possibilities for trading and for reaching emissions targets, the Canadian, U.S. and Mexican marketplaces will each be simulated. Each of the simulation's four rounds will be divided into an analysis session - to allow emission buyers and sellers to plan their trading strategies - and a trading session.

Background:

Under the 1997 Kyoto Protocol, Canada has committed to cutting its greenhouse gas emissions by 6 per cent below its 1990 levels by 2008 to 2012. This can be achieved by government-imposed regulations, financial penalties or market-based emissions trading. While all three policy approaches have their place, emissions trading is expected to achieve the greatest volume of emissions trading at the lowest cost, because it encourages progressive companies to find innovative, efficient ways to reduce their emissions while enhancing their bottom lines.

While international legislation does not yet exist for greenhouse gas trading, an emerging "gray" market has already resulted in the worldwide transfer of more than 160 million metric tonnes of carbon dioxide equivalent transactions. In the United States, several trading programs to improve air quality have resulted in lower emissions and reduced compliance costs. In Canada, two pilot programs in emission reduction trading have helped industry prepare for possible Kyoto emission constraints.

To date, a number of approaches to emissions trading have emerged to help countries meet their domestic targets. Credit-based trading, for example, allows companies that increase their emissions to buy offsetting reductions from those that reduce their emissions. Under cap and trade programs, regulatory authorities set a fixed emissions cap for a group of companies, such as utilities, and those with emission improvements can sell their excess "allowances" to others. A third approach, rate-based emissions trading, focuses on emissions per unit rather than absolute emissions.

As well, the Kyoto Protocol recognizes several market mechanisms for countries to meet their emissions targets through international efforts. These mechanisms include Joint Implementation and the Clean Development Mechanism. For example, a Canadian company that invested in retrofitting Russian coal-fired power plants to burn natural gas could receive credits for the resulting reduced emissions.

The underlying theme behind this complexity of trading mechanisms is to provide companies, and countries, with the flexibility to determine the most economic means to reduce their emissions. Because the fledgling business of emissions trading is rapidly evolving, it is important that simulation participants understand not just how trading works but also how they could be impacted by the adoption of various regulatory policies.

Event Sponsors:

Alberta Government, ATCO Power, EPCOR, Shell Canada, Suncor Energy, TransCanada PipeLines, University of Calgary Learning Commons, and Western Economic Diversification

Event Participants:

Over 100 participants from:

• all sectors of industry,
• federal, provincial and municipal governments,
• non government organizations and industry associations, and
• academic institutions.