50 LEXPERT MAGAZINE
|
MAY 2018
| CARBON PRICING |
ect is feasible, profitable and whether it can
be completed on time and on budget."
ey ask a range of questions, he says,
that are largely centred on one primary
concern: do I have a carbon liability or car-
bon asset? If a liability, how do I satisfy it
and factor it into the diligence, viability
or financeability of my project? If an asset,
how do I monetize it and what are the con-
straints, opportunities or limits on transfer
and trade? "ose are the types of ques-
tions we've been getting."
While it has been argued that a carbon
tax is economically more efficient than cap
and trade, "some jurisdictions find the po-
litical implications of a taxation system un-
acceptable and prefer cap and trade because
it is market-based," says Paul Manning, the
principal of Manning Environmental Law
in Toronto. "Not only is cap and trade not
a taxation system, it is not a 'command and
control' system that simply legislates emis-
sions reduction back by sanctions. Cap
and trade allows regulated parties, such as
the large final emitters, to spread the pain
of implementing emissions reductions
through the ability to buy and sell emis-
sions credits."
Cap and trade needs large markets "to
ensure sufficient liquidity and fungibil-
ity of its credits," he says, but cautions
against the risk of an economic downturn
producing an artificial reduction in emis-
sions, "as happened in the EU Emissions
Trading System."
For Jacob Sadikman, a partner in the
Toronto office of Osler, Hoskin & Har-
court LLP, the current cap and trade pro-
grams in Ontario and Québec are some-
what of a disappointment. In the late 90s,
before going to law school, he worked in
the industry of emissions trading in New
York City for one of the over-the-counter
energy commodities brokerages in the
US. "is is not a new concept," he says.
"We've been chasing the dream of wide-
scale GHG emissions trading for well over
20 years at this point.
"To say it has been a little bit disheart-
ening to watch the pace at which this has
actually developed and the opportunities
coming out of it is a bit of an understate-
ment. is is cap and trade in name only.
at's my cynical perspective."
According to Sadikman, there is not, so
far at least, any "genuine secondary market
It also requires, he adds, "advising on the
availability of exemptions from the cap and
trade or similar reporting and procurement
processes and the availability, in the case of
the Ontario cap and trade program, of free
allowances. It also means understanding
how our clients who do business in other
jurisdictions may be treated."
Meanwhile, political change can happen
quickly. In Ontario, for instance, Doug
Ford was recently elected leader of the
province's Conservative Party. If his party
were elected to form a government, would
it effect a change in the province's previ-
ously announced carbon tax plan?
Clients involved in large projects that
take time to develop, construct, implement
and run, says Kro, "require some consid-
eration of what the rules are now, what they
might be 20 years in the future and what
they are in relevant jurisdictions. Because,
increasingly, carbon and the cost of carbon
will be a component of whether your proj-
activity for mission allowances in these
jurisdictions. What you're not seeing is an
actual vibrant secondary trading of these
products where you have energy marketers
and trading businesses coming in and mak-
ing markets in these things."
ere are no real buyers and sellers, he
says, just quarterly auctions run by the gov-
ernments. "You have compliance buyers
lining up to participate in these auctions,
and, basically, calling it a day."
Nonetheless, Sadikman says he's been
assisting a number of clients whose com-
mercial contracts in the energy and infra-
structure sector have provisions and me-
chanics relating to carbon pricing or simi-
lar environmental attributes, such as fuel
and steam supply and service contracts and
power purchase agreements.
"In many cases, these contracts had an-
ticipated some form of carbon pricing in
Ontario, or at the federal level, for many
years and there is a fair amount of legal
work at present in helping clients sort
through the implications of the carbon
pricing regime we now have in Ontario for
these commercial contracts."
In Atlantic Canada, the Nova Scotia
government indicates that it plans to im-
plement a cap and trade system, while New
Brunswick has indicated it would adopt a
carbon-pricing approach, although it was
JASON KROFT
STIKEMAN ELLIOTT LLP
"Clients involved in large
projects that take time to
develop, construct, implement
and run, "require some
consideration of what the rules
are now, what they might be
20 years in the future and what
they are in relevant jurisdictions.
Because, increasingly, carbon
and the cost of carbon will
be a component of whether
your project is feasible,
profitable and whether
it can be completed
on time and on budget."
PHOTO:
SHUTTERSTOCK
