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Right now predicting compliance costs in the Canadian carbon market is like throwing darts at a dart board. Under the Regulatory Framework for Air Emissions enacted in April 2007, companies are required to reduce their greenhouse gas (GHG) emissions on an intensity basis by 18 percent from a 2006 baseline by 2010 and continue to make intensity improvements of 2 percent each year until 2015. With the government keen to see investment in carbon abatement stay in Canada, future carbon prices in the domestic market are of particular interest to companies with Canadian operations.
ICF International has examined the implications of the Canadian Government’s proposed regulatory framework for greenhouse gas (GHG) emissions and has developed a tool that will enable companies to better predict the cost to comply. ICF’s proprietary Carbon Planning Model (CPM™) enables a company to more accurately predict the cost of compliance and assess risk.
Our Approach
Using the same multi-sector, multi-fuel energy and emissions model the government is currently using to analyze the impact of its policy, ICF ran scenarios to get a sense of how external variables (such as natural gas prices, economic growth, and projected oil sands growth) affect the nation’s GHG emissions from sectors targeted under the Regulatory Framework.
This modeling, which will be updated annually, provides insights with respect to:
- price levels and liquidity of the carbon market under different policy configurations based on extensive MAC curve work that ICF previously completed
- an estimate of the volume of offsets that will be available over the compliance period based on policy options and project type availability
- an estimate of the demand for industry compliance units by industry sector
- an estimate of the cost of tradable compliance units
- overall compliance costs and the impact of these costs on various economic sectors
What emerged from this analysis is that GHG emissions, and therefore required reductions, are most sensitive to increases and decreases in economic growth. The high growth scenario for the oil sands placed additional pressure on that sector and the power sector but had limited impacts on other sectors. High natural gas prices had virtually no impact on emissions growth and therefore credit prices.
ICF’s CPM™ allows companies to quantify their potential compliance costs (economic risk) based on user-defined scenarios. Variables within the CPM™ for user manipulation include:
- eligible offset project types
- volume of offset credits available for each eligible offset project type
- transaction costs
- comparative offset scenario overlay analysis
Table of Contents
1) The Canadian Market—Regulatory Context
2) The Reference Projection of Emissions and the Implications to the Regulated Industries
3) Variations in the Reference Projection
4) Compliance Mechanisms and the Size of the Offsets Market
5) The Outlook for Offsets
6) Canadian Carbon Pricing Tool
7) Appendix: Emission Reduction Abatement Options (potential offsets)
Deliverables
- Microsoft Excel-based Canadian CPM™ will evaluate the impact of various offset credit availability scenarios relative to projected demand for 2015, 2020, and 2030, and project offset credit prices of each scenario.
- Microsoft PowerPoint report will detail how the tool works, general findings, assumptions, and areas of uncertainty.
- Individual subscriber presentation delivered on site will look at the various scenarios modeled within the tool and the probable policy direction and investigate the implications of the Canadian Carbon Market Study from a subscriber-specific perspective.
Note: The models and study will be updated annually.
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