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Credit for Early Action and Passing on the Carbon Love…

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If one looks back over the carbon policy discussions in Canada credit for early action figures prominently. Simply, under cap and trade, some argue that they should receive credit for action initiated in the lead-up to implementation. The core argument is that in expectation of a future carbon constraint, early action was undertaken to align with normal capital decisions. Thus, the argument goes, the early action should be recognized in setting the new carbon constraint to be less stringent. Now if you can follow all that, or it you know intuitively what I m talking about, you know why credit for early action is a mess – it is hard to sort out what is real or not. And so with a mechanism to enable credit for early action the regulator has to disentangle investment decisions and motives going back some years and then see how this influences the new allocation. Additionally and administrative burden both likely suffer with credit for early action.

Under the current Canadian plan, there is 5 MT allocated for early action. Not a lot, which is good, but still enough to trigger all kinds of positioning, and to require a few folks at Environment Canada to sort this all out.

And why am I ranting about this? Well there is a neat article here on how one BC municipality will see a carbon bill increase of $300,000 in 2012 under the BC carbon tax. And the link to credit for early action? The carbon tax will implicitly account for all early action undertaken through the lower emission intensity whereas trading may not.

In the case of Burnaby, a range of investments have lowered energy use, emissions intensity, and ultimately the carbon tax burden,

But the best example is Burnaby’s recent earth-friendly upgrades to 49 city-owned buildings. Completed by Honeywell Ltd., the $6-million project includes new light fixtures, water-saving measures and digital controls to keep heating, ventilation and air-conditioning costs down. “That cut down our energy consumption in total by 20 per cent for all of municipal operations”.

No need to sort out motives – the emission intensity does that. This is why a tax can be fairer than trading when one looks at early action. And certainly it is administratively simpler.

And what do rate payers in the municipality get? They get the great cost pass though,

Burnaby residents will be stuck with the bill. “We don’t have any other (funding) source but the property tax,”

But then again, the $300,000 cost in 2010 is less than 1% of Burnaby’s projected $333 million expenditures in 2010. Which makes me wonder why a 1% increase in operating costs four years from now is news.

Written by Dave Sawyer

April 14th, 2008 at 2:23 pm