May 29, 2015

English Edition, No. 12


The Need for a New Direction for the Economy

Quebec's Carbon Market -- Myth vs. Reality



The Need for a New Direction for the Economy

Quebec's Carbon Market -- Myth vs. Reality - Fernand Deschamps -
The People Must Control the Natural Resources


The Need for a New Direction for the Economy

Quebec's Carbon Market -- Myth vs. Reality

The issue of the carbon market has been presented, notably by the Couillard government, as a way of reducing the greenhouse gas (GHG) emissions of the monopolies that contribute significantly to the destruction of the natural environment. The carbon market is also presented as an element of the new economy, the sustainable development economy, which functions on an entirely different basis than the present one. Let's take a closer look.

A carbon cap and trade system is an organized negotiation and exchange market of greenhouse gas emission (GHG) units (carbon dioxide, (CO2), methane, nitrogen protoxide...).

Quebec's Ministry of Sustainable Development, the Environment and the Fight Against Climate Change (MDDELCC) defines Quebec's cap and trade (C&T) system of GHG emissions as follows:

"The C&T system is intended for companies in the industrial and electricity sectors that emit 25,000 metric tons or more of CO2 equivalent annually (ex: aluminum smelters, cement factories, electricity producers, etc.), as well as fossil fuel distributors that must cover GHG emissions associated with all products they distribute in Quebec (gasoline, diesel fuels, propane, natural gas and heating oil).

"The primary objective of the C&T system is to reduce GHG emissions in the highest emitting sectors, i.e., transportation, industry and building, by promoting energy efficiency as well as the use of energy from renewable sources. The carbon market therefore stimulates creativity as well as technological and business innovation by fostering the emergence of new low carbon drivers for economic development."

While in Quebec the transportation, industry and building sectors are the largest GHG emitters, if Canada is taken as a whole then oil, mining and manufacturing are where the biggest CO2 emitters are to be found. Oil extraction from Alberta's tar sands is the greatest source of GHG production as well as the one which contributes the most to its annual increase country-wide.

With regard to the carbon market, each industry is given an annual ceiling of GHG metric tons it can produce, subject to revision by the government.

Industries Targeted

The industries targeted as polluters are primarily Quebec businesses such as aluminum smelters, mines, sea, ground and air transportation, whereas electricity producing businesses are considered contributors to GHG emission reduction.

In the government's view, "Some businesses that face international competition have little or no influence on the selling price of their products. For them, any increase in production costs could reduce their profit margins and compromise their profitability.

"In order to mitigate the repercussions of the C&T system on the competitiveness of Quebec's industrial sector and avoid carbon leakage [the closure and relocation of plants outside of Quebec CP ed. note], emitters that are part of the following sectors receive assistance in the form of GHG emission units free of charge:

aluminium;
lime;
cement;
chemical and petrochemical industry;
metallurgy;
mining and pelletizing;
pulp and paper;
petroleum refining;
others: manufacturing of glass containers, electrodes, gypsum products and some agri-food establishments."

In other words, some businesses within these sectors of the economy benefit from the right to pollute. The only condition is that if they surpass a certain ceiling set by the government, they must purchase compensation credits for surpassing that ceiling. This is illustrated in the diagram below. The grey column in both examples represents the quantity of GHG emissions produced by each industry and the government's yearly allowance (compensation credits distributed free of charge) without penalty, while the red column represents the quantity of GHG emissions produced that surpass the quantities allowed.

Within that scenario there is the case of an industry with emissions lower than the annual quantities allowed and that can therefore sell the portion indicated in blue on the carbon auction market. Such quantities placed on auction can be purchased by an industry that emits GHG emissions over the annual quantities allowed. In that manner it can "compensate" its over-emission without in fact having to reduce its GHG emissions. The government's claim is that with time the ceiling of unit emissions allowed will be gradually decreased to force those industries that pollute the most to find ways to reduce their GHG emissions by stimulating "creativity as well as technological and business innovation'" by way of what the Quebec government refers to as the Green Fund.

Green Fund as a Pay the Rich Scheme

This is where the Green Fund comes into play, which is the result of quarterly auctions held by the Quebec government with or without California. The buying and selling of GHG emission units by different businesses and those eligible to participate generate significant revenues for these governments which, in the case of the Quebec government, then transfer them into the Green Fund.

"Since December 3, 2013, the Ministry of Sustainable Development, the Environment and the Fight Against Climate Change (MDDELCC) holds, on a quarterly basis, an auction during which it sells GHG emission units. All revenues from these sales go into the Green Fund.

"Since November 25, 2014 these auctions are held jointly with California. The emission units of the two States being fully fungible, emitters and participants can acquire them independent of their origin."

During the four GHG emission auctions held in Quebec between December 2013 and August 2014, $107 million was generated and placed in the Quebec government's Green Fund and that during the two GHG emission auctions jointly held between California and Quebec in November 2014 and February 2015, $332 million were generated and placed in the Quebec government's Green Fund.

The Green Fund is a godsend for heavy polluters who in return can request grants to supposedly lower their annual GHG emission production. For example in the documents made public on the MDDELCC's Green Fund, it is revealed that during the period of 2008 to 2013 transportation monopolies including Canada Steamship, Bombardier and CN, mining monopolies such as Rio Tinto, the aluminum smelter Alouette, the paper industry such as Kruger were able to pay for, through the public purse, ships, locomotives, the transportation of bulk alumina and wood to the tune of many millions of dollars.[1]

The automobile industry has not been left out either as the Quebec government subsidizes, by way of the Green Fund, the individual purchase of electric or hybrid vehicles for amounts ranging from $500 to $800 per vehicle, given to the monopolies of the automobile industry such as Ford, GM, Chrysler, Toyota, Honda, Audi, BMW, Volkswagen, Hyundai, Kia, etc. [2]

The Green Fund and Liberal Transparency

Based on the Quebec government's budgetary forecasts for 2015-2016, the Green Fund will generate over $750 million in revenues which will be given to the big monopolies that contribute the most to GHG emissions production. A number of grants from the Green Fund are given out without any details.

For instance an article published in La Presse on June 11, 2014, reveals that "for the second time in two years, the Sustainable Development Commissioner (SDC) has brought to light numerous problems with regard to the management of the fund by the Ministry of Sustainable Development, the Environment and the Fight Against Climate Change.

"Over $2.1 billion has passed through the fund since it creation in 2006. Close to $500 million was still in it in March 2013, based on the Commissioner's report.

"What amazes me, is that in 2012 there was an near similar report with an almost identical response from the Ministry," wrote Pierre-Olivier Pineau, Professor at l'école des Hautes Études commerciales.

"The biggest part of the money put into the Green Fund is from the former carbon tax, which was replaced this year by the cap-and-trade system of greenhouse gas emission credits.

"'The sale of emission credits will bring in $500 million per year beginning in 2015, versus $200 million for the carbon tax,'" notes Mr. Pineau, to highlight the urgency of improving the management of the fund.

'The SDC points out that many millions of dollars have already been handed out without a call for tender or without clear and measurable goals.

"Businesses are also justified in complaining about the management of the Green Fund," says Hélène Lauzon, of the Quebec Business Council on the Environment.

"(...) the sale of carbon credits will greatly increase the sums transited through the Green Fund. 'There are not enough accessible programs for businesses to improve their energy effectiveness," she stated.

"Such programs will be important to allow small and medium size businesses to absorb the increase in fossil fuel costs which could be handed down to them as of January 1, 2015. 'They must have access to the Green Fund in order to reduce their consumption,' Ms. Lauzon said."

Of course, as the MDDELCC points out, "for the first compliance period (2013-2014), only the industrial and electricity sectors are subject to the system. However, during the second and third compliance periods (2015-2017 and 2018-2020), fossil fuel distributors are also subject to the system." This has in fact resulted in an increase since January 2015 in the price per litre of gas, as the oil monopolies get car owners and small and medium size businesses that operate commercial vehicles floats to foot the bill.

The claim of governments such as the Quebec government, which initiated the carbon market under the Jean Charest liberal government, is one of "polluter pays," that is to say that those who produce greenhouse gas emissions should be the ones to pay for the pollution they generate. The facts tell a different story.

Notes

1. PAREGES List of approved projects
2. Electric vehicles, Government of Quebec

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The People Must Control the Natural Resources

It has been become common practice for monopolies and the governments in their service to blame the people and organizations in defence of rights and the environment for loss of profits by the monopolies in the natural resource sector. Specifically in the forestry industry both environmental groups and First Nations have been blamed for Resolute Forestry Products'loss of Forest Stewardship Council (FSC) certifications, which in turn are used to justify plant closures in Quebec's regions.

Most recently, different levels of government, municipal, provincial and federal, have come out in defense of Resolute and blaming environmental organizations for tarnishing the forestry monopoly's reputation abroad and hurting its international sales. At a May 27 press conference, federal minister Denis Lebel accused Greenpeace of a "mudslinging and demolition" campaign against the forestry industry. Federal Liberal leader Justin Trudeau said there is "a lot of disinformation" about the environment and climate change and that during a recent visit to the Saguenay region "people spoke to me about their preoccupations about Greenpeace." Jean-Pierre Boivin, president of the L'Alliance forêt boréale and prefect of the Maria Chapdelaine Municipal Regional Council (MRC), in Saguenay-Lac-Saint-Jean formally asked Greenpeace to "stop it's disinformation campaign on the harvest of timber in the Boreal forest."

Chantier Politique is printing an item by Pierre Chénier, entitled Resolute uses Obfuscation to Justify Closures originally published in French on March 20, 2015, that illustrates the government's hypocrisy when it comes to safeguarding the environment.

***

On March 5, Resolute Forest Products announced the closure of machine no. 9 of the Alma paper mill in the Lac-Saint-Jean, resulting in approximately 90 out of 350 jobs lost at the plant. In its March 5 statement announcing the machine closing, Resolute Forest Products attributed it to the weak paper market, the cost of fiber and what the company calls disinformation campaigns by Greenpeace and other environmental groups. Resolute was very discreet about the fact that the closure of the machine in Alma actually corresponded to a production shift to a Resolute plant in Tennessee. In the name of saving the factory, Alma workers made major concessions in recent years regarding the elimination of positions, increased outsourcing and regarding pension plans through the suspension of clauses in the collective agreement. Each time, Resolute suggested that its survival depended on three machines, but would not make a firm commitment on their maintenance. This decision represented a significant loss in economic activity revenues for workers and the community and has created greater anxiety for forestry workers in the region.

In late 2013, the FSC auditor withdrew Resolute's certificate for a vast tract of land in the Saguenay-Lac-Saint-Jean region when he endorsed the argument of the Grand Council of the Crees to the effect that Resolute was cutting on Cree trapping grounds in violation of an agreement between the Cree and the Quebec government and without their consent. In 2002, when the agreement of governance and resource development called Paix des Braves was signed by the Grand Council of the Crees and the Government of Quebec, a letter of agreement was also signed which was called Baril-Moses, named after the Grand Chief of the Grand Council of the Crees at the time, Ted Moses, and then Minister of Natural Resources, Gilles Baril. The Barrel-Moses agreement expanded the scope of several provisions of the Paix des Braves related to forestry and applied to trapping and fishing grounds linked to the Mistissini and Ouje-Bougoumou communities in the Saguenay-Lac-Saint-Jean region. According to the Cree Nation, since 2010, the government and Resolute have jointly implemented forest management plans contrary to Baril-Moses agreement. The Cree Nation has made repeated complaints to Resolute and the Government of Quebec and eventually resorted to a challenge at the FSC. Resolute's FSC certification on this territory was finally suspended at the end of 2013. FSC decisions are not legally binding but they influence the international reputation of forestry monopolies and can influence whether or not they can obtain contracts for production. Greenpeace and other environmental groups support the FSC and sit on some of its boards in different countries. On March 16, 2015 the FSC released the notice it sent to Resolute Forest Products, ordering it to immediately stop its activities and attacks on the reputation and credibility of the FSC, and to conform with the rules and criteria set by the FSC (of which Resolute is a member).

Instead of ceasing operations on these trapping grounds, Resolute declared itself the victim of a nation-to-nation political issue, while from the beginning it was very aware of the claims of the Cree Nation and worked with the government Quebec on these forest management plans and the cuts that followed, fully knowing it did not have the consent of the Cree Nation. It claims it is the victim of a political issue and reduces this important issue to a question of environmentalists being fiercely against it. Not only does this argument not hold water, but it is an abuse of power, wielding the weapon of plant closures and blackmail, which only compounds the problems. As for the Quebec government, it claims the new forestry regime in Quebec is the world's best and most sustainable ever, but it does absolutely nothing to resolve this situation with the Cree Nation and puts no pressure whatsoever on Resolute to cease its blackmail and closures.


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