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Stop whining, Kyoto's here to stay, so learn to love emissions trading

You gotta love EnCana boss Gwyn Morgan. The self-appointed head of the anti-Kyoto Protocol lynch mob is still at it. While he's no longer saying Canada's entry into Kyoto will vaporize hundreds of thousands of oil and gas jobs, he praised the Conservatives' commitment to kill the climate-change accord. The scientific agenda to support Kyoto, he said in a recent speech, is based on the "deliberate manipulation of fact."

Debate is healthy and to be encouraged, but it looks like Mr. Morgan's campaign to keep North America a Kyoto-free zone -- George W. Bush wants no part of it -- is running out of momentum. In Canada, Kyoto is coming and the federal negotiators are reporting good progress in obtaining agreements on greenhouse gas emission caps and trading schemes from a broad range of industries. And yes, the oil and gas industry is among them. "They're not fighting it any more," a government negotiator, one of about three dozen at Natural Resources Canada, said yesterday.

In the European Union, meanwhile, Kyoto is already part of the political and economic landscape. The next big development comes early next year, when the EU countries are to join the mandatory Emissions Trading Scheme, or ETS.

In simple terms, the ETS will cap the emissions of greenhouse gases such as carbon dioxide. Companies, such as electricity producers, that exceed the target will have two choices. They can buy carbon credits on the market or install the technology and conservation measures (like turning off the lights) to get them below the target. Companies that are under the target can make a profit by selling surplus credits on an exchange. Banks and other financial intermediaries are naturally great fans of ETS because it gives them a brand new commodity -- carbon dioxide -- that can be bought, sold, financed and otherwise traded like so much wheat or coal.

The day will come, no doubt, when some sleazoid trader will get nailed for carbon-credit insider trading.

The ETS system will probably create sheer chaos in the early days, because so many industries in so many countries are involved, and only half a year is left to get prepared. All of the countries move at different economic speeds. Britain, a relatively mature economy, actually wants to reduce its emissions by a greater amount than is required. Italy thinks it should be given a few years leeway because it moved up the industrial food chain later than Britain -- that is, its greenhouse gas emissions are climbing faster than Britain's -- and doesn't want to be penalized for it. And so on.

Canada is moving in the EU's direction, but, being Canada, it's doing so more slowly. This is not a bad thing. The slower pace will allow the big greenhouse gas emitters, dominated by the petroleum, power generating and manufacturing sectors, more time to build consensus with the government and develop a glitch-free trading system. The goal is fairly modest -- a 15-per-cent reduction in emissions by about 2010. This is not a real reduction, but a reduction in what the emissions would otherwise have been, absent Kyoto, by that date.

Nonetheless, remarkable progress is being made, government and industry officials involved in the Kyoto file say. A federal-provincial agreement on measuring and registering the amount of greenhouse gas emissions is already in place. Statistics Canada will administer this program. The forestry industry has an emissions agreement with the government and the oil and gas industry is working on one.

Talks with the electricity generators, most of which, like Ontario Power Generation, are owned by the provinces, are more complicated. Ontario, for instance, wants to close all of its coal-burning electricity plants by 2007. Doing so would substantially reduce the carbon dioxide output of the whole country. Ontario, though, wants some sort of payback for doing the heavy lifting on the emissions front.

Legislation governing the framework for regulated emissions could go to Cabinet by early next year. There is little doubt it will be passed in some form because the New Democratic Party and the Bloc Québécois, either of which could shorten the life expectancy of the minority Liberal government, are Kyoto supporters. By 2008, the emissions trading system should be running. There is even talk of developing a transatlantic trading scheme, in which Canadian carbon credits could be traded in the EU and vice versa.

Anyone who doubts a trading system like this can work need only look at the sulphur dioxide market in the United States. A creature of the Clean Air Act, it has been in operation since 1993 and is the main weapon in the war against acid rain. The trading system covers all of the United States and has substantially reduced sulphur dioxide emissions from their 1980s levels without posing a huge financial burden on smokestack industries, notably the power generators.

Mr. Morgan and the other Kyoto bashers are wasting their energy. The debate now is not whether Kyoto should exist, or whether Canada should join when the United States hasn't, but how to adapt to the new world of emissions trading, how to minimize the cost of joining and how to profit from it. Canada and the EU are offering a market-based solution to controlling greenhouse gas emissions, and the market is responding.

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