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Market News

 June 16, 2006
Québec to levy carbon tax

 Montreal, Canada -- Québec has issued a climate change plan that includes twenty-four actions to either cut greenhouse gas emissions or to adapt to climate change that will be paid for by a royalty on hydrocarbons totalling around $200 million a year. The tax and other measures will be the most stringent in Canada and Québec hopes to lead the country on practical measures to deal with climate change.

Québec Premier Jean Charest and Environment Minister Claude Béchard said that from 2006-2012, the province will place a tax on oil and gas companies for the sale of hydrocarbon products sold in bulk to retailers. Heavy oil, gas, natural gas and other fuels will be subject to the charge.

The estimated $200 million which the tax will raise each year will be paid into a Green Fund, which will provide the resources for the implementation of other aspects of the climate change plan.

Other specific measures in the plan include limiting the speed of heavy vehicles to 105 km/hr, raising Building Code standards to improve energy efficiency of new buildings, and an information campaign to promote public awareness of climate change actions.

Light-duty cars and trucks sold in the province will have to meet stricter emissions standards by 2010, similar to those adopted in California, which are the most stringent in North America.

Investments will also be made to promote the development of energy efficiency technology and clean energy solutions, and to encourage Canadian companies to bring such products to market. A complete list of measures and details can be found in the official plan: Quebec and Climate Change -- A Challenge for the Future (PDF).

With the plan, the provincial government says it will be able to cut emissions by 10 Megatonnes of carbon dioxide equivalent, or 1.5% below 1990 levels. Further reductions will be funded with $328 million the expected from the federal government, allowing Quebec to meet its Kyoto Protocol target of 6% below 1990 levels. Premier Charest has said publicly that the province will meet its own Kyoto targets regardless of the national situation, but clearly hopes receive the funding arranged with the previous administration.

Environmental groups praised the carbon-tax policy, which is viewed as an effective instrument to reduce emissions, because it creates a market incentive by placing an economic value on carbon. The effect of a carbon tax would be similar to that of a cap-and-trade system which would require companies to cut emissions or pay for credits for the right to pollute more. The European Union has recently finished the first phase of its Emissions Trading System, and the market for credits was worth billions until the price crashed on reports that many countries had undershot emissions targets. The EU has promised stricter targets during the second phase, and believes that the system has proven to be effective despite some growing pains.

Only economic instruments that place a financial penalty on carbon dioxide emissions will actually be effective, said a report submitted to the federal government by the C.D. Howe Institute. Author Mark Jaccard says that without such a penalty, other demand and supply factors will simply overwhelm any voluntary efforts or subsidies, which have proven ineffective in the past.

A spokesperson for the petroleum industry noted that the costs of the tax will likely be passed on to consumers, reports the Globe and Mail.

"There is no doubt that consumers will pay more for the measures," said Carol Montreuil, a spokesman for the Canadian Institute of Petroleum Products. "We are talking about $200-million, and in one way or another, this money will have to come out of the pockets of consumers. . . . You can't expect an industry to absorb an additional $200-million cost."

In response, Premier Charest pointed to other industries, such as aluminium processing, that have reduced emissions while maintaining economic competitiveness.

"It is high time (oil companies) play by the same rules as everyone else," Mr. Charest said, reports the Globe and Mail. "This represents a great opportunity for the oil producers. If they don't see it that way I'd regret that. They'd be totally wrong. They will be on the wrong side of this issue."