Market News

 April 15, 2007
Canada-U.S. to address cross-border air pollution

 Washington, D.C., USA (GLOBE-Net) - Following a meeting between Canadian Environment Minister John Baird and U.S. Environmental Protection Agency (EPA) Administrator Stephen Johnson, Canada and the United States have announced the intention to negotiate an annex to the U.S.-Canada Air Quality Agreement focused on cross-border particulate matter.

The 1991 Agreement has been effective in reducing air pollution which causes acid rain, a problem that had become a major ecological threat at the time. Between 1980 and 2001, Canada and the U.S. reduced sulphur dioxide emissions by 48 per cent and 39 per cent respectively. Nitrogen oxides were similarly slashed.

The Particulate Matter Annex will complement the annex negotiated in 2000 addressing ground-level ozone, as well as the original annexes on acid rain and scientific cooperation.

Particulate matter consists of airborne particles in solid or liquid form. Major sources are industrial processes, coal power plants, and vehicle emissions. As particles can be carried long distances, emissions in one region can have widespread effects. In California, for instance, a significant portion of urban smog can be attributed to particulate matter released from coal plants in China.

A number of studies have linked particulate matter to cardiac and respiratory diseases such as asthma, bronchitis, emphysema, and heart disease. A recent transboundary assessment of particulate matter found that legislated standards for particulate matter are being exceeded in several regions of both Canada and the United States, underscoring the need for action and supporting the development of a new annex.

A cross-border cap and trade plan?

There has been increased dialogue on air pollution between Ottawa and Washington over the past year, and it appears that each government shares a commitment to reducing air pollution, primarily smog-forming components and emissions that are linked to negative health impacts. Improvements in these areas are becoming an easy sell, as studies point to huge negative economic costs of urban smog.

The new annex on particulate matter may follow the format of the previous components of the agreement, with a range of regulatory actions taken on either side of the border. For the future, one idea that is being considered for particulate matter and other pollutants is a 'cap-and-trade' scheme that would set a hard limit on emissions and create a continental market for pollution credits.

Cap and trade initiatives already exist in the United States and have been instrumental in reducing emissions and improving air quality. In Canada, the Ontario government has established hard caps for both nitrogen oxides (NOx) and sulphur dioxide (SO2) emissions and have emissions trading mechanisms in place. The province also recently indicated its interest in joining a cap and trade program for greenhouse gases established by a group of northeastern states.

Through the Border Air Quality Strategy, Canada and the United States are looking into the feasibility of entering into a joint cap and emissions trading program aimed at reducing both NOx and SO2 emissions. A joint study on the feasibility of a cross-border emissions cap and trade system for nitrogen oxides and sulphur dioxide (NOx and SO2) was released in July 2005.

As was noted in a previous GLOBE-Net article, the success of an emission allowances trading regime depends on strong monitoring and enforcement mechanisms and accurate measurement of emissions from a generating facility. If not appropriately regulated and enforced, the measurement of emissions could potentially provide emitters the opportunity to falsely report lower than actual emission levels in order to minimize their liabilities or to create more assets than they deserve.

It is also important to measure emissions accurately and consistently even when different emitters use dissimilar measurement strategies. For example, different industries and facilities have adopted various approaches in measuring NOx and SO2 emissions to meet Environment Canada's reporting regulations. Another question yet unanswered is whether Canada's entry into a cap and trade program with the United States would act as a driver in growing Canada's environmental technology industry, especially in air pollution and monitoring systems?

Currently, Canada is especially strong in environmental consulting and engineering. Canada's capability in the air emissions control and monitoring technology sector is gaining strength, with the exception of Continuous Emissions Monitoring (CEM) systems, where the country is still weak and must rely on American expertise.

Presently, air emissions control is being implemented at the provincial level. For example, Ontario is establishing a provincial cap and trade initiative for large industrial emitters for NOx and SO2 pollution. Alberta is developing an emission credit program based on abatement targets.

Any direct involvement by the federal government in emissions controls would likely be done collaboratively with provincial governments. While the development of international trade agreements including future emissions cap and trade programs is a federal government responsibility, in order for a particular cap and trading mechanism to work efficiently and effectively, this authority would undoubtedly be managed in a federal-provincial, territorial and municipal context.

For More Information: Government of Canada