FYI - from Brian Loy, Enron Canada in Ontario.

 -----Original Message-----
From: 	Loy, Brian  
Sent:	Tuesday, October 09, 2001 8:56 AM
To:	Tripp, Garrett; Wilson, Jan; Jacobson, Lisa
Subject:	Pollution trading system on hold

Lisa can you please forward to Stacy and Mary, if required...thanks

Pollution trading system on hold
U.S. criticizes Ontario plan
John Spears
Proposals that would put a price tag on the right to pollute in Ontario - and create a market for trading those rights - have gone back to the drawing board. 
The province's plans have drawn comments from many quarters, including a detailed and critical response from the U.S. government. 
Pollution blows both ways across the the Canada-U.S. border. But can both countries agree on a system of trading pollution credits, which are meant to be a tool for cleaning up North America's air? 
The environment ministry will pore over the comments to see if the proposed system for trading harmful emissions should be changed. 
Ministry spokesperson John Steele couldn't say how long the review would take. 
The province's proposals cover emissions of sulphur dioxide and nitrogen oxide - two gases that cause smog. 
In theory, emissions trading systems set strict ceilings on over-all emissions of pollutants, and slowly squeeze the limits lower over time. 
Polluters are given an over-all target - say, a 10 per cent reduction in emissions of a specific substance. 
Some polluters may find it cheap and easy not only to meet that target, but to exceed it. Others, who may have older equipment or are in a different business, may struggle to meet the goal. 
An emissions trading system allows a company that beat its target to sell surplus pollution credits to the company that fell short. The price is set by the buyers and sellers. 
The economic theory is that as long as the over-all emission reduction target is achieved, it makes sense to do it at the least cost. A trading system means that the lowest-cost solutions are implemented first. 
While it means that some firms continue to pollute, they must pay a price for it. That drives up their costs, and prods them to clean up. 
Will it work in practice? 
Initially, Ontario's proposals would apply only to the six fossil-fuel burning plants owned by Ontario Power Generation. The proposal details a steady reduction in their emissions. 
 Ontario system too complicated, says U.S. environmental agency  	
The proposals have attracted keen interest from the U.S. Environmental Protection Agency. It has submitted 13 closely spaced pages criticizing the Ontario plan. 
The EPA doesn't believe the methods Ontario proposes for measuring emissions are effective. Measuring emissions is crucial if reductions are to be assigned a real value. 
That and other technical problems ``call into question the compatibility of the proposed trading system for Ontario and U.S. trading programs,'' the EPA says. 
Since pollution blows across international boundaries, emissions reduction credits will also be traded across the border. 
``It's in our interest to work together'' with the U.S., says John Wellner of Pollution Probe. 
Steele says that's what Ontario is trying to do. 
``It's the intention to harmonize our trading system to allow cross-border trading. We're currently in discussion with the U.S. to reach agreement that makes cross-border trading in emission reduction credits a reality.'' 
But Steele notes it's a two-way street: At present, he says, legislation in the U.S. doesn't permit the type of cross-border trading contemplated by Ontario, so there's work to do on both sides of the border. 
Pete Christich, a U.S.-Canada relations officer with the EPA, says his agency takes the Ontario proposals seriously. 
``We felt the comments are very important regarding the U.S.-Canada relations and goals we have under the major air quality agreements our two countries have,'' he said in an interview. ``We really, really feel strongly we want to maintain a very close dialogue with Ontario.'' 
The EPA comments say that Ontario's proposals are unnecessarily complex. For example, the value of credits would vary depending on the distance between buyer and seller. 
A company selling credits to a polluter right next door would get full value for its credits. But if it sells to a polluter 1,200 kilometres distant, the value of the credit would be discounted 75 per cent. 
The EPA says this kind of feature would make the Ontario proposal ``complicated, potentially difficult to implement and may be burdensome to administer.'' 
Wellner at Pollution Probe gives the ministry credit for proposing tight, shrinking limits for emissions in the electricity sector: ``That's good. We're further ahead than we were.'' 
But he notes that industries outside the electricity sector will also be able to earn credits - and they're not subject to over-all caps. 
A metal smelter, for example, might earn credits for reducing the amount of sulphur dioxide it emits for each tonne of metal produces. But if it produces more tonnes of metal, the total amount of pollution it emits may actually increase under the current proposal, Wellner says. 
The ministry acknowledges that emissions-credit trading is a tool that ``by itself does not lead to reductions in total emissions.'' 
The last point is the key as the ministry examines the comments it has received from the EPA and other groups, Wellner says. 
``We have to ensure that it fits into a framework that ensures over-all emissions are reduced.''