CIBC World Markets foresees an inter-provincial market in greenhouse gas (GHG) emission credits that could be worth as much as $12 billion annually.

A new study predicts that the economies of Alberta, Saskatchewan and New Brunswick would be big buyers of emissions credits, with provinces that generate most of their electricity with hydro-electric power, such as British Columbia, being likely sellers.

The report notes that B.C. has driven 10% of emissions growth in the country since 1990 but is the third lowest province in emissions per unit of real GDP. Saskatchewan and Alberta account for 60% of national GHG emissions growth while representing less than 15% of the country’s population. Relative to GDP, the two provinces are the most emissions-intensive in the country.

The report finds that electricity generation is often the single most important determinant of a province’s potential exposure to carbon emission costs. Coal-fired generation is the chief offender, emitting roughly twice the GHG emissions per unit of power produced than gas-powered plants. Gas-plants themselves are relatively heavy emitters when compared to effectively emissions-free sources of electricity like hydro and nuclear.

Given that B.C. and the provinces of Quebec, Manitoba and Newfoundland & Labrador all rely heavily on emissions-free hydro power, they are less exposed to carbon costs. On the other end of the spectrum are Alberta, Saskatchewan and Nova Scotia who rely on coal for at least 60% of their electricity needs.

The oil and gas industry is also a large contributor to GHG emissions. Since 1990, the growth in oil and gas emissions has exceeded 50%, easily twice as brisk as growth from remaining GHG sources combined. The carbon profile of Canada’s oil industry will worsen materially in the next decade as oil sands production rapidly eclipses conventional oil production.

Due mainly to heating requirements, producing a barrel of synthetic oil from the oil sands generates three times as much GHG emissions as an equivalent amount of conventional crude. Alberta already accounts for roughly two-thirds of direct emissions from fossil fuel industries, and that figure will rise meaningfully given the planned doubling or even tripling in oil sands production over the next decade.

Even with ongoing improvements in emission intensity, the scale of production increases could see oil sands emissions rise from roughly 30 megatonnes (Mt) today to more than 100 Mt over the next decade.

“The regional disparities in emissions growth could lead to some pretty hefty inter-provincial flows of emissions credits under any future cap and trade system established along the lines currently being implemented by a growing number of U.S. states,” notes Jeff Rubin, chief economist and chief strategist at CIBC World Markets.

Based on what is considered the minimum price of $30 a ton to stabilize emission growth, the report forecasts that the more than 410 megatonnes of annual CO2-equivalent emissions (2004) that comes directly from identifiable industrial and commercial sources would have a market value of over $12 billion.

“It remains to be seen how a cap and trade system would be implemented in Canada – or how much of that $12 billion in emissions credits would be traded across provincial borders,” adds Rubin. “But with an already-skewed distribution of GHG emissions looking to become even more unbalanced in coming years, it’s easy to envision a healthy inter-provincial trade in carbon permits.

“Saskatchewan, Alberta and New Brunswick could be the biggest buyers of emissions credits, with the Manitoba and Québec economies the most obvious sellers, given their already low emissions intensity and planned expansion of emission-free electricity generation.”