PwC examines the Regulatory Framework for Air Emissions
TORONTO, June 7, 2007 — On April 24, 2007 the Canadian Federal Government released its long-awaited Regulatory Framework for Air Emissions. The Framework calls for industrial facilities to reduce the amount of greenhouse gases they emit for every unit of production. But while the Framework provides direction on the nature and extent of future regulations, the big question remains “how much will it cost to comply?” PricewaterhouseCoopers (PwC) has taken a close look at the Framework and has addressed this question in its latest issue of The Forecast, its bulletin on climate change issues.
“The cost to comply with the proposed regulations is difficult to calculate because there are so many variables,” says Dr. Christine Schuh, Canadian Climate Change Services Leader at PwC. “However, it is possible to estimate a general range of costs if you know a facility’s baseline emissions in 2006 and use assumptions about some other key variables, such as the future cost of carbon credits, the cost of operational improvements at the facility, and future production increases.”
For example, according to PwC’s analysis, an industrial facility with baseline emissions of 100,000 tonnes of greenhouse gases in 2006 should expect compliance costs somewhere between $500,000 to $4.5 million over the period 2010 to 2020, depending on whether it was able to achieve operational improvements (lower cost) or had to purchase carbon credits or contribute to the Technology Fund (higher cost). The greater the 2006 baseline emissions, the higher the cost of compliance. This is because, although the regulation uses intensity targets, the cost of compliance will be on a per-tonne basis.
According to Dr. Schuh, “our analysis indicates that in most cases the total cost to meet the proposed reduction targets over the 10-year period will be significantly lower if the facility uses in-house operational improvements rather than purchasing carbon credits and contributing to the Technology Fund. This is because the benefits of the operational improvements accrue over the entire 10-year period and you get a long-term pay-off for your initial investments. However, if you take the carbon credit approach, the number of credits you have to purchase each year increases.”
PwC’s analysis also suggests there will be a point at which it may become more cost-effective to purchase credits or contribute to the Technology Fund than to implement internal reduction measures. Dr. Schuh notes, “if the cost of the operational improvements begins to surpass $120 per tonne carbon dioxide equivalent (CO2e), or if the operational life of the facility ends before 2020, it may be more cost-effective to purchase carbon credits and contribute to the Technology Fund than to invest in operational improvements, assuming the cost of carbon credits remains relatively low.”
The main message, says Dr. Schuh, is that, while not a perfect science, it is possible for an industrial facility to estimate the long-term cost of compliance with the proposed climate change regulations — if you make some informed assumptions. “However,” she adds, “it is not a one-size-fits-all situation. Each facility will have to analyze its own situation to determine its best course of action.”
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