Investing in carbon credits and renewable energy

By Gray Taylor and Hugo Alves, Bennett Jones LLP

The need to move Canada and India to a lower carbon emission profile creates opportunities for astute investors and businesses representatives in both countries.

Opportunities in offsets

Alberta, where a little over 10% of Canada’s population lives, accounts for approximately 35% of the country’s greenhouse gas (GHG) emissions. This has prompted the province to implement an emissions control system that requires reductions in GHG emissions intensity by large emitters in the province and allows trading among those entities to the extent the targets are over-achieved. The Alberta system also permits the use of offsets that can be produced from a range of changes in agriculture and other practices. Investments in renewable energy facilities that “displace” electricity from the grid, which would otherwise have been produced using fossil fuels, are also given offset credits. The creation of these tradable offsets provides incentives for the production of renewable energy. There is an effective cap on the cost of GHG emission reductions, including using offsets, which is set at C$15 (US$15.20) per tonne (on a carbon dioxide equivalent basis).

There is no reason why Indian investors and businesses with their broad experience with renewable energy technologies could not participate.

Trading on neutrality

British Columbia requires significant portions of its public service, including municipalities, universities and provincial government departments, to be “carbon neutral”. To facilitate this, the government has established a company, Pacific Carbon Trust (PCT), that buys carbon credit offsets (at up to $25 per tonne) on behalf of the government entities.

Unlike Alberta, British Columbia does not offer much opportunity for investment in renewable energy to earn carbon offsets as its electricity grid is deemed carbon neutral. However, other opportunities relating to investments in improving the GHG sequestration in forests and in achieving fossil fuel switch transformations at industrial sites or introducing energy efficiency can produce the needed offset credits.

Interestingly, as Alberta and British Columbia are part of the Western Electricity Coordinating Council, renewable energy produced there can be fed into the council’s transmission system. California, which is working to increase the proportion of renewable energy sold within the state, is part of this system and energy produced in Alberta and British Columbia is potentially eligible for renewable energy certificates (RECs) which can be used in California.

Stimulating growth

In the province of Ontario, the Green Energy Act, enacted in 2009, provides “feed-in tariffs” for renewable energy. The relatively high prices that have resulted has stimulated an industry devoted to identifying opportunities for renewable energy installations, their financing and their implementation. However, the government of Ontario requires a significant domestic content in these projects. This has led to the establishment of manufacturing and assembly plants for renewable energy materials and equipment in the province, but has drawn some criticism and challenges under trade legislation.

Familiar policies

Indian businesses will recognize that the carbon credits, RECs and feed-in tariffs used in different parts of Canada are the very same instruments that are being deployed in India. For investors in either Canada or India, the familiarity with those techniques and devices should facilitate investments between the countries.

Further, growing links through financial institutions (either Canadian or Indian but which have a presence in the other country) could facilitate the injection of large amounts of international investment and partnerships which will benefit from RECs, feed-in tariffs or carbon credits.

Opportunities in India

Carbon credits in India appear to largely depend on the creation of projects which qualify for certified emissions reductions (CERs) under the clean development mechanism (CDM) of the Kyoto Protocol. The CERs are sought by emitters in developed countries, who use them to help fulfil their obligations to reduce their GHG emissions. CERs also assist governments to meet their Kyoto Protocol obligations.

India has been an important participant in the CDM through the development of renewable energy. However, its current domestic focus on renewable energy through the use of renewable certificates trading and feed-in tariffs is remarkable and vital. Indeed, the importance of developing renewable energy resources in India cannot be overstated and there are significant opportunities for Canadian investors who are willing to use their skills to help satisfy India’s desire for rapid expansion in this sector.

Gray Taylor is a partner at Bennett Jones LLP and co-chair of its climate change & emissions trading group. Hugo Alves is a partner at the firm and a member of this group. Bennett Jones has particular expertise in the energy and natural resources sector, especially oil and gas. It has more than 400 lawyers and advisers in major cities across Canada as well as in Dubai and Abu Dhabi.


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