State, Provincial and Voluntary GHG Initiatives in North America: Towards Convergence?

It is often said that nature abhors a vacuum. The climate change imperative recognized so clearly by the North American public has been met by resistance to legislation at the national level in both Canada and the United States. Not surprisingly, state, provincial and municipal leaders have moved to fill that vacuum with policy initiatives and in some cases legislation to address the climate change issue. While one can easily be dismayed by the lack of federal action in Canada (Canada is on its fourth national plan with no substantive GHG legislation yet in place or on the near horizon) and in the United States (where the Executive Branch is fighting a bitter and to-date successful action against numerous legislative proposals), the result has been a broad range of actions at the sub-national level, including the development of concepts and on-the-ground experiments that offer a variety of innovative mechanisms, frequently relying on markets, for dealing with climate change. This presentation touches on some of those initiatives. This paper also touches on the limits for such sub-national action in light of the concerns about leakage and inefficiency in isolated markets, demonstrating perhaps the need for national and ultimately global programs and suggesting a role for voluntary markets to fill the gap.

Vacuum at the Federal Level

In the United States, the rejection of any effort to regulate CO2 by the current administration has left a considerable gap. The previous two term administration was the recipient of two legal opinions by the Chief Counsel of the United States Environmental Protection Agency advising that the legal authority of the federal government to regulate GHGs could be found under the United States Clean Air Act. Nonetheless, that administration chose not to introduce any regulatory measures for GHGs.

In Canada, GHG emissions have risen rapidly, despite the signing by the federal government of the Kyoto Protocol in 1998 and its ratification in 2002. Throughout this time to the present day no regulations or taxation measures have been put in place by the federal government to address carbon emissions. Both the current and previous governments in Canada have proposed emissions intensity targets. Not even the most basic infrastructure for the establishment of a GHG regulatory regime with trading, as well as participation in the Kyoto Protocol, has been put in place; most notably there are no signs of progress on a national GHG registry.

Nonetheless, unlike its United States counterpart, the current Canadian government has introduced a regulatory plan for GHGs which it believes establishes intensity targets rigorous enough to achieve absolute reductions from 2006 emission levels as early as 2010 and no later than 2012, notwithstanding the expected rapid growth in the energy sector. Those regulations will not, however, be effective until 2010, and intensity targets remain a matter of controversy.

State/Provincial Initiatives

What follows is an overview of how states and provinces have responded to the absence of, or perhaps dissatisfaction with, federal initiatives on climate change in North America.

United States

In the United States, there are currently 20 states that have completed climate change plans, and another 15 with plans in progress. 17 states have established quantified GHG reduction targets. A handful or two of these targets are embodied in legislation, while the targets of another handful are found in executive orders. Five states have caps or off set requirements for GHG emissions from power plants.

To take two examples of state GHG targets that have been recently enacted, in July of this year, New Jersey's Governor signed into law the Global Warming Response Act which sets a reduction target for the state of 1990 levels by 2020 and 80% below 2006 levels by 2050. In May of this year, Washington State's Governor signed legislation establishing a target of 1990 levels by 2020, 25 per cent below 1990 levels by 2035, and 50% below 1990 levels by 2050.

California: the Legislative Framework and Proposed Multi-Sector Cap-and-Trade
Scheme

Of all the U.S. jurisdictions, California is having the greatest impact across North America. In 2006, California's Governor signed into law the Global Warming Solutions Act which establishes a cap of 1990 levels by 2020 with enforceable penalties. California appears to have been the first jurisdiction in North America to enact a GHG reduction target expressed in absolute terms.

Under the Act, CARB is to adopt mandatory regulations for GHG reporting by January 1, 2008, and present a detailed plan for how reductions will be achieved from significant sources using regulations, market-based mechanisms and other actions by January 1, 2009.

GHG Rules and Market Mechanisms

GHG rules and market mechanisms adopted by CARB no later than January 1, 2011 are to take legal effect by January 1, 2012. The state is currently designing a multisector cap-and-trade system under the Act. At the end of June, the Market Advisory Committee released its final report and recommendations to the California Air Resources Board (CARB), on the design of a cap-and-trade system. The major recommendations were: that the program should eventually include all major greenhouse gas-emitting sectors of the economy; that some share of allowances should be allocated free of charge initially, while the remaining allowances should be auctioned, with the percentage of allowances auctioned then increasing over time; that off sets generated both within and outside the state's borders should be recognized; and that California should encourage linkages with other mandatory greenhouse gas cap–and-trade systems.

Other Initiatives

Two key initiatives to implement the statewide target are California's low carbon fuel standard (LCFS), now in development, and regulatory limits on GHG emissions from motor vehicles, now legally in force, which establish targets beginning with the 2009 model year.

California's Low Carbon Fuel Standard

California's low carbon fuel standard has not yet been published in detail. Rather, an Executive Order (EO) establishes a statewide goal to reduce the "carbon intensity" of California's transportation fuels by at least 10 percent by 2020. Under the EO, the LCFS, to be developed through a collaborative process between various California agencies and the University of California, will apply to "all refiners, blenders, producers or importers" of transportation fuels, and "shall be measured on a full fuels cycle basis". In Canada, the latter has raised concerns that the LCFS could discourage shipments of heavier oil from Western Canada's oil sands. Two Canadian provinces, B.C. and Ontario, have committed to adopting the LCFS.

California's GHG Tailpipe Standards

California's GHG regulations for motor vehicles, now enacted, establish fleet average emission standards for weight-based categories of vehicles over the 2009 to 2016 model years, are applicable to both vehicles produced and delivered for sale in California, and are expressed on a grams per mile of CO2 equivalent basis. By 2016, the rules will result in a 30% reduction in emissions from the 2002 fleet. A total of 14 other states have either adopted or announced that they will adopt the rules, including New York, New Jersey, Pennsylvania and Florida. The Canadian provinces of B.C. and Quebec have announced that they will impose standards on new vehicles sold in their provinces consistent with the California rules but Ontario (the home of the Canadian automobile industry) is resisting.

California's GHG tailpipe standards are currently being challenged in U.S. federal court. In addition, the State's regulations require a waiver of federal preemption to be issued by the U.S. Environmental Protection Agency's Administrator under the U.S. Clean Air Act. California has stated that it will litigate the matter itself, if the waiver, requested on April 26th of this year, is not granted within six months and a day of that request. U.S. Senator Boxer has introduced legislation to expedite the granting of this waiver.

Canada

A number of interesting things are also happening on the Canadian scene. In Canada, 9 out of 10 provinces have released climate change plans1 in addition to the regulatory plan proposed by the federal government.

One of these plans, the 2005 Newfoundland and Labrador plan, does not set any quantitative targets, while the Province of Alberta sets targets on an emissions intensity basis, both for industry and the province itself. Not all provinces use the internationally recognized baseline of 1990, nor does the federal government, which may create difficulties for linking between jurisdictions within Canada and the emergence of a national system, whether driven by the federal government or provincial collaboration.

The three major hydropower producing provinces are, not surprisingly, among the provinces that have set the most stringent targets: British Columbia, Manitoba and Quebec. British Columbia, for example, has proposed reducing its GHG emissions to 10% below 1990 levels by 2020. Nova Scotia's Environmental Goals and Sustainable Prosperity Act, which entered into force June 7, 2007, sets the same target. Remarkably, despite ambitious targets, no province other than Alberta has proposed regulating GHG emissions across the main industrial and transportation sectors.

Alberta stands out as the only province and, in fact, the only jurisdiction in North America, with regulatory limits on industrial GHG emissions currently in force. Alberta's Specified Gas Emitters Regulation imposes emission intensity limits on greenhouse gas emitters in Alberta, with the first set of targets being for the six-month period between July 1, 2007 to December 31, 2007. The Alberta greenhouse gas system is innovative in many ways and includes the adoption of extended GHG reporting, emissions trading between regulated sectors, an offset system (including the adoption of protocols from the Kyoto Protocol and other systems) and the administrative arrangements needed to support such an enterprise.

In late 2001, Alberta adopted a policy to require new coal-fired power plants to meet a so-called "good-as-gas" standard, which means that the plant must reduce its emissions intensity on a net basis to no higher than the level of a combined cycle natural gas power plant. This requirement is included as a condition in provincial regulatory approvals for new coal fired plants. This may have been another North American first for the province.

There are two other exceptions to the statement that no Canadian province has proposed regulating industrial GHG emissions, although they are partial exceptions, because in one case, the province has not proposed regulating all major emitting sectors, while in the other, it is not clear if the measures put in place would have an effect equivalent to a regulation.

The first is British Columbia, which is considering quite significant requirements for its power sector and some impositions on its relatively young but rapidly growing oil and gas industry. British Columbia's ambitions for its power sector include requiring all new and existing electricity produced in the province to have net zero GHG emissions by 2016, as well as reducing GHG emissions from its oil and gas industry to 2000 emission levels by 2016. Nonetheless, the only imposition on its oil and gas sector described by B.C. as a requirement is the proposal for zero flaring at producing wells and production facilities. Not mentioned in B.C.'s plan are the province's vital mining and mineral processing sectors, as well as forestry.

The second partial exception in respect of regulatory matters is Quebec. Quebec has proposed reaching agreements with industry on a sector-by-sector basis to reduce GHGs, although the legal status of these proposed agreements is not clear. Quebec is another Canadian province which has achieved a North American first. Its mark of distinction is Quebec's proposed carbon tax, which will apply to all hydrocarbons used in the province based on carbon content, effective October 1st of this year, at a rate, for example, of 0.8 cents Canadian per litre for gasoline, 0.9 cents per litre for diesel, and $8 per tonne for coal.

Significance

In some cases, sub-national initiatives are very significant.

At the national level in North America, both the United States and successive Canadian governments have rejected the Kyoto Protocol targets, whether through words or inaction. Into this void has stepped California, whose legislated GHG target of 1990 levels by 2020 is now effectively a gold standard in North America, reflected in its adoption by Congressional proposals for regulating GHGs, including bills introduced or sponsored by Senators McCain, Lieberman, Obama, Boxer and Kerry, as well as numerous states. Canada's target for the year 2020 of 20% below 2006 levels is about 3% shy, in relation to 2006, of achieving the same result as California, perhaps due to nothing more than the irresistibility of the phrase "20 by 20".

As can be seen from the preceding survey, state and provincial plans vary significantly in scope, the stringency of targets, and tangibility: for example, while some jurisdictions, including those in Canada, have announced targets more ambitious than California, it is unclear how they will get there in the absence of plans to regulate either industry or transportation. Another interesting study in contrasts is that of Alberta and Canada's other provinces: while the nature and stringency of its targets may not be enough for some, Alberta is in a league of its own by virtue of having the only legally effective targets for industry at present in North America. Its experience may well prove invaluable for regulators across the continent. Alberta was also the first province in Canada to enact a province-wide GHG target, a point of distinction now shared by Nova Scotia.

Regional Cooperation, Including in Respect of Registries

The Western Regional Climate Action Initiative

The Western Regional Climate Action Initiative was formed in February 2006 by California, Arizona, New Mexico, Oregon and Washington State. On April 24th of this year, the Canadian province of British Columbia joined, as did Utah in May, and the province of Manitoba in June. Under the WRCAI, B.C., Manitoba and the six U.S. states have agreed to set an overall regional GHG reduction goal by August 2007. The WRCAI members have also agreed to complete the design of a "regional market-based multi-sector mechanism" by August 2008 to meet the WRCAI's regional GHG goal.

In addition, the WRCAI's members will participate in a multistate/ provincial GHG registry, which will serve, according to the MoU, "to enable tracking, management, and crediting for entities that reduce GHG emissions, consistent with state GHG reporting mechanisms and requirements". In May, B.C. became a member of The Climate Registry, along with the other 6 WRCAI members who are among 30 participating states, the province of Manitoba, several American Indian tribal governments, and the Mexican State of Sonora.

The Climate Registry

The Climate Registry will provide a common entity-wide GHG accounting, reporting and verification system to support the WRCAI and a variety of both mandatory and voluntary policies. It contemplates the development of a number of specific protocols. Quantification guidelines would include two tiers reflecting two standards of accuracy, one a preferred approach and the other a default standard. The Climate Registry will begin accepting data from reporting entities in January 2008. It is not proposed at present to accommodate project- based mechanisms, in other words, offsets.

RGGI

The WRCAI is unique in its wide scope. The Regional Greenhouse Gas Initiative or RGGI of the Northeastern states, for example, establishes a cap-and-trade system, but only in respect of the electricity sector, and it deals with only one gas, CO2. The program will cap emissions at current levels in 2009, then reducing emissions 10% by 2019. A model rule has been promulgated for states to base their own legislation on. It was formed in 2005 by seven states (Connecticut, Delaware, Maine, New Hampshire, New Jersey, New York, and Vermont). Three states, Massachusetts, Maryland and Rhode Island have either now joined or committed to, bringing the total to 10. The Eastern Canadian Provinces (or "ECP", being the four Atlantic provinces and Quebec) currently have observer status on the RGGI.

Other Regional Initiatives

In 2001, the New England Governors and Eastern Canadian Premiers developed the Climate Change Action Plan, a regional initiative with a target of 1990 emission levels by 2010 and 10% below 1990 levels by 2020. However, it's not clear that there has been much coordinated activity since that time. There are several other regional initiatives in the United States which address clean energy, energy efficiency, and binergy, but are not focused on GHG emission reduction targets per se, as well as an initiative between New Mexico and Arizona on climate change, and an initiative between California, Washington State and Oregon on the same, which need not be discussed here due to their limited accomplishments.

Conclusion on the Regional Initiatives

As a multi-sector initiative, by far the most ambitious regional GHG initiative is the WRCAI. However, the initiative of perhaps the greatest practical importance is The Climate Registry which, with 30 states, 2 provinces, several American Indian tribal governments and a Mexican state among its members, has significant potential for facilitating multi-jurisdictional linkages. Such linkages will be facilitated by a common approach to measurement, reporting and verification.

Jurisdictions considering linking will also have to consider the relative level of effort reflected by a jurisdiction's GHG targets and scope of coverage, and the approach to such matters as enforcement. An issue of key importance is how each jurisdiction deals with leakage. After all, a system that allows targets to be met by increasing imports of electricity from neighbouring jurisdictions or exporting high emitting operations will be of little real value to either the environment or the economy.

A commitment to measurement, reporting, and verification (MRV), as well as the establishment of a registry, is an important sign of a jurisdiction's seriousness in pursuing GHG targets: emissions and emission reductions cannot be tracked and traded in their absence. MRV on a common basis will facilitate inter-entity trading, as well as potentially constructive interaction between mandatory and voluntary markets. One void left by The Climate Registry is the need for standardization of protocols in relation to off sets. The experience of Alberta, which relies upon a public-private partnership called Climate Change Central to develop and provide advice on offset protocols, and the Chicago Climate Exchange or CCX, to be discussed momentarily, may be helpful in that regard.

Before leaving U.S. initiatives, it is worth mentioning that the U.S. Mayors Climate Protection Agreement has brought together over 500 U.S. municipalities around the goal of reducing their GHG emissions to 7% below 1990 levels by 2012.

The Voluntary Markets

Overview of the Voluntary Market

The voluntary markets are increasingly important.2 Prominent providers of GHG off set credits to voluntary buyers include zero footprint, myclimate and NativeEnergy. According to a July 2007 report by Ecosystem Marketplace and New Carbon Finance, in 2006, 23.7 million tons of carbon dioxide equivalent were transacted in the voluntary carbon markets. Of this, 10.3 million tons were transacted on the Chicago Climate Exchange or CCX, while some 13.4 million were transacted in over-the-counter trades. According to the report, as a result of the limits of the ability of their survey to capture market activity, the actual size of the market may be much larger. The North American voluntary market reaches outside the boundaries of North America. For example, some CCX off set projects have been carried out in China, Cost Rica and Germany.

Voluntary carbon credits fill a demand on the part of conscientious citizens that wish to offset the effects of their air travel and household, transportation and other emissions, as well as businesses concerned with the growing demands of customers and investors for accountability on climate change. Shell Canada is an example of a business which uses carbon off sets, specifically to reduce its carbon footprint from energy intensive oil sands operations in Western Canada. Earlier this decade, Ontario Power Generation acquired Emission Reduction Credits registered with CleanAir Canada from Bluesource, representing up to 6 million metric tonnes of CO2 reductions from U.S. projects, with an option for another 3 million. Google is another example of a company that has announced very recently that it is seeking to offset its carbon emissions.

Some businesses may hope to use the market to hedge against the risk of future regulation. This would depend upon new regulations either recognizing the credits or allowing the underlying GHG reductions to be converted into some other recognized type of credit, perhaps as credit for early action. It would also depend upon regulators allowing such credits to be carried forward and applied against obligations in a later year. Others may wish to simply play a role in building the market.

Voluntary carbon markets could be seized upon to satisfy a need for a price safety valve in relation to a regulatory regime, such that CCX or other voluntary system credits could be purchased if the price of compliance were to rise above a stipulated level.

Considerations For Credible Voluntary GHG Initiatives

The voluntary market is under increasing scrutiny by journalists and others. Much like the safeguards for credits issued under the Clean Development or Joint Implementation mechanisms of the Kyoto Protocol, the presence of a sound project design, including a credible baseline, ideally validated by an independent third party expert, sound monitoring and measurement of relevant data throughout the project, as well as ex post verification of the asserted reductions, in all cases, by an independent third party expert, will be important.

Following these procedures are most likely to underpin credible claims when they are done in accordance with a recognized international standard, such as ISO 14064, used by the Canadian Standards Association's CleanProject Registry discussed below.

An additional concern in this market is to ensure a clear correspondence between the quantity of credits purchased, their price, and the quantity of reductions attributable to the investment. Perhaps most important is a clear and exclusive chain of title between the generator of the reductions, the seller, and the buyer, as well as anyone else involved. Carbon credits purchased to support a claim that emissions have been offset should be retired definitively and transparently to ensure public confidence.

Key Players in the Emerging Voluntary Carbon Market

Voluntary systems generally take one of two forms. The first is represented by the CCX. While membership is voluntary, it requires its full members to make binding contractual commitments to achieve emission reductions, or else purchase reductions from others. Other participants act as providers of off sets without assuming their own reduction obligations. In many respects, its structure mimics that of a regulation-based emissions trading system.

The second model for voluntary systems is one which facilitates the registration of project-based reductions that can potentially be purchased for on-sale or retirement, all in the absence of any participants that carry obligations to reduce emissions and therefore anchor demand. The CleanProjects Registry of the Canadian Standards Association or CSA is an example of the second model. In order to be registered, projects are required to be validated and reductions must be verified by an independent third party expert. It permits reductions to be ultimately registered in the name of a person other than the generator of the reductions, through the serialization of verified reductions and their "delisting", as it is termed, to other persons or registries. The CSA will also be introducing a registry shortly at the entity level showing an organization's complete GHG emissions inventory. Unlike the CCX which is an exchange (i.e. a location for trading), the CleanProjects Registry does not perform the exchange functions related to "clearing" for example and leaves lots of room for the development of a Canadian voluntary credits exchange.

A number of other major voluntary initiatives have been announced. Morgan Stanley announced in August the establishment of a Carbon Bank. The Carbon Bank will service client companies that wish to assemble their GHG inventory and measure their carbon footprint. The inventory will then be verified by Det Norske Veritas (DNV), a leading verifier of emission reduction projects under the Kyoto Protocol, using ISO 14064. Morgan Stanley will then procure credits sufficient to offset the company's carbon footprint, all of which it states "will be generated according to the standards of the Kyoto Protocol". The Carbon Bank will then issue what is called a "carbon zero" certificate.

Very recently the International Emissions Trading Association (IETA), The Climate Group (TCG), the World Business Council for Sustainable Development (WBCSD) and the World Economic Forum (WEF) announced that they have completed work on a new Voluntary Carbon Standard, a framework containing all the methodological elements necessary to register and trade voluntary GHG reductions on a credible basis, resulting in the creation of a unit known as the VCU. This provides another option for persons that wish to realize value on their GHG reductions within the voluntary market.

GE Energy Financial Services and AES have announced a partnership to carry out projects yielding 10 million GHG off sets by 2010, primarily from methane-reduction projects. These would be sold to commercial and industrial customers that wish to voluntarily off set their emissions.

Oversight of the Voluntary Carbon Market

Governments are increasingly taking an interest in the voluntary carbon market. In the United Kingdom, the government put forward this year its own draft of a voluntary Code of Best Practice for carbon off sets, which it hopes will be a standard that consumers and other purchasers in the voluntary market will rely on. It could be queried whether North American governments will become more engaged in identifying the standards that should, or must, be followed in the voluntary sector. In Canada, federal cabinet Ministers have made statements suggesting they may be considering some form of oversight.

Perhaps most germane to voluntary carbon market off set providers in North America are the securities regulators, who could be expected to take an increasing interest in emission credits that are not created by any governmental authority or designate thereof, and which may be sold widely to the public. In Canada, where securities are regulated provincially, Ontario Securities Commission Rule 14-502 designates "[a] product based on environmental quality, including emissions or emission credits" as a "commodity". This suggests that, in Ontario, if emission credits are the underlying commodity for futures sold on an exchange, the futures contracts trading will generally be governed by the Commodity Futures Act, or if they are not traded on a commodities exchange, they will potentially be regulated by the Ontario Securities Act, to the extent that the credits are, or, more likely, are included in, something which is a "security". In respect of these issues, the securities legislation of each relevant jurisdiction will have to be considered carefully.

Private Sector Initiatives to Spur Regulation

Some companies have taken the position that rather than expending their resources participating in a voluntary system of uncertain value, they will take it upon themselves to advance proposals that they hope will shape a future regulatory system.

The United States Climate Action Partnership or US CAP, a collaboration of major corporations and environmental nongovernmental organizations, is one such example. In the context of a cap-and-trade system, its targets are: between 100– 105% of today's levels within five years of "rapid enactment", between 90–100% of today's levels within ten years of rapid enactment, and between 70–90% of today's levels within fifteen years of rapid enactment. If these targets were enacted in 2008, for example, GHG emissions could be permitted to rise by as much as 5% from present levels until the end of 2012, and be stabilized at present levels as late as the end of 2017. This is a reminder that caps and absolute reductions are not synonymous, as caps can be fixed higher than 100%.

Concluding Comments

It is clear that many jurisdictions are attempting to show that they can cut GHG emissions on an absolute basis. This suggests that from the point of view of linking systems or convergence, a cap-and-trade system is more likely to succeed. At the same time, a cap must be set at a level below 100% to be credible.

A common approach to measurement, reporting and verification of GHG emissions enhances the likelihood of a credible and functional system for reducing GHGs, as well as any prospect of linking between systems. The Climate Registry is perhaps the most significant regional development in a North American context. Services such as the CSA's CleanProjects Registry may help to fill the gap in respect of project, as opposed to entity,-based mechanisms. The Climate Registry will also facilitate the interaction of mandatory and voluntary trading systems, which may be one means to enhance liquidity and manage the price of carbon in a regulated system.

Targets in the absence of regulatory programs for all major emitting sectors reduce the credibility of state/provincial and regional initiatives. A multi-sectoral approach implies a much higher level of effort for the economy of a potential linking jurisdiction than a jurisdiction which selectively regulates key emitting sectors or relies on a voluntary approach. Targets will be more believable as a guide to long-term behaviour where they are legislated in some form, and where they set short, medium and long-term targets. With some exceptions, a significant gap for many jurisdictions is the absence of any target between 2020 and 2050.

Regulatory and other initiatives should not simply lead to a reduction of emissions on paper. A credible approach will not allow for leakage, such as meeting targets by increasing imports or shifting the most polluting production to one's neighbours. In this respect, Alberta may feel some justification in not imposing more stringent absolute targets, as it is held responsible for all of the emissions from its upstream oil and gas production, while its customers bear none of the burden.

Finally, from a public point of view, as the Western Regional Climate Action Initiative shows, effective action by state and provincial governments on climate change is possible where it is genuinely desired. California demonstrates further that a state or province can set the agenda for an entire country. Conversely, bold offers of action on GHGs made on a conditional basis, or an acceptance of standards imposing hardships on a neighbouring jurisdiction while rejecting those that would burden one's own industry, are unlikely to lead to cooperation and success, and are probably not intended to.

Notwithstanding the significant potential of state, provincial and regional efforts, there is no doubt that a national system would avoid the inefficiencies and potentially high transaction costs for business of a collection of divergent GHG rules. States and provinces also understandably do not wish to export jobs and investment to their neighbours. States and provinces may argue with each other over the relative merits of each other's proposals, including their relative benefits for the environment and burdens for industry. The potential for finger pointing is enormous. All of this means that despite the growing level of noise and activity on the GHG issue by states and provinces, it is not clear that they are going to succeed in establishing a strong and coherent multi-jurisdictional GHG reduction system with near complete participation, independent of the leadership of their federal governments.

To the extent that voluntary systems can seamlessly cross jurisdictional boundaries, they may well offer more universality and lower transaction costs than the large and growing number of state, provincial and regional efforts currently seen in North America. Some of these systems, such as the CCX, have found innovative solutions to problems such as the treatment of the risks associated with forestry projects. In the CCX, a 20% reserve of carbon off sets is held back for forest projects. At the same time, the growing number of voluntary GHG systems may encounter the same challenges associated with finding coherence seen among the diverse approaches of sub-national governments to climate change. There are also limits to the public's time and willingness to understand and appreciate the differences between different private sector initiatives, which may lead to their blanket rejection if some label of approval, which the public is prepared to trust, does not emerge in the near future.

It may ultimately be to the benefit of businesses participating in the voluntary carbon market if the number of voluntary systems is kept or reduced to a small number, or if a small number of voluntary systems fulfill different niches that can be made compatible with, and complementary to, each other. If the market ultimately produces this result, large numbers of states and provinces could simply sign on to the reporting, verification, registration, trading and other services of a very small number of private sector and non-governmental service providers. This could ultimately be a path to achieving the daunting task of a more or less complete North American GHG reduction system sustaining itself independently of federal leadership. The Climate Registry is the most substantial development in this respect, at least for many aspects of a multi-jurisdictional GHG system (it does not address the needs of project-related protocols, however). Yet however vital, these are nonetheless only the mechanical elements of a GHG reduction and trading system, and ultimately different jurisdictions will need to agree on fairly similar GHG reduction goals before they are likely to link to each other.

Finally, from a private sector point of view, it appears that the most essential steps for success are to recognize potential sources of GHG reductions; measure, report and verify those reductions in accordance with a recognized international standard; and register reductions with a credible registry. Clarity of the origin of GHG reductions and ensuring a clear chain of title, as well as treatment of the reductions appropriately and transparently, such as retirement towards the environment, will also be vital to ensuring the confidence of one's customers and investors. Given the uncertainty in respect of these systems, it may not be responsible to over-commit the resources of a company to reduce GHG emissions, but the taking of cost-effective measures, in accordance with the standards set by environmental leaders in one's sector, can almost certainly be justified.

1. In the case of Ontario, the plan consists of a fairly comprehensive set of proposed GHG measures, while in the case of Nova Scotia, a target is established in legislation, the Environmental Goals and Sustainable Prosperity Act, which entered into force June 7, 2007, which includes principles, objectives and goals related to climate change, as well as provisions authorizing the Province to enact regulations, enter into sectoral and intergovernmental agreements, and establish programs and other measures related to climate change. The Act provides for a target of at least ten per cent below 1990 levels by 2020. The lone province that has not released a climate change plan appears to be Prince Edward Island (it had a climate change "business plan" but its last effective year was 2003 and it does not appear that anything replaced it).

2. Excludes voluntary participation in off sets systems established in conjunction with a regulatory regime.