January 11, 2007


Carbon dioxide regulations are coming, says CIBC

Toronto, Ontario – All jurisdictions in Canada and the U.S. will have carbon dioxide (CO2) regulations in place by the end of the decade to address global warming concerns, predicts a new report from CIBC World Markets. The report says that every province and state in North America will follow California’s lead, and implement both a CO2 emissions cap and an emissions trading system that will allow larger polluters to buy emissions credits from firms who are under the cap.

“While North America has ignored implementing the Kyoto Accord, public concern about global warming is growing,” says Jeff Rubin, Chief Strategist and Chief Economist at CIBC World Markets. “I expect this will force governments to declare war on carbon emissions on their own terms. As that campaign unfolds, the economy’s largest emitters of CO2 will become increasingly dependent on the economy’s greenest firms for emissions credits.”

The report states that carbon abatement policies will have the greatest impact on the energy sector, especially in Canada, where the sector accounts for 20 per cent of the country’s CO2 emissions. That percentage is expected to rise steadily over the next decade as emissions-intensive oil sands production doubles or even triples, replacing depleting but less emission-intensive conventional oil production.

“What investors have to be wary of is not the future direction of oil prices, but what the eventual net backs to oil producers will be in a carbon-regulated environment,” Rubin says. “While we know that oil sands producers will have to be huge purchasers of emission credits, we don’t know what the market-clearing price for those credits will be. The experience of the over decade-long functioning CO2 and NOx-emission trading systems in the U.S. reveals that over time the market price for emissions credits rises sharply as emission caps are gradually lowered. Depending upon how stringent the cap, the real investment risk is that much of the economic rents from rising oil prices may be diverted from shareholders of oil producers to owners of much-sought-after emissions credits.”

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