Vancouver (Platts)--2Jun2008

Ontario and Quebec split from the Canadian government in signing an
accord Monday to establish an inter-provincial carbon trading market by 2010,
using the Kyoto Protocol as a baseline.

The two provincial governments, representing two-thirds of Canada's 33
million people, told a televised news conference in Quebec City they will
implement a cap-and-trade system that will set a goal of "real reductions" in
greenhouse gas emissions rather than the federal government's proposed
"intensity-based" approach.

Premiers Dalton McGuinty of Ontario and Jean Charest of Quebec said they
hope their approach will lay the groundwork for a national strategy.

Although the two governments have agreed to use Kyoto's 1990 GHG levels
as their starting point, they have yet to announce the specific reduction
levels.

Charest, whose government was the first in Canada to endorse
across-the-board GHG cuts, accused the Canadian government of planning to
"implement a system that is not in line with Europe or elsewhere."

He said that regardless of who is the next president of the United
States, "there will be a 180-degree turn in policies. There will be a (GHG)
cap. So why wait for the Americans?"

Even before the accord was unveiled, federal Environment Minister John
Baird told reporters on Sunday a "trading regime is only good if you have laws
forcing big polluters to reduce their greenhouse gas emissions."

He said the Ontario-Quebec scheme "could give big polluters another three
or four years before they're forced to do anything."

The federal government plans to use 2006 as a baseline and require
industry to reduce emissions by 20% per unit of output by 2020. The full
details are scheduled for release later this year.

It has argued that aggressive intensity-based targets will enable Canada
to slash GHGs by up to 65% below current levels by 2050.

Of the other eight Canadian provinces, British Columbia and Manitoba are
pursuing across-the-board reductions. B.C. is vowing to cut emissions 33% by
2020 and will introduce North America's first comprehensive carbon tax on
fossil fuels on July 1, starting at 2.4 cents/liter for gasoline, building to
7.2 cents/liter by 2012.

McGuinty said the federal government is "suffering from a lack of
ambition" on the climate-change front. "We (Ontario and Quebec) believe that
working together, we can reach higher, we can go faster and we can go further
than the options that are present at this time," he said.

There was no immediate response from the oil and gas sector, but the
Canadian Association of Petroleum Producers has said it is concerned about a
fragmented federal and provincial approach.

The industry's main lobby group has warned governments about "dueling
regulations" and urged a "harmonized" national strategy.

Alberta Premier Ed Stelmach has rejected any cap-and-trade approach,
arguing that could cripple development of his province's oil sands.

He and Saskatchewan Premier Brad Wall favor a carbon-capture strategy,
telling reporters after a meeting last Friday that any form of carbon tax
could derail the booming resource economy of Western Canada.

--Gary Park, newsdesk@platts.com