California\u2019s newly finalized carbon cap-and-trade program may run afoul of the North American Free Trade Agreement (NAFTA), according to BC Hydro. It warned the California Air Resources Board prior to its final adoption of greenhouse gas trading ground rules Oct. 20 that the board\u2019s preferential treatment of electricity supplies from the federal Bonneville Power Administration violated NAFTA. Since then, the Canadian hydro agency has been tight lipped about whether it plans to file a NAFTA complaint against the Air Board rules. It continues to assert, however, that it should receive favored treatment under the North American trade treaty as a \u201cforeign sovereign.\u201d \u201cWhile we support the California cap-and-trade program, we want to ensure BC Hydro\u2019s clean and renewable hydroelectric resources are recognized as [greenhouse gas] free and treated equally with Bonneville Power Administration,\u201d Teresa Conway, BC hydro president and CEO, stated last week. The Canadian entity does not want to be obliged to buy carbon emissions rights under the state\u2019s trading scheme. BC Hydro is a governmental organization and reflects the position of British Colombia, a spokesperson for the BC Ministry of Energy and Mines told Current this week. Other generators also complained to the Air Board about giving BPA a leg up on the emissions front. Bonneville\u2019s unspecified sources of imported power are exempted from the cap, giving it a competitive advantage, complained the Independent Energy Producers and Western Power Trading Forum before the vote. BC Hydro also asserted that vague provisions of the Air Board\u2019s trading scheme directed at Bonneville would allow what is known as \u201cresource shuffling.\u201d That could entail BPA exporting hydropower to California but using dirty fossil fuel power in other areas, thwarting the curbs on global greenhouse gases sought by California\u2019s climate protection law, AB 32. In its final plan, the Air Board rejected BC Hydro\u2019s proposed changes to its trading program, arguing the board\u2019s final language is clear enough to allow BPA \u201cto discern what is considered resource shuffling and what is not.\u201d Unlike bilateral deals involving the automobile sector in the last few decades, trading of electricity between Canada and the U.S. has snagged on regulatory differences, according to the Institute for International Economics. NAFTA has helped ease bilateral energy deals. In addition, the North American Electric Reliability Corp. was created to smooth out regulatory differences between Canada and the U.S. Calls to NERC for comments were not returned before press time. The biggest energy dispute under NAFTA between California and Canada involved the gasoline additive MTBE. In late 1999, Canadian company Methanex sued California for banning the use of MTBE in gasoline to protect groundwater. The carcinogenic gasoline additive contaminated several communities\u2019 drinking water supplies after gasoline seeped out of leaky tanks. Methanex said the state\u2019s MTBE ban improperly interfered with trading and filed a complaint under NAFTA, seeking $1 billion in damages for lost business. It also argued that then Gov. Gray Davis colluded with ethanol producer ADM to advance the agricultural giant\u2019s ethanol business. Davis met with ADM officials and received large campaign contributions from the company. Ethanol is a substitute gasoline additive for methanol. In August 2005, Methanex\u2019s claims were rejected and it was ordered to pay the United States\u2019 legal fees of about $4 million.