Market News

 April 02, 2007
Revamped Clean Air Act's uncertain future

 Ottawa, Canada (GLOBE-Net) -- The Parliamentary Committee tasked with reviewing the federal government's main climate change bill has returned a heavily modified version of the Clean Air Act which requires Canada to meet its Kyoto Protocol target and establish an emissions trading system. With political divisions on environmental matters running deep, the future of the Clean Air Act is very much in doubt.

The multi-party committee is dominated by opposition parties, and its first report was not well received by the government. "I'm not happy," said Environment Minister John Baird.

There is now speculation that the government will abandon the bill in favour of a new plan to be issued later this month, which will include specific targets for certain sectors, forcing reductions in greenhouse gas (GHG) emissions intensity from large emitters such as electric utilities and oil and gas producers. Penalties for exceeding the targets could include payment towards a technology fund to be used for environmental investments, or an emissions trading system.

The 'new' Clean Air Act

The Committee's revised version of the bill is sharply different than the original tabled by the government.

First, it commits Canada to meeting its target under the Kyoto Protocol to reduce emissions to 6 percent below 1990 levels from 2008-2012. To achieve this, the government will be required to establish a 'national carbon budget' each year that corresponds to the target.

The carbon budget will be required to decline each year, with long term targets of reducing emissions by 20% by 2020, 35% by 2035, and 60-80% by 2050, all relative to 1990 levels.

Carbon budgets will also be allocated to specific sectors and to individual 'Large Industrial Emitters', named in the bill as electric utilities, upstream oil and gas, and other energy-intensive industries which consume or process fossil fuels.

Facilities that exceed their carbon budgets will be able to achieve compliance through several options, the cost of which will be determined by a 'carbon price', set at $20 per tonne for 2008, $25/t for 2009-2010, and $30 for 2011 and 2012. For 2013 and beyond, the carbon price will be set at greater than or equal to $30, or will be determined by the market value of one tonne of emissions as set by a domestic carbon trading system.

The 'carbon price' will be applied to excess emissions (the 'carbon deficit') of Large Industrial Emitters through two avenues:

  • Carbon credit trading
    The bill proposes the creation of a greenhouse gas emissions trading system based on a domestic carbon offset system linked to international markets which are compliant with the Kyoto Protocol. At least until 2010, no more than 25% of the individual carbon deficit of a large industrial emitter will be eligible for offset through credits from foreign and international trading systems.

  • The Green Investment Bank of Canada
    The revised bill contains a provision for the creation of an independent agency known as the Green Investment Bank of Canada, which will be responsible for monitoring and regulating the greenhouse gas emissions of large industrial emitters.

    For each emitter, a green investment account will be established and held in trust. Emitters will be required to make an annual deposit based on their carbon deficit multiplied by the carbon price. Following that, the emitter may apply for a withdrawal of funds from their account for a verified project to reduce GHG emissions by a corresponding amount.

Other important points in the revised bill include:

  • Establishment of new energy efficiency standards on significant energy-using products within four years
  • Vehicle fuel consumption standards which meet or exceed "international best practices"

Read the full First Report of the Legislative Committee on Bill C-30.

Notwithstanding an analysis of the revised bill and of the federal government's upcoming plan, it is imperative that Canada establish a concrete, achievable, and effective plan for reducing greenhouse gas emissions, and that it does so in the very near future, says John Wiebe, President and CEO of the GLOBE Foundation.

Over the past two years, the country has awaited such a plan, only to see one delayed by the political process in a minority government. Such uncertainty is bad for the country, as investment cannot be directed towards reducing emissions without a clear idea of what the future will hold, and further delays hurt our credibility in international climate negotiations.