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 April 26, 2007
At last! A Climate Change Plan for Canada?

 Ottawa, Canada (GLOBE-Net) -- The federal government has released its much anticipated framework for regulating air pollutants and greenhouse gases from industrial emitters, setting a stricter course than previously anticipated. The plan, which is likely to be criticized by both industry and environmental groups, may finally accomplish what Ottawa has so far been unable to do: set out a clear course of action to deal with climate change. This hopefully will provide a stable policy framework upon which corporate investment decisions can be made. It would appear to steer a middle path that balances the demands of the environment and the economy.

The main climate change components of the so-called 'Turning the Corner' plan are regulations that will limit greenhouse gas (GHG) emissions intensity from industrial facilities. By 2010, oil & gas facilities, electric utilities, and other industries will be required to reduce their GHG emissions per unit of output by six percent a year, for a total of 18 percent. That target will increase by two percent per year until 2015, when it will reach 26 percent.

New plants, in operation by 2004 or later, will get a grace period before targets take effect, said Environment Minister John Baird. Companies who reduced their GHG emissions between 1992 and 2006 will receive credits for early action.

These measures will stop the rise in GHG emissions by 2012 at the latest, and will reduce emissions to 20% below current levels by 2020, a cut of around 150 million tonnes of carbon dioxide equivalent (CO2e), said Baird.

The plan is slightly stricter than the Clean Air Act introduced in October 2006, which set a long-term goal to reduce GHG emissions to between 45 and 65 percent below 2003 levels by 2050, with an absolute cap to be enacted before 2025. That piece of legislation was dramatically altered by a House of Commons committee, and has effectively been abandoned by the government.

Each of the approximately 700 large emitters included in the plan will have a variety of options to meet their reduction targets:

  • In-house reductions through technology or process improvements

  • Purchasing credits in a domestic emissions trading market

  • Purchasing or earning accredited 'carbon offset' credits

  • Employing the Kyoto Protocol's Clean Development Mechanism (CDM)

  • Contributing to a federal technology investment fund

The price for contributions to the technology fund is set at $15 per tonne of emissions, the same level proposed by the former Liberal government, and will rise to $20/tonne in 2013. The charge has been called a 'carbon tax' by some, but the government disagrees, as companies will be able to trade emissions credits or use other mechanisms if they are more cost effective.

The technology investment fund will be used to support development of technologies to reduce GHG emissions, such as carbon capture and storage, industrial efficiency improvements, and low emissions energy. Contributions for each firm will be capped at a declining level, as the government says it would rather have firms invest to reduce their own emissions.

The strategy places an emphasis on using market forces to determine where the most efficient emissions reductions can be made. It opens up the possibility of linking the planned domestic emissions trading market to systems in the United States and Mexico. There was no interest in aligning with the European Union's Emissions Trading Scheme (ETS), which Baird termed 'hot air'.

Through the Clean Development Mechanism (CDM) of the Kyoto Protocol, firms can invest in projects that will reduce or offset GHG emissions in developing countries to earn credits. Firms will only be able to offset up to 10 percent of their emissions this way.

Canadian companies which have registered CDM projects to date include Alcan, which has supplied solar powered cookers, and TransAlta, which has invested in methane capture. A number of other initiatives are currently under evaluation (search a list of projects here).

In line with previous government statements, Canada will not purchase any emissions credits on the international market in order to meet its national obligations under Kyoto.

While the plan will cut GHG emissions from current levels, Canada's Kyoto Protocol target will not be reached until 2020-2025, twelve years after the first phase of the agreement expires. Emissions will remain around 5 percent above 1990 levels in 2020. Canada's 2004 emissions were 27% above 1990 levels, while Kyoto requires 6% below 1990 levels between 2008-2012.

European Union nations have committed to a climate change and energy strategy that by 2020 will reduce greenhouse gas emissions to at least 20% below 1990 levels.

Other components of the plan include enacting 'stringent' regulations for vehicle air emissions to a dominant North American standard. They also suggest that there will be future discussion on a Green Auto Pact and signed an MOU with the US Thursday to explore a broader harmonized approach. Energy efficiency standards will be applied to products that have never been regulated before, such as industrial boilers, while existing standards for appliances will be strengthened.

Air pollution

In keeping with a past strategy of dealing with air pollutants and greenhouse gas emissions together, the government's plan also includes regulations to reduce industrial air pollution by as much as 55 percent by 2015.

National fixed emissions caps will be set for industrial pollutants that contribute to smog and acid rain. Targeted substances will be Nitrogen oxides (NOx), Sulphur oxides (SOx), Volatile organic compounds (VOCs), and Particulate matter (PM), all of which are linked to environmental and health problems. A program will also be undertaken to identify harmful indoor air pollutants in order to develop regulations in that area.

According to the government, the benefits of less air pollution will include reduced health problems and premature deaths, with deaths related to air pollution cut by around 1,200 persons annually.

Economic implications

The government's recent assessment of the costs of meeting Canada's Kyoto Protocol target projected a huge economic burden that would lead the country into recession. Depending on the mix of domestic reductions and emissions credit purchases, the report says meeting Kyoto targets now could result in a GDP decline of more than 4.2% from 2007 to 2008, a cost of around $51 billion, and severe job losses. Although hampered by certain assumptions, such as the exclusion of environmental benefits and technology improvements, the analysis was endorsed in principle by some of the country's leading economists.

The government says the current proposal will cost the country between $7 billion and $8 billion a year in economic output (0.5% of GDP), with not many job losses. Cars, homes, appliances, electricity and fuel are expected to increase in price. Health care savings from reduced air pollution could top $6 billion a year, says Baird.

What the actual costs of either climate policy would be are highly uncertain. Certainly more stringent regulations in the short term would harm some industries, while in the long term those companies may benefit from technology innovation, efficiency improvements, and experience in managing and trading emissions.

There are environmental arguments for sharper, quicker reductions, and economic arguments for a longer time frame with more flexibility. But the time for action is now, and most economists, policy experts and even business leaders agree that unless there is a financial penalty or a regulatory requirement imposed upon greenhouse gas emissions, reductions will be difficult to achieve.

In terms of air pollutants, there will be new costs to industry, but there also should be a major increase in demand for pollution abatement technologies. Firms with affordable technologies that allow industry to meet regulatory requirements should be able to deploy their solutions on a wider basis.

Opportunities for international export could arise as Canadian firms develop air pollution products and services, though until the domestic environmental industry is more developed certain sectors will continue to rely heavily on imports from the United States and other countries.

A path is set

For Canada, the question now should not be whether we meet Kyoto or not, but whether we have a climate change plan that is credible, ambitious, and achievable. What are needed now are clear regulations and technology-based solutions to reduce greenhouse gases and to adapt to expected global warming.

Likely, the country will not be able to meet Kyoto targets, and there undoubtedly will be consequences on the international stage. The Protocol specifies that any emissions in excess of the targets must be more than made up during a second compliance period. The international community is working towards building consensus for a post-Kyoto plan, but divisions still exist between Europe, the United States, and China, to name a few.

Still, the imperative of climate change action seems likely to spur some follow-up to Kyoto. In that case, Canada will need to prove that it has taken strong domestic action, and meet any future obligations. By demonstrating responsibility for its own emissions and helping to bring a future agreement into place, Canada can restore some respect and credibility that it has lost on the world stage due to a perception of delay and reluctance to act.

Canadians are strongly supportive of action on climate change, and parliamentarians realize this. We can only hope that the country's businesses and individuals will now have a plan to work within. It is our view that action now is better than waiting for the perfect plan, whatever that may be. Further delay would be even more costly in the long run.



For More Information: Environment Canada