Market News

 August 15, 2007
Can Canada agree on climate change?

 Monton, Canada (GLOBE-Net) -- Last week, Canadian Premiers focused their annual meeting on energy and climate change, bringing regional perspectives on these vital issues and seeking national consensus on a path forward. There was agreement in many areas, including renewable energy and energy efficiency, and a strong show of commitment and leadership. However, sharp divisions persist, notably on the creation of a national cap-and-trade system. The lack of agreement on climate policies at the provincial and territorial level could result in a patchwork of policies and regulatory regimes which will be difficult for businesses to navigate. Federal leadership may be needed to fill the void.

Premiers began the week by endorsing broad principles for creating an affordable, secure, environmentally and socially sustainable energy system which promotes economic prosperity. The notion of Canada as an "energy superpower" was echoed, reflecting the importance of natural energy resources to many regions and the prominent economic role these resources will play in the future.

The points laid out in A Shared Vision for Energy in Canada (PDF) are not groundbreaking. Many of the leaders acknowledged this fact; but the prominence given to the environmental implications of energy policy was noteworthy. The seven point action plan placed top priority on energy efficiency and conservation, research and development of clean energy technologies, and increased renewable energy capacity.

Leaders stressed the importance of pan-Canadian regulatory strategies and policies, and attempted to reach consensus on some weighty specifics: a cap-and-trade plan for greenhouse gas emissions, and targets for renewable energy generation. In the end some positive agreements resulted, but it is clear that on the all important issue of GHG emissions, the provinces are unlikely to see eye-to-eye anytime soon.

Of the agreements that were reached the most notable was a commitment to monitor GHG emissions through participation in The Climate Registry, a collaborative agreement between a number of U.S. states and aboriginal groups to create a central, verified database for emissions reporting.

British Columbia and Manitoba previously joined the venture, which will begin accepting reporting data in January 2008. While reporting emissions to the Registry does not obligate reductions, a tracked and transparent inventory of emissions is necessary for participation in any carbon trading venture and to support other emissions-reduction policies.

Another significant commitment was a target to collectively produce an additional 25,000 megawatts of renewable energy by 2020, with hydro, wind, solar and tidal named specifically. Canada currently meets 17 percent of its primary energy supply and over 60 percent of its electricity needs with renewables, including around 69,000 MW of hydroelectricity, 1,588 MW of wind power, and less than 20 MW of solar energy.

The Premiers also discussed biofuels, pledging to investigate strategies for a national biofuels and hydrogen distribution system. An interesting commitment was made to recapture methane from large landfills, another sign that energy-from-waste technologies are one of the preferred emissions reduction methods in many jurisdictions. All documents from the conference can be found at www.councilofthefederation.ca.

No cap

The most reported news from the Premiers' meeting was the lack of agreement on a cap and trade system to reduce greenhouse gas emissions.

Ontario, Quebec, British Columbia and Manitoba were seeking absolute emissions reductions and a deal to create an inter-provincial emissions trading market. Not surprisingly the proposal was rejected by energy-rich Alberta, with the support of Newfoundland and Nova Scotia. Those opposed to a cap-and-trade system favour intensity-based reductions as implemented by Alberta earlier this year.

Also left on the table were vehicle emissions regulations. Ontario indicated it might support limits based on California's strict tailpipe standards if the cap-and-trade system was adopted, but it appears there was never a serious chance of that occurring.

This is because though each province acknowledges the imperative of tackling climate change and energy issues, priorities vary widely based on economic circumstances and available natural resources. Biofuels, hydrogen, wind, hydro and fossil fuels draw sharply different levels of support from policy makers in each jurisdiction.

The results are a few agreements of minor importance that probably would have been achieved through individual provincial policies anyway, but nothing close to the kind of national emissions plan that was -perhaps optimistically - envisaged by some.

Climate change and energy will be key items on the agenda at all future meetings, however. BC will host a conference on adaptation to climate change in early 2008, so these issues will again be up for future discussion.

But should one expect a swift turnaround and a strong national climate change regime to emerge from provincial discussions?

Not likely. Provincial interests may be too diverse for a consensus on any climate change plan that has significant social and economic implications.

Individual provinces will continue to show leadership and to address the issues according to their perceived best interests. Ontario, Quebec and Manitoba in particular will increase green energy supplies to tap hydro and wind resources; BC and Ontario have joined already with U.S. states in regional cap-and-trade schemes; and Alberta has developed a regulatory regime to reduce the emissions intensity of its oil and gas industry. Provinces and territories will work together when feasible, but sweeping climate policies are very unlikely.

Unfortunately for the business community, the result may be a patchwork of climate policies and legislation, including tax shifts, regulatory measures, and regional carbon markets. Business leaders and economists have warned of such a future, which will likely raise costs and make reducing emissions economically a huge challenge. It will also make it difficult for Canadian technology providers to tap into clean technology markets at home, and weaken the country's position in this burgeoning global energy and environment sector.

The Globe and Mail recently reported comments from Deryk King, head of Toronto-based Direct Energy, one of North America's largest energy companies, that the federal government's climate change plan is "insufficiently aggressive". King went on to note that in Canada it is industry that is leading the charge on what must be done to prepare for a low carbon future.

Barring a dramatic transformation in regional politics, the way to avoid a balkanized patchwork of regional climate regimes is simple: clear leadership from the federal level to establish a strong national climate change policy with a combination of regulation and market-based measures that have equal application across all jurisdictions.

The federal government is in the process of implementing its own climate change plan, and hopes to have all regulations related to the climate change and air pollution plan finalized by 2010.