Canada's climate plan on the international stage
A cooperative agreement with the European Union has been signed, but Canada still appears to be holding the middle ground between the hard caps and emissions trading regime sought by the EU and the voluntary, intensity-based goals sought by the United States. The government has said the U.S., EU, China and India must be brought together in an agreement in order to make it effective. Prime Minister Harper also called climate change “perhaps the biggest threat to confront the future of humanity today.” Many wonder whether Canada has the ability to pull the dissenters together.
Environment Canada (EC) has held discussion sessions in Montreal and Vancouver, where industry leaders and other stakeholders were invited to learn more about the government’s plan to reduce greenhouse gas (GHG) emissions and air pollutants. While some details were provided on the regulations and enforcement mechanisms, such as emissions trading and the technology fund, significant questions remain on the actual implementation of the plan.
According to EC, the government is now working to translate greenhouse gas reduction goals into sector specific targets, and completing the details of the emissions trading system, the green technology fund, and the emission credits for early action. It is also looking to validate sector-specific targets and allocations for air pollutant emissions.
The air pollutant regulatory framework should be finalized by September 2007. The first draft regulations will be published in Spring 2008, and all regulations related to the climate change and air pollution plan should be finalized by 2010.
The emissions trading compliance mechanisms for greenhouse gases and air pollutants appear to be very much in the developmental stages, with linkages to the United States to be explored. There has been no specific mention of linking to the European Union’s Emissions Trading System (EU ETS), though the option of international market integration was left open for the future.
Initially the markets will involve bilateral contracts, but will evolve to include exchange-based trading that will improve market functionality, with the possibility of derivatives trading in the future. For carbon credits, Canada will establish a National Registry to enable participation in the Kyoto Protocol’s Clean Development Mechanism (CDM) for up to 10% of a firm’s target.
The markets for GHGs and industrial pollutants – Nitrous oxides (NOx) and Sulphur dioxide (SOx) – will also require the creation of a tracking system to cover compliance units from issuance to retirement or cancellation. For GHGs, surplus credits, offset credits and CDM credits will be tradable and bankable, but the government has not yet decided how early action credits or technology fund units will function in the market.
For firms that reduced emissions between 1992 and 2006, there will be a one-time credit issued. The total maximum amount of early action credits available will be 15 Megatonnes, with 5 Mt eligible for use each year.
As specified in the government’s initial announcement of the plan, a technology fund will provide another avenue for firms to comply with the GHG reduction targets. The initial price will be set at $15 per tonne, jumping to $20 per tonne in 2013 and increasing nominally with GDP following that. The fund will be available for 70% of regulatory obligations in the first year in 2010, declining to 10% by 2016 and 0% by 2018.
Overall, it is clear that there are many questions about how the regulatory and compliance mechanisms for both GHGs and air pollutants will be developed. Stakeholders in attendance asked many questions, but most concerns were not directly addressed and uncertainty remains. For those firms that will be involved in credit trading or emissions abatement directly, as well as those who will supply supporting technology and expertise, the specific details on the regulatory regime are eagerly awaited.
Presenting Canada’s plan at the G8
However, the broad strokes of the plan – a 26% cut in emissions intensity by 2015, emissions trading, and caps on air pollutants – are established, and these features will be promoted to the international community at the G8 summit in Germany this week. During a speech in Berlin, Mr. Harper held it up as a model which could be applied to other industrialized countries like the United States as well as developing nations that want to continue economic growth, such as China, India and Brazil, all of which are present at the summit.
“There are elements of our plan that could work not just for Canada, but for many countries in the world – including some of the large emitters that did not accept targets under the Kyoto protocol,” said Mr. Harper, noting that countries with Kyoto targets account for less than 30% of global emissions. “The approach we have chosen, basing emissions reduction targets on units of production in the short run, allows growing and developing economies to engage in significant greenhouse gas reductions without putting themselves at immediate risk.”
Both the Prime Minister and Environment Minister John Baird have said that major emitters like the United States, China and India must be included in any future global climate change agreement if it is to be effective. “Obviously, if we really want to stop climate change, all the big emitters need to step up to the plate and must accept real targets,” said Mr. Harper.
Canada’s strategy at the summit has not been explicitly stated, but it appears the government is seeking the role of conciliator, to bring nations with differing views together.
Canada maintains that its long term target of a 60% to 70% reduction of GHG emissions by 2050 (with a 2006 baseline) is consistent with the European Union’s goal of cutting emissions by half over 1990 levels. The EU and Canada have just signed an agreement to cooperate on climate change and energy, along with other issues. However, Canada has not endorsed the EU’s call to reach 20% below 1990 levels by 2020, and domestic policy will not meet this target either.
Canada does support regulatory targets for GHG reductions rather than voluntary goals, though the domestic plan favours intensity reductions rather than hard caps. This would seem to align more closely with the U.S. goal of reducing the GHG intensity of the economy by 18 percent by 2012, though the U.S. target is not legislated.
Canada also shares the U.S. insistence that developing nations like China commit to emissions targets in any future agreement, though Mr. Harper seemed more willing to grant them lenient targets, calling for a plan that takes into account “both different starting points and different national circumstances”. Because countries, firms and industries will be able to achieve differing levels of emissions cuts, mechanisms such as carbon offsets and carbon trading are a necessary part of any global plan, he added.
A middle-ground agreement that could be proposed by Canada would appear to be intensity-based reductions for industrialized countries as long as they resulted in absolute reductions in the long term, analogous to the domestic strategy. Developing countries could also commit to intensity reductions, with the understanding that economic growth could cause emissions to rise in the short term. The seemingly entrenched positions of the U.S., EU and China in particular could make such a plan little more than hopeful speculation.
It is uncertain whether Canada will carry any weight in this facilitator role, but Prime Minister Harper was right when he said in Berlin that “It is urgent that we start work now.” The same can be said of the domestic climate plan, and finalizing regulations and trading mechanisms is imperative. Both the global environment and the global economy are calling for long-term planning, and a strategy that will allow businesses to take the steps necessary to develop technologies and invest in equipment that will reduce emissions. Neither the world nor Canada can wait any longer to take action on climate change.