Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue 9 - Evidence, February 25, 2003
OTTAWA, Tuesday, February 25, 2002
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 5:15 p.m. to examine and report on emerging issues related to its mandate (implementation of the Kyoto Protocol).
Senator Tommy Banks (Chairman) in the Chair.
[English]
The Chairman: This is a meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources, which is examining questions having to do with alternative energy, the implementation of Kyoto and our other international obligations.
Today our witnesses include David Oulton, Head of the Climate Change Secretariat; Paul Fauteux, Director General of Environment Canada's Climate Change Bureau; and from Natural Resources Canada, Neil MacLeod, Director General of the Office of Energy Efficiency, all of which titles are somewhere in our order of reference.
I would invite you to proceed, gentlemen. I am presuming that Mr. Oulton will lead off with an opening statement.
Mr. David Oulton, Head, Climate Change Secretariat: Mr. Chairman, I will call on my two colleagues to make comments as we go through the slide deck. The clerk has handed out copies of the printo-out of the deck that I will use as the basis for my observations. Everyone should have a copy of it. It is marked on the first page, ``Climate Change Plan for Canada,'' and dated February 25. I will proceed through that. I will switch back and forth between French and English as well, just to give you warning on that.
[Translation]
This presentation is an overview of the national and international context of Canada's commitments to climate changes. I will begin by introducing the national process and Mr. Paul Fauteux, from Environment Canada, will deal with the international side and the steps that will have to be taken as we move forward. Finally, Mr. Neil MacLoed from Natural Resources Canada will provide an overview of Canada's climate change plan and Budget 2003.
We are aware that, over the coming weeks, the committee will be hearing more detailed and more technical presentations relating to various parts of the plan, and that is why we have no specialist with us here this evening. We hope that our presentation will help you to better understand the scope of this issue so that you might be able to tailor your in-depth discussions on the programs and initiatives.
[English]
I ask you to turn to slide number 4 in the deck.
With respect to the science of climate change, while there are always some dissenting views, there is broad international consensus that climate change is occurring, and that the future risks of climate change are significant.
This slide in front of you, which is from the third assessment report of the UN Intergovernmental Panel on Climate Change, summarizes global temperatures for the past 1,000 years. It uses modern instruments back to about 1860, and further back relies on tree rings and ice cores for evidence. It shows that the global average surface temperature increased by about 0.6 degrees Centigrade over the 20th century. That marked quite a divergence with previous recorded temperature changes.
The slide also shows the projected global temperature increase by the year 2100, using a range of greenhouse gas emission scenarios. The full range is between 1.4 and 5.8 degrees Centigrade. Most of the results overlap around 3 degrees. This is five times larger than what we have seen over the past 100 years, and it is likely larger than what we have seen in the past 10,000 years.
In its report, the IPCC concluded that there is new and stronger evidence that most of the warming observed over the last 50 years is attributable to human activities. There is high confidence that recent regional changes in temperature have had discernible impacts on many physical and biological systems.
Canada is potentially seriously affected by the impacts of climate change, particularly in the North, the mid- continent prairie region and in coastal areas.
Slide 5 provides an overview of the extent of Canada's Kyoto Protocol emissions commitment. If you look at that graph, on the far left-hand side it shows the reference level of emissions under the Kyoto Protocol for 1990, which is 607 megatons of CO2 equivalent. Then, if you look at the bottom of the graph, you will see our Kyoto target for 2010, which is 6 per cent below the 1990 levels, or 571 megatons. That is the average we have to achieve for what is called the first commitment period under the Kyoto Protocol, which is the period from 2008 to 2012.
If you look at 2000, you will note that our measured emissions, our inventory, in the year 2000 was 726 megatons of CO2 equivalent. That is up just over 19 per cent from our 1990 level. Then, if you continue on that line further, out to 2010, you will see that what we call ``business as usual,'' BAU emissions, are estimated to be in the order of 809 megatons.
If you compare that estimated business as usual with our Kyoto target, you will see what we have called a business- as-usual gap of 240 megatons, which is the gap that the Government of Canada's policy measures, along with those of our other partners, will need to close. You will see at the far right-hand side the estimate that actions to date have closed it by approximately 80 megatons, or will close it by approximately 80 megatons, that step 2 of the Canadian plan will attempt to close it by a further 100 megatons, and step 3, as described in that plan, aims to get the final 60 megatons.
Mr. MacLeod and Mr. Fauteux will discuss those elements of the plan in greater detail later on in the presentation.
[Translation]
Mr. Paul Fauteux, Director General, Climate Change Bureau, Environment Canada: The Kyoto Protocol is the result of 10 years of international negotiations that began shortly after a conference held in Toronto in 1988. These negotiations first led to the United Nations Convention on Climate Change during the 1992 Earth Summit in Rio, followed by the Kyoto Protocol, which was adopted in Japan in 1997, five years after the Rio conference. In the years following the Rio convention, the countries realized that stricter and more reliable measures would be required in order to reduce greenhouse gas emissions.
This protocol is unique in many ways. First, in terms of its scope, David Oulton and Neil MacLeod, both experienced in their field, will agree that climate change is one of the most horizontal issues that the federal government must deal with. This horizontal aspect is reflected in the Kyoto Protocol which cross-cuts virtually every sector of the economy.
It is a particularly robust international legal instrument in that there are significant consequences for non- compliance. There is also a strong third party verification to ensure that rules and commitments will be respected.
The protocol is also unique in that it applies market forces to mobilize energy, creativity and resources of the private sector. This is done mainly through three mechanisms known as ``Kyoto mechanisms.'' First of all, there is the clean development mechanism which allows countries that have adopted emission reduction targets, and Canada is one of them, to invest in emission reduction projects in developing countries. This mechanism contributes to sustainable development in countries that are hosting these projects and also allows investing countries to meet their target at a lesser cost since there is only one atmosphere surrounding our planet. Whether a tonne of emissions is reduced in Montreal, Moscow or Manilla, the result will be the same in terms of the environment, and the atmosphere. This Kyoto mechanism is intended to foster sustainable development in developing countries while allowing industrialized countries to meet their emission reduction targets at an affordable cost.
A similar mechanism applies to industrialized countries that have agreed to emission reductions. This mechanism would allow Canada, for example, or a Canadian business to invest in an emission reduction project in Poland. Poland also has a reduction target. As is the case with other economies in transition towards a market economy, this is a country that is lacking in capital, that has outdated technology. Canada can contribute to sustainable development in countries moving towards a market economy and generate large savings in meeting its own target.
The third mechanism within the Kyoto Protocol is the international emissions trading, since each country agreeing to reduce its emissions is then allowed to emit a certain level of greenhouse gases. Let's take Canada for example. Our greenhouse gas emissions target is 6 per cent below the 1990 level. So, we would take our emissions level from 1990 and multiply that by 94 per cent, in order to determine the allowable level. We will then receive international permits for those emissions. The countries receiving these permits can then exchange them amongst themselves in order to reduce their cost of compliance.
Canada ratified the protocol last December 17, making us the 100th nation to ratify. There are two conditions for its implementation. The first one has been met, since only 55 ratifications by nations that were party to the convention were required for the protocol to come into force. The second condition has not yet been met: the signatories ratifying the protocol must together be responsible for at least 55 per cent of the 1990 CO2 emissions from all industrialized nations.
Canada contributed 3.3 per cent of the emissions. Since the United States has decided not to ratify the protocol and since they were themselves responsible for 36 per cent of the 1990 emissions, ratification by Russia is essential. Russia is responsible for 17 per cent of the emissions required to meet the 55 per cent threshold. It is expected that Russia will ratify this year, after which the protocol will become effective.
I mentioned that the United States had rejected the protocol. Australia has said that it will not be ratifying the protocol for the time being. Canada has joined with a broad international consensus since, with the exception of the United States and Australia, all other industrialized nations that subscribed to the Kyoto commitment have ratified or are in the process of doing so.
The implementation of the protocol will result in only a little slowing of greenhouse gas emissions. That is due in part to the fact that it will not be ratified by the United States, and also because there are no targets for developing countries. Developing countries that are rapidly becoming industrialized, such as India, China and Brazil will not have to reduce their emissions within the first period, namely between 2008 and 2012; this recognizes the fact that problems related to climate change were created by industrialized countries like Canada, the United States and Europe, beginning with the industrial revolution: coal and other fossil fuels have been used since the middle of the 19th century, causing greenhouse gases to accumulate in the atmosphere, resulting in climate change. The principle adopted in Rio in 1992, and confirmed in Kyoto in 1997, relates to a responsibility that is common but distinct. All nations share a responsibility to combat climate change but there are varying levels of responsibility.
The Kyoto Protocol is a modest but essential first step in an undertaking that will continue for at least the next 50 years, and maybe longer.
The decision made by the United States not to ratify has created special problems for Canada, its main trade partner. Eighty-seven per cent of Canada's exports go to the United States. The Canadian business community has a very legitimate concern relating to competitiveness: how can we agree to reduce our emissions with the resulting increased costs for doing so if our American competitors are not doing the same?
Of course, there is another side to the coin. The fact that the United States will not be ratifying gives Canada an opportunity to get a head start in climate change technology development, particularly in the area of clean energy, as well as creating new products, technologies, services and exports. With its plan, Canada is moving forward to address competitiveness issues. This plan was designed to mitigate the negative that I have just mentioned and exploit the positive. The government has also promised to protect industries against a possible increase in the price of carbon on the international market; I will deal with that a little later. Emission permits will be exchanged throughout the world. The federal government has agreed to assume the responsibility for the purchase of any permit that would cost more than CAN$15 per tonne of CO2 in 2010.
The industry has been given price guarantees. Its responsibility in terms of prices has been limited and the quantity has been assured since, in the plan, there will be a quantity cap of 55 million tonnes in annual emission reductions for the big industrial emitters. The government has said it will not require any further obligation on their part, but there could be other incentives.
Even if the United States did not ratify the protocol, Canada is still working very closely with them. A Canada-U.S. working group on climate change cooperation was established last March. The group has already met more than once. It is a vehicle that will allow us to coordinate our actions with the United States wherever possible, since, even though the U.S. has not ratified the protocol, there is still a willingness to combat climate change. It is preferable that we quickly begin to coordinate our action in the fight against climate change.
Finally, for the upcoming round of negotiations, the protocol has set valid commitments for the period from 2008 to 2012. New negotiations for the post-2012 period must start no later than 2005.
We must begin to prepare for this next round of negotiations which will not be easy because the interests are so divergent. The European Union has already stated that its emission targets will be much more ambitious. British Prime Minister Blair stated recently that the United Kingdom has targeted a 60 per cent reduction — that is 60 per cent, not 6 per cent — of greenhouse gas emissions compared to the 1990 level, for 2050, and not 2012. The developing countries that I spoke of earlier are hesitating to commit since their priority is fighting poverty and increasing economic and social development.
The Bush administration has not yet made its intentions clear. We do not know whether or not they will take part in the negotiations on the next period when Canada will seek recognition for its contribution to the fight against climate change through clean energy exports, particularly the gas and hydro-electricity that is sold to the United States.
[English]
Mr. Oulton: I would ask the committee to turn to page 13 in the deck. I would like to spend the next few minutes touching on the federal-provincial context.
Just to recall, as Mr. Fauteux noted, the Kyoto Protocol was originally negotiated in December 1997. Immediately following that negotiation in December, there was a first ministers' meeting that discussed, amongst other things, Kyoto. Out of that first ministers' meeting came a resolution of first ministers where the federal government essentially said, ``We think it is imperative that Canada be part of the international negotiations that will continue with regard to the protocol to see whether we will be able to have a ratifiable document, and it is also imperative, when it comes to ultimately implementing the protocol, if and when Canada ratifies it, that the provinces and territories be working with the federal government in its implementation.'' For their part, the provinces and territories said, ``Well, in order for us to be able to work with you, we need to be able to participate in analyzing what our options are, and what the implications of those options will be in the event that Canada proceeds, and secondly, it is also important to us that when it comes to implementing options, there is a reasonable sharing of the costs and burden of those options and their implementation across different regions of the country.'' In essence, that launched and was the basis for the federal- provincial process which started off at the beginning of 1998 and continued over the five-year period right through to last fall/winter.
Page 14 gives you a sense of what was done in terms of what was accomplished in the federal-provincial discussions. Immediately following the first meeting in 1997, energy and environment ministers met and said, ``We will be responsible for trying to develop the work plan that will be needed to understand the protocol and the options Canada has for implementing it. We will put in place a national process that will involve, in essence, the federal government and the provinces in a joint venture in working on the analysis and the options that we will need so that, in the event that the protocol is completed, we will be in a good position to make a ratification decision.''
That process was started in April of 1998. Out of that process came a number of documents that were agreed to jointly by the federal government and the provinces. The first referenced here is a national implementation strategy. That basically said, because at that time the protocol was still under negotiation, that without regard to whether the protocol was completed or not, we the provinces, territories and the federal government agree that this is an issue that we will need to work on, an issue of importance to Canada.
They also agreed at the same time to a second document referenced called the First National Business Plan. It was, if you will, an indication of the kinds of measures that each province and territory, as well as the federal government, would be prepared to take. It was at that time that the federal government announced its Action Plan 2000, funded to the extent of $500 million over five years, as its contribution to that first business plan. When the ministers met last May — and they have been meeting at least twice and sometimes three times a year — they approved a second business plan, as well as evaluated the first business plan. They said, ``Here are the further measures that provinces, territories as well as the private sector need to take jointly.'' There has been an extensive development of federal-provincial cooperation over the past five years.
In 1998, the ministers set off a series of national consultations. The first was an extensive exercise, from 1998 to 2000, on something we called issue tables, involving the private sector, environmental groups and other interest groups coming together, broken into about 15 separate issue tables with two to three dozen people at each one, charged with coming up with the kinds of policies and programs that Canadian governments, as well as the private sector, should follow in order to implement the Kyoto Protocol. Those measures produced by these issue tables in the period from late 1999 to early 2000 have formed the basis for a great deal of the action that the federal government and provinces have taken since that period, and we continue to draw on them as a source of analysis for our work.
We have also put in place something we call the Analysis and Modelling Group. There was a lot of discussion over the course of the fall, looking at the various economic and macroeconomic models, as to what the impact would be in the event that we used certain measures to achieve our Kyoto objectives. That was done as a collective enterprise jointly by the federal government and the provinces. It started off in the 1998 and 1999 period and culminated in a series of analyses done last year. There was work done on tradable emissions permits, which has been picked up in terms of the work being done now on covenants with what are called large industrial emitters, the major industries, and a variety of broad stakeholder engagement exercises that were cross-country, the first major one in 2000 and a second major one in 2002 where we went to every provincial capital and had open meetings for interested stakeholders focussing on the kinds of measures needed to be developed and put into the plan.
Turning to page 16, I want to touch on the principles that became the subject of discussion last fall, and these are principles that were, in the first instance, developed in the provinces and territories. They received a draft of the federal government implementation plan, and they wanted to set out, ``These are the things that are most important to us in our being able to work with you in proceeding with that implementation plan.'' They set out a series of 12 principles at that meeting. In essence, we responded, through the Prime Minister, by letter of November 19, saying essentially that we had substantive agreement with nine of the principles as they were stated. Clearly, what would be important was how they would be implemented, but in terms of how they were stated, we were in substantive agreement with them. There were three we thought needed more discussion between ourselves and the provinces, but we were prepared to hold those discussions. We tried, when we released our plan at the end of November, to pick up on as many as we could of those principles.
Slide 17 gives you a list of the principles, in short form, that the provinces provided and a reference to where in the plan we tried to make sure we were capturing those principles in the way that we were framing the plan, and the measures that we were implementing in the plan. There are 10 included there because, although we agreed with most of the second principle, we had a problem with part of it.
The next page, page 18, outlines those areas where we indicated to the provinces that we have concerns with particular principles. There were three of them. It is noted on page 18 that ``The plan must incorporate appropriate federally funded mitigation of adverse impacts of initiatives.'' The second one notes that ``The plan must ensure that no Province or Territory bears the financial risk of federal commitments.'' The federal government, in essence, said that they understood why we were putting those principles forward, but they thought that the principles needed to be more broadly stated.
We had drafted a plan at that time. That plan indicates that indeed there are costs, because this will be an investment by Canada in order to take the necessary measures. There are risks in going ahead with putting these measures in place but there will be benefits and opportunities arising out of Canada being part of wrestling with climate change as an issue.
We see this as a shared endeavour. Therefore, those principles should be cast in such a way as to provide a balance that recognizes that we must all share it. It not only involves the federal government accepting liability but is a matter that we should jointly share as both a liability and an opportunity.
The last principle with which we were not comfortable was that which basically said that the plan must recognize that benefits from sinks assets — which is the capacity of both agricultural lands and forests to absorb CO2 — and the ultimate emission reductions must accrue to the province or territory which owns the assets. That concept, if it were to be workable, had to be broadened because some provinces had many forests and agricultural lands and would be net absorbers, while others would be net emitters. Therefore, it had to be looked at on the basis of both emitters and absorbers.
If you look at how we negotiated the protocol that Mr. Fauteux was describing, we felt that the benefits from those sinks, which is a Canadian clause in the protocol, should be shared nationally. The benefits should not be divided amongst provinces. They should serve as a national benefit to reduce our overall obligations. We disagreed with how that element was framed.
Those discussions with the provinces culminated in December. We agreed to leave them there. At the provinces' request, we would further discuss them if it were necessary. The provinces have not asked for further discussion. I will not speculate on their position, but it may be that the important part of these principles will show as the proof in the pudding. It will be in how the federal government works with the provinces with respect to implementation.
The federal government sees the principles as having placed a stake in the ground to which they want us to pay attention. Indeed, we will. We have given them our good faith undertaking that we will substantively move forward and implement these and take your principles into account, although there are clearly some where we will need further discussion when it comes to implementation.
Mr. Neil MacLeod, Director General, Office of Energy Efficiency, Natural Resources Canada: We attempted to put in one chart, on page 20, the overall numbers with an overview to the three steeps to achieve Kyoto. Column 1 shows actions to date. These are actions that were either in Action Plan 2000, which was approved over two years ago and approved by Treasury Board ministers over a year ago, and Budget 2001, where there was a large wind power production incentive. The 13 megatons covers transportation and buildings. The industrial emitters cover 25 megatons. Some of that came from Action Plan 2000, and some came from the wind power production incentive. There are 38 megatons from agriculture, forestry and municipalities. About 30 megatons of that is sinks for which Canada got international approval a little over a year ago. Another 8 megatons is from Action Plan 2000.
Step two shows the actions proposed in the Climate Change Plan for Canada, which was released in November of 2002. A variety of items were listed there. You can reference that document if you want to know the background items that add up to these megatons.
Again, megatons are shown for both transportation and buildings. Mr. Oulton and Mr. Fauteux referred to industrial emitters with the quantity cap at 15 per cent, which works out to 55 megatons. There is about 16 megatons for both renewable and clear use of fossil fuels. There is another 20 to 28 megatons for offsets. We do not add up the offsets. They are offsets that will be produced elsewhere that the industrial emitters could buy to contribute to their 55. If we included them in both, we would be double counting. They are do-able, but we cannot add them together.
There is another minimum of 10 megatons in the international markets for a total of about 100 megatons. As Mr. Oulton referenced, the gap is really 240 megatons. The elements here do not add up to enough. There are options for the future to get that other final 60 megatons, and there are plenty of ideas around as to how to do that.
Senator Spivak: I do not understand this. Are you suggesting that we have now achieved 180 megatons?
Mr. MacLeod: With Action Plan 2000, Budget 2001 and the agreement of the international community for sinks, we have achieved 80 megatons. All the ideas here, which will have to be funded some day, would give us another 100 megatons.
Mr. Fauteux: We have put in place measures that we expect will produce, in the commitment period of 2008 to 2012, on average of 80 megatons per year of emission reductions.
Senator Spivak: That is a big difference.
Mr. Fauteux: These measures take a long time to kick in and produce effects.
Senator Spivak: It is not that in 2003 we have 80 megatons tucked away?
Mr. MacLeod: On slide 21, we again identify the various funds that were set up to contribute towards this goal, totalling $1.7 billion. There is $300 million for the Climate Change Action Fund. That money came in two batches. The first was a three-year fund in 1998, which was renewed in 2001. There was $120 million, in two batches of 60 million each, over three years starting in 1998.
I refer now to Action Plan 2000. The Federation of Canadian Municipalities received grants of $125 million on two separate occasions. There were some science and technology contributions to the Canadian Foundation for Climate and Atmospheric Sciences, and Sustainable Development Technology Canada. I referred to the Wind Power Production Incentive that was introduced recently. As well, there are some international items, including the Climate Change Development Fund and the World Bank's Prototype Carbon Fund.
Slide 22 gives a flavour for some of these examples. I will be returning to this committee on Thursday morning at 8:30 a.m. for a meeting on what the Office of Energy Efficiency does and how that relates to the one-ton challenge. I will provide more detail on some of these things on Thursday.
There are opportunities for consumers to improve efficiency. We can see a possibility of increasing the target for ethanol blending. Various measures came out of the transportation issue table on better use of public transit and planning related areas. There are also some opportunities for more efficient goods transport that underwent rigorous analyses over the last few years, especially for inter-modal transportation of using rail and truck together.
In buildings, we have ambitious targets. We have a strict target for housing. We would like to see all new housing built to that target by 2010. We would like to look at existing housing and buildings and get a 20 per cent improvement there by 2010. We would like all new commercial buildings to be built 25 per cent better than the existing model code, the Model National Energy Code for Buildings, by 2010.
We need to establish a framework so that agriculture and forestry sinks can be sold as offsets to large industrial emitters. Will we regulate emission reductions in municipal landfill sites from new capture and flaring of gas, or allow them to be sold as offsets? Will we integrate the climate change objectives into the farm environment management planning framework under the Agriculture Policy Framework?
On slide 24, we are talking about just where we are now. Covenants with large industrial emitters is a fairly recent initiative that began in late fall. This will be the key measure for achieving reductions there. The three main sectors are thermal electricity, oil and gas, and mining and manufacturing. They need to be back-stopped, and whether that occurs financially or with a legally binding mechanism is still being discussed. There must be accessibility to emissions trading and buying those offsets and international permits. The hope is that we will have a model covenant in the spring. The aim is that we will have it by the end of the next calendar year, to complete that process.
This is not the only work under way to deal with industrial emissions. For example, we want to target that 10 per cent of new electricity-generating capacity comes from a green sources. There are certain jurisdictions, for example in British Columbia, where B.C. Hydro has made that objective explicit. We want to partner on clean coal demonstration projects. Some of these are happening around the world for new coal plants, but we would be breaking ground on retrofitting existing coal plants.
The idea would be to partner with the private sector to create a backbone for a carbon dioxide, CO2, pipeline system. Basically, in that system, CO2 which would otherwise be emitted, is captured and is transported to where it could be injected into a well to help bring the oil up. In that way, there is a double benefit by getting more oil out of the ground while keeping the carbon dioxide in the ground.
[Translation]
Mr. Fauteux: I spoke earlier of the three Kyoto mechanisms and the international CO2 market that will be created.
The plan to which Neil MacLeod referred states that the Government of Canada intends to be active within that market and will examine the possibility of purchasing a minimum of 10 megatonnes' worth of permits and international emission credits per year during the first period. The plan also states that private enterprise in Canada is also keenly interested in this new international CO2 market and some corporations would like government help to access this market.
As is stated on slide 26 of our brief, we will analyze the possibility of cooperation between the government and the private sector through the creation of a partnership which will facilitate access to the international markets by Canadian corporations. We will also examine how we can make the surplus permits more ``green,'' something that requires an explanation.
I have told you about the mechanism for exchanging international permits and these involve permits for excess emissions within economies that are moving towards a market economy, namely Russia and other former Eastern European communist countries which, after 1990, experienced an economic downturn resulting in reduced emissions.
In 1997 they found themselves in the enviable position of having negotiated targets that were easy for them to meet, or which had already been met, resulting in a surplus of permits.
In its Climate Change Plan, the Government of Canada has stated that it will only consider buying these surplus permits if they are made ``green'' and promote the protection of the environment. They intend to do this by signing agreements with the countries through which certain amounts of money will be given to them to purchase surplus permits that will be reinvested in activities or projects to reduce greenhouse gas emissions and provide tangible benefits in the fight against climate change.
Finally, the government will analyze its purchase options on the international market, whether it be for surplus permits or for credits generated through projects riding out of the clean development mechanism or joint applications.
We will now move on to page 27 of our brief, which sets out the key instruments on which Canada's climate change plan is based. First we have the innovation and technology investments, and partnership funding with the provinces, territories, the private sector, aboriginal communities, municipalities, and non-government organizations.
The federal government has a number of ideas on what steps can be taken to reduce climate change but it does not hold a monopoly on ingenuity in this area and it wants to remain open to any new ideas that can encourage the civil society to establish partnerships in order to meet these objectives.
There is, of course, the approach taken with respect to the large industrial emitters, through contractual commitments and internal exchanges of emission permits. We have spoken about the international exchange of emission permits and, as Neil MacLeod as said, we are considering the creation of a domestic market in Canada.
There are also infrastructure investments. Mr. Manley's budget provides for additional funding for a strategic infrastructure program. It is understood that certain emission reduction projects could be funded through the strategic infrastructure budget and that the fight against climate change will become a criterion in the evaluation of any infrastructure project that might be funded by the government.
Finally, there is a whole series of targeted measures, namely incentives, regulations, tax and information measures, in the areas mentioned earlier by Mr. MacLeod.
[English]
Mr. MacLeod: If I may add to this, it is important that Mr. Fauteux mentioned these areas of targeted measures. They are not just what we envisage that we could do in the future but also what we have been doing in the past. To make existing building owners change their buildings so that they are more energy efficient and have fewer greenhouse gas emissions, we pay financial incentives to them. The more they would save, the more they would actually receive as an incentive. It is a scaled incentive with a cap.
Often, I am impressed by how little we have distributed our message on regulations. Few people know it but Canada has the strictest regulations for energy-using equipment in the world. People think that maybe some countries in Europe would exceed our strictness, but it is not so; Canada has the strictest regulations. Not only is it the law to use that kind of equipment in households, where we regulate about 80 per cent, but also in private business where we regulate up to 50 per cent. We have had cases where we have simply not allowed a piece of equipment into the country. Some gourmet appliances from Scandinavia were not allowed entry to Canada because they consumed too much energy. We sent them back.
We give a tax break to ethanol, with which you may be familiar. We also have a variety of information sources, and not just mailing out brochures. We work hand-in-hand with industry to set targets with them to reduce their emissions. It is important that senators are aware of these initiatives.
[Translation]
Mr. Fauteux: I am now on page 28, the second phase of the Climate Change Plan for Canada. It is necessary to better understand climate change so as to be better prepared and to adapt. This involves the scientific aspect, where we assess climate change impacts.
We must have a scientific understanding of what produces climate change. The impacts have to be understood in order for us to adapt. An example of adaptation would be the construction of infrastructures that are impervious to climate changes.
We briefly mentioned Budget 2003 which was tabled by the Minister of Finance last week. This is the next step in the implementation plan that was published last November 21. Last week's budget provides the additional funding that is required to implement the plan. This is only the most recent in a number of steps that will be necessary since climate change measures must be funded through to the end of the first commitment period in 2012.
The Budget provides for $2 billion over five years, with $250 million allocated to Sustainable Development Technology Canada, and $50 million to the Canadian Foundation for Climate and Atmospheric Sciences. The remaining $1.7 billion will be used in part for additional investments in longer term technologies, to the tune of at least $200 million. The rest of the Budget involves a series of measures that we have already discussed.
The Budget provides for new tax treatments for ethanol as well as new tax incentives for bio-diesel fuel. There has also been a change in the category of renewable energy and energy efficient equipment which will be eligible for accelerated capital cost allowances so as to encourage the use of renewable fuels. There will also be new funding for strategic and municipal infrastructures to support greenhouse gas emission reductions.
Over and above the $2 billion provided over five years, the Government of Canada now requires existing programs, including Technology Partnerships Canada, the granting councils and regional development agencies, to report on contributions they make to climate change objectives. These are not simply additional funds; this is a new mandate that is given to a whole series of government programs and agencies that will also be enlisted to combat climate change.
Over the coming months, my colleagues and I as well as many others will be involved in preparing submissions to Cabinet and Treasury Board so as to make this plan operational and ensure that the resources provided by the Budget will be put to good use.
We must prepare specific and cost effective cost-benefit measures. We want to achieve the highest emission reduction per tax dollar invested. We want the cooperation of the provinces and territories. The deputy ministers of the environment and energy are now touring the provinces and territories. We were in Quebec City last week, we will be travelling to Winnipeg on Friday, and over the coming weeks we will visit each of the 13 provincial and territorial capitals to discuss with our provincial and territorial counterparts their implementation priorities and determine how we can work together to maximize our efforts while respecting our mutual constitutional jurisdictions; in other words, we want to work together to achieve our emission reduction targets.
We must also ensure that all stakeholders, outside of government and industry, are just as committed; that means you and me, in other words, all Canadians, since each one of us contributes at least five tons of greenhouse gas emissions per year. That is why the Climate Change Plan for Canada is challenging all Canadians to reduce their individual contribution to the problem by 20 p. 100. This is what we call the ``one ton challenge'' that you will be hearing about in the media and government awareness programs over the coming months.
This plan will be renewed from year to year. In English, it is called the ``Evergreen Plan.'' This has not been set in stone for all eternity. Rather, it will evolve over the coming months and years. We will assess our successes and our failures since no one is perfect. We cannot guarantee that we will be successful at every level. We must learn from experience over the first two stages of the plan. There will have to be a retroactive action for additional measures in stage II and, of course, we must consider how we will fulfil stage III, that is, the 60 megatons for which decisions will have to be made over the next few years.
Finally, there will be accountability and transparency. In that regard, the plan provides for progress reports on meeting our Kyoto objective to be made public every two years.
[English]
Senator Spivak: There are a million questions here. If there is to be a trading of emissions internationally, who will supervise, and how will the ceilings work? How will this be monitored? The only plan I have seen which is working now is in California. It is working very well. How will this all be done?
Mr. Fauteux: As I explained, the Kyoto Protocol is unique in its robustness and its intrusiveness, and it will be monitored internationally.
Senator Spivak: Who will monitor it? Will it be the United Nations?
Mr. Fauteux: It will be monitored by the secretariat of the United Nations Framework Convention on Climate Change, the 1992 Rio convention, which begat the Kyoto Protocol. The secretariat is based in Bonn, and it has a highly competent international staff. The protocol itself sets up a system of third-party review, whereby the secretariat will be mandated to organize expert review teams and parties will be seconding experts to check the books of other parties. Thus, we are all assured that everyone is playing by the rules, and nobody is cheating.
Senator Spivak: Is there a system already in place to achieve that?
Mr. Fauteux: Absolutely. It is a detailed system.
Senator Spivak: Here is my first question: It has to do with large industrial emitters, who will have to reduce emissions by only 15 per cent, and pay no more than $15 a ton. Since the oil and gas sector accounts for about one- quarter of the emissions by large industries, and thermoelectricity production about one-third, how will you pick up the rest and what is the rest? Is that eight megatons? How will this be worked out?
Mr. Fauteux: As I indicated, and as you recalled, the plan requires large industrial emitters, in the aggregate, to contribute 55 million tons per year of emission reductions. That is a little bit more than half of the 100 megatons of total reductions in step two of the plan.
As you pointed out, an assurance was given to the oil and gas sector that they would not be required to reduce their emissions by more than 15 per cent below their projected business-as-usual emissions in 2010. There are two other sub- sectors of the large industrial emitters: thermal power generation, mostly coal but also oil and gas-burning power generation, and mining and manufacturing, which is the most diverse of the three sub-sectors. While no similar assurances have been given to thermal power generation and mining and manufacturing, as Mr. MacLeod mentioned, the 55-megaton aggregate reduction is itself a reflection of a 15 per cent improvement over business-as-usual emissions in 2010.
Given that the oil and gas industry has been assured that they will not be asked to do more, one possibility is giving the same assurance to mining and manufacturing and thermal power generation, so everyone would work at a 15 per cent improvement of business-as-usual emissions.
Senator Spivak: I am a little puzzled. Was it not supposed to be 96 megatons to begin with?
Mr. Fauteux: No, it was 55.
Senator Spivak: It was only supposed to be 55?
Mr. Fauteux: It was 55. The plan was very clear. That is the quantity assurance that the government gave.
Senator Spivak: Do you think, even with this reduction, that large industrial emitters can reach that target?
Mr. Fauteux: Exactly. The 15 per cent assurance does not call into question the 55-megaton aggregate reduction.
The Chairman: Has not another assurance been given to the automobile industry?
Mr. Fauteux: No. There was a lot of press about the automobile industry, and I think this was the result of a slow news day in early January, because there was no government assurance.
What happened was that when we defined large industrial emitters, we defined them on the basis of emissions intensity. That is the quantity of emissions associated with a unit of output, which is generally measured by, say, for every $1,000 of output, you are allowed so many emissions. Automobile manufacturing did not qualify because the process of manufacturing automobiles is not very emissions intensive. It is about 60 times less emissions intensive than the average emissions intensity of all the other industries that are included in the large industrial emitters sector.
The Chairman: Rather than getting some kind of dispensation, what they got was, ``You guys are not really a serious part of the problem.''
Mr. Fauteux: That is right.
Mr. MacLeod: I might add something there: Mr. Fauteux mentioned that the automobile manufacturers were 60 times less emissions intensive than the average. However, if you look at the emitters in the least intensive category, they are ten times less intensive in the automobile sector. Thus they would need to be ten times more intensive to meet the minimum threshold.
However, in dealing with the automotive industry, although the emissions from their internal operations were not sufficient to be in that category, a significant measure was named, in other words to increase the fuel efficiency of the cars that they produce. That will be a significant challenge for them to meet, so in no sense are they left off the hook. In fact, they have a lot to do.
Senator Milne: For clarification on this, may I interject here? I have to admit that as a physics teacher, I am confused when people say 50 times less or 10 times less. Ten times means ten times more. Do you mean one-tenth the amount of emissions or one-sixtieth the amount of emissions?
Mr. MacLeod: That is what we meant, yes.
The Chairman: That was not a physics teacher, it was a math teacher.
Senator Spivak: With regard to cars, there were a couple of problems with that that I remember from the last picture. That timetable for the reduction of emissions in cars had already been set some time ago. Are you talking about something additional? Also, will this mesh with the Americans? Have they agreed to reduce the emissions in their cars by that amount?
What about two-stroke engines, which the Minister of the Environment in his memorandum of understanding with the motor marine manufacturers said was going to be reduced?
The Chairman: That is a bootleg question, senator.
Senator Spivak: It is, but it is okay. Is that part of your plan, because two-stroke engines produce a great deal of emissions?
Mr. MacLeod: In fact, I will do the reverse order. These are often called off-road emissions from lawn mowers, outboard motors.
Senator Spivak: Yes, they have done that in California.
Mr. MacLeod: We are suggesting in the plan that we do have a major consumer initiative to actually address those. We do not know if that will be funded. It has not been funded yet.
Senator Spivak: About the cars, it seems to me that the emissions of the cars should be coming in 2003. No?
Mr. MacLeod: Your first question, the idea of making cars more fuel efficient was put in Action Plan 2000, but there was no number set for by how much we were to improve it. What we have decided now is that we will get 25 per cent.
That leads very much into your next question: What are the Americans doing? We have had a number of meetings with automobile manufacturers on this subject. Several things are important to note, I think. There is a standard in Canada for automobiles. It is called the company average fuel consumption, and has a similar name in the United States. They are identical right now. They are voluntary in Canada, but they are legally binding in the United States. It is important to note that, typically, we are talking about 25 per cent better than that standard. Cars sold in the year 2000, on average, were already 8 per cent better than that standard.
In the United States, the U.S. government has decided to proceed very cautiously, and there is a technical term, whose name I forget. They have issued an instruction to the Department of Transport to come up with a new regulation. They will be coming up with a new standard for light-duty pickup trucks of one and a half miles per gallon, U.S. Were the U.S. to do no more than that, and were they to apply that to cars as well, that would be an additional 7 per cent below the standard.
What is more important is that in the last six months, the automakers themselves, including General Motors, in major press releases have announced new technologies that they are putting into their cars that will give much bigger reductions. In an October 2002 press release, a new technology called displacement on demand says it will reduce the consumption by 10 to 20 per cent. It will be in 40 per cent of their cars within two years.
Senator Spivak: That corresponds with the production of oil and gas. I remember there was a problem with kickers. Was it MMT?
Senator Buchanan: MMT is fine.
Mr. MacLeod: That is a separate problem.
Senator Spivak: They felt that they could not introduce the additional reductions if the oil and gas were not appropriate for it. Do you know what I am talking about? I am not making myself clear. That is not a problem any more?
Mr. MacLeod: I do not believe so. I think the reference was to sulphur quality. Their press release in October was unequivocal. They said that this is coming in 2005.
Senator Spivak: What about the California standard, which will be in 2004?
Mr. MacLeod: Longer.
Senator Spivak: It is 2008. At one time it was 2002. They are looking at zero emissions.
Mr. MacLeod: They are looking at regulating CO2 emissions, which makes them a unique jurisdiction in North America.
Senator Spivak: Do they have a big enough market to force the car manufacturers to do that so that the rest of the country will follow suit?
Mr. MacLeod: They do not have to worry about that so much because we have had discussions with a few of the eastern states, including the State of New York, and they are very much in favour of going along with what California has done. They are basically waiting, because we anticipate a court challenge from the big three stating that the government does not have the right to do that. My guess is that that issue will be tied up in the courts for about two years.
Certainly, there is a strong will. New York is not alone. Many of the other eastern states — New Jersey, Massachusetts and others — are very enthusiastic about it.
The Chairman: But at the same time as the lawsuit is going on against California by both the federal government in the United States and the manufacturers, the manufacturers are scrambling to find a way to meet the standard in case they lose?
Mr. MacLeod: That is right. We do not base what we think can be achieved on some analysis we are doing in an office building in Ottawa, but on the analysis that the automobile manufacturers are doing in their laboratories.
The Chairman: Their success could overtake their lawsuit, theoretically, and obviate it?
Mr. MacLeod: It could make it numerically not necessary. They may have other reasons for pursuing it.
The Chairman: One more clarification of a question that you referred to. The standard to which automobile manufacturers are held allows cross-collateralization between all of their various models, does it not? It is a company average? That is to say, they can have a junk heap over here that is putting God knows what into the air, as long as they have something over here that is putting nothing in the air?
Mr. MacLeod: The averages base is weighted on the basis of sales. It has to be worked out so that if they are selling a lot of one type or model, that will be taken into account.
The Chairman: Can you briefly tell us what is the mechanism by which that is enforced? What is the penalty if they do not make it?
Mr. MacLeod: There are no penalties in Canada, because it is voluntary. In the United States, it is legally binding, and there are financial penalties. I believe that at least one manufacturer regularly does not comply, and considers making that payment part of doing business.
Senator Christensen: The more things change, the more they stay the same.
I am looking at your first chart on page four. In the 1900s to 2000, we see that little drop. Is that the result of the steps that were taken to save oil and energy during the 1980s?
Mr. Oulton: Actually, you are quite right. If you looked at our measured emissions in both Canada and the U.S from around the mid- to late-1970s through to about the mid-1980s, there were two things happening at that time: one was the Middle East oil crisis, which raised oil, gas and natural gas prices a great deal. Even though we had price buffering programs in Canada and the U.S, the price went up quite a bit at the pumps. That was part of the answer. There was also an economic recession caused by those changes, so the economies slowed down, and that, indeed, was part of it. The other part of it goes back to temperature changes, average climate changes at the time.
Senator Christensen: We had a very large energy efficiency program through the federal government in Canada during the 1980s. Many of the things we are talking about today, we were doing then. A lot of the things that happened, then, as far as building standards go, were carried through. Although they were not called R2000 until later on, still, the 'R' factor in building, all of the alternate energy strategies, were continuing. Yet we see that, all of a sudden, it just started going up.
We look at this picture, the line and everything, and we are talking about megatons. It almost sounds like science fiction. Down the road we can say: Last year we saved 5 megatons; next year we will save another 5 or 20 megatons. We have drawn a chart which we in government and all governments can draw. We then publish that chart and everyone says, ``We have saved 50 megatons this year.'' Who is counting?
Mr. Oulton: It goes back to the response give by Mr. Fauteux to an earlier question. There is in place a very rigorous United Nations system for all countries who are party to the convention, which includes ourselves and the U.S., who have ratified the convention. The protocol itself adds in some additional disciplines. When that becomes active, those will also kick in. The people who are watching are the international system managed by the United Nations with, as Mr. Fauteux noted, third-party review to ensure that there is integrity. We will report on what our emissions are, but we will be audited by others from outside Canada who will come here to ensure that our measurement systems have integrity to them.
The Chairman: In other words, you have to make a full, complete and honest report, and there will be United Nations inspectors here to verify that we have done that. Does that sound familiar?
Senator Christensen: Yes, and the moon is made out of cheese, too!
Mr. MacLeod: In addition, as those of us who are responsible for these programs deliver them, we measure everything that we do. I will refer to some of the programs from Action Plan 2000. There is EnerGuide for houses, where we financially assist homeowners to make energy efficient improvements. When we do that, we get all the data from every single house and we know how many tons are being saved, where they are being saved, how many improvements are being made and what it is costing.
I mentioned our standards program. We have an accelerated standards program. Basically, as we set the rate, we take the worst equipment off the market. It is no longer legal. We know the sales of all of this equipment, the motors and appliances, and we can measure the differences in electrical consumption and multiply that by the number of units. We keep track of all the tons as well. At the program level, we have built into the program delivery mechanisms; a way of monitoring and measuring the reductions we get from each level.
Senator Spivak: If you change from a standard efficiency furnace to a high efficiency furnace, does that information come through the person that sells it?
Mr. MacLeod: We have agreements with the industry, at the manufacturing level and the importer level.
Senator Spivak: They give you their information?
Mr. MacLeod: In fact, we do, therefore we know. We do things in partnership with them frequently.
The Chairman: Does the consumer know when he or she is buying one of those things? Is there a Good Housekeeping CSA seal that says you should buy this?
Mr. MacLeod: Yes, in two ways, senator. We have recently expanded from the usual kind of kitchen appliances to most appliances in the house. We have the EnerGuide label that has been around for years. It tells the consumer where the appliance fits on a scale of zero to 100, zero representing the worst and 100 the best. It lists the energy consumption of that appliance. We are enriching that from Action Plan 2000 by introducing what is called the Energy Star Program, which originated in the United States but has since become international. The Europeans, the Japanese and now Canada have it. The consumer can see right away what is the best in the class. They do not need to read a lot of labels. Right away, they will see the Energy Star label. Those have been our two approaches to informing the consumer, thus far.
Senator Christensen: We used to have the cost program, for example, replacing wood stoves and putting real burners in your furnace to reduce the amount of oil used, and so on. As a consumer, you were paid to do that. You would get back at least half of the cost, if not more.
Mr. MacLeod: I wish to summarize, generally, the shift that we have had from the days when we had COSP, the Canadian Oil Substitution Program and CHIP, the Canadian Home Insulation Program. Those programs were activity-specific. We want to increase energy efficiency and, therefore, reduce greenhouse gas emissions by whatever way that makes sense. We would like an improvement of a certain amount in the total energy consumption. If it makes sense for one person to do it with insulation, another to buy a different furnace or another to buy something else, then that is the approach we would take now rather than stating that consumers have to do either insulation or a furnace.
Senator Christensen: You have an audit program so that for a person who wants to do something like this, you could go into their house and do an air test and all the things that go with that. That would determine what is the best for you to reduce your energy use, is that right?
Mr. MacLeod: We pay about half the cost for the home assessment program: We pay about $150 and the homeowner pays another $150. An assessment takes a couple of hours. At the end of the day, the homeowner gets a list of all the improvements they could make, and they are listed in terms of the big bang for the buck. Afterwards, they can make the improvements that make most sense for them.
Senator Christensen: Do we have that program in place now? It was in place before.
Mr. MacLeod: Yes. It has been in place for four years.
The Chairman: The most wonderful program in the world, in place in my basement, does not do the slightest bit of good. Is there a marketing of this program? Do you think that people know that it is there, that they have easy access to it and that it costs $150?
Mr. MacLeod: We have marketing programs. We do this in partnership with local delivery agents as well. I do not do it myself; we have smart people doing it. We have marketing programs for all of them. What you may not see sometimes is it advertised in the same way. You are quite right. More marketing of these things would certainly help increase the uptake. That is something that the plan actually suggests we could do more of.
The Chairman: I hope that you will. The saddest thing in the world is the kind of program that we will be talking about, telling people, ``Here is what you can do to help,'' if they do not know how to access it, for example, through the Yellow Pages.
Mr. MacLeod: This is definitely a main topic for our Thursday morning meeting, as well as part of the one-ton challenge.
Senator Christensen: Could you go over, again, the issue of the automobile industry and the perceived break that they have been getting? I have received a number of letters on that particular issue. They have not received a break. It is just that, because of the energy that they use in order to actually manufacture the automobile in their plant — not manufacturing the steel that is going into the automobile or any of the other things — they would not necessarily fall under high enough emission to be caught in that category. Is that correct?
Mr. MacLeod: That is correct. Once again, their emissions intensity, which is their emissions compared to their output, is one-tenth of the next lowest on the list.
Senator Christensen: However, they are required, as an average, on the automobiles they are manufacturing, to have emissions reduction of a certain percentage?
Mr. MacLeod: The target for 2010 is that it will be 25 per cent below the existing standard.
Senator Christensen: As you well know, one of the myths that is out there is that they have not fallen under these restrictions because they are given credit for putting out lower emission automobiles. However, that is not the case.
The Chairman: The guy who builds the engine block and the guy who manufactures the sheet steel might fall into a different category than the manufacturer itself.
Senator Christensen: That is different, yes.
Senator Buchanan: First, I always like to know to whom I am talking and with whom I am dealing. David Oulton, are you a Cumberland County Oulton or a Sackville, New Brunswick Oulton?
Mr. Oulton: Sackville, New Brunswick.
Senator Buchanan: I knew it. I spent four years on that great Mount Allison University team.
Mr. MacLeod, are you a Prince Edward Island MacLeod or a Cape Breton MacLeod?
Mr. MacLeod: Unfortunately, senator, I am neither. My ancestors came to the Ottawa Valley in the mid-18th century, so the MacLeods have been here since John MacLeod came in 1768, I believe.
Senator Buchanan: There are many Neil MacLeods in both Cape Breton and PEI.
Mr. MacLeod: I have been there, and I noticed.
Senator Buchanan: I do not want to get into as much detail as did Senator Spivak. She knows much more about all of this subject-matter than I do. However, I am interested in one thing right now. We have here, in the statement of principles, that no region of the country should bear an unreasonable burden. One of the problems we are having in Nova Scotia right now is the fact that in Nova Scotia we still generate 80 per cent of our electricity from coal. I must tell you, though, that some of our generating plants are the finest, cleanest generating plants in the country, particularly the one we put up in the late 1980s, which is the first fluidized bed plant in Canada. It literally eliminated SO2. The others are certainly not as clean as that one at Point Aconi.
We do export at the present time about 500 million cubic feet of natural gas per day, partly to New Brunswick and mostly to the New England States.
Last fall, EnCana announced in Halifax that, because of the Kyoto accord, they will — not ``possibly may'' but will — be exercising some very severe cutbacks on offshore Nova Scotia development. EnCana has recently announced that they are putting on hold the newest Sable Island program. Of course, the story is out that that, too, is because of the Koyoto accord, and that it will affect them so seriously in Western Canada that they will look somewhere other than Nova Scotia for new development. They are not saying that directly, but the chairman did say last November that this could be a result. Having said that, we were to be exporting up to 1 billion cubic feet of natural gas within three years from the new Sable fields. That is now on hold.
What kind of trade-offs will we get in Nova Scotia as a result of this slow-down? Will we get credits to apply to our coal-fired generating plants as a result of the 500 million cubic feet of natural gas that we are now exporting to the States?
Mr. Oulton: I will not get too far into energy policy because it is no longer my area. It has not been the policy to negotiate specific credits for specific provinces or specific institutions. That is not the approach we have been taking.
On the other hand, both Mr. Fauteux and Mr. MacLeod were talking about the covenants approach to large industrial emitters that would affect the power generation part of the Nova Scotia equation. The emissions that come from offshore platforms as well as pipelines could also come under that approach. We are questioning how we can ensure that those covenants appropriately reflect the implications for the competitive position of the industries as well as the costs that flow through. That is not a blanket, ``Do not worry about it.'' Rather, we want to be sure that we understand the implications. We want to be able to negotiate with those sectors, such as power generation in Nova Scotia, an appropriate covenant that recognizes their opportunities to bring in new technology over time.
In the power business, new technology comes in big chunks, and it depends where one is in the investment cycle.
Senator Buchanan: Do you mean new technology to generate power? That has to be long-term.
Mr. Oulton: It is long-term but one must start somewhere. Mr. MacLeod alluded to opportunities for production of ethanol. Another opportunity is clean coal technology, which does exist. It is used in other countries now and the question is whether it can be adapted for Canadian coal. It is most prospective in Western Canada where it may be tried first, but not exclusively there.
I raise this because the question of dealing with Kyoto is not simply for the first commitment period — on average, 10 years down the road — but rather for the long term. When we negotiate our covenants, we will look at arrangements that make sense for the first commitment period as well as beyond the first commitment period.
As Mr Fauteux mentioned, we are holding bilateral meetings with the deputy ministers of individual provinces to find out about their areas of opportunity and concern. The federal government, in implementing its plans and using the resources of its budget, is best able to work with individual provinces. Nova Scotia, for example, has particular opportunities with wind. There are two projects already, and room to grow if the right regime is provided. That will not substitute, in 10 years, for coal-fired generation but one must start somewhere to build on each region's opportunities.
The intent is to use the covenants to set reasonable objectives within the first commitment period for the provinces that are emitting now. That forms a platform for later reductions. The federal government will also work with the provinces to find areas where both governments can invest in opportunities such as wind power and areas of energy efficiency.
Mr. MacLeod: Mr. Oulton hit the nail on the head by saying that this would primarily address the covenant approach at the industry sector level. There are ways in which we can cost-share joint activities with certain provinces. I was in Halifax last week talking with colleagues in the Nova Scotia government about the ``EnerGuide for Houses'' program. We would cost-share that program and expand it in the province of Nova Scotia because of the great interest there. There are extra things that can be done on an issue-by-issue basis.
Senator Buchanan: Do you believe that EnCana's slowdown or hold on further exploration offshore at Sable Island has anything to do with the Kyoto accord? They said last November that it does. I have all the speeches made by them at the Halifax Board of Trade.
Senator Spivak: Natural gas is good for Kyoto, rather than bad. I believe they had other problems which had to do with costs.
Senator Buchanan: Kyoto is an excuse, but I am asking the gentlemen the question.
The Chairman: Senator Buchanan is asking the witnesses.
Mr. Oulton: I do not have any information. I do not believe the Government of Canada has any information which allows us to look behind and second-guess EnCana. We do know what our experience has been with the industry since the fall, when we began to develop the covenants regime. The price ceiling alluded to earlier was $15 and there is, as well, the ceiling in the oil and gas sector with respect to the emissions total. Both of those ceilings have provided an environment in which companies and, in particular, oil sands, to use another example, have come back and said that this looks much more manageable.
I cannot say we have heard that yet from EnCana. A number of other things, according to the oil sands companies, are affecting investment — prices for gas, costs of input, through-the-roof engineering costs, labour costs and a whole variety of reasons.
I certainly would not second-guess EnCana; they should know their business best. Many things are affecting the pace of offshore activity. The government has been taking measures to outline how it will apply covenants. That should give more assurance to companies like EnCana and the oil sands operators.
Senator Buchanan: I am not saying that that is the reason they placed a hold on the new Sable projects. I am saying that, last November and December, in speeches made in Halifax, the chairman of EnCana made it very clear that, if there were a slowdown, they could blame some of it on the Kyoto accord. That is not because of what is happening offshore in Nova Scotia but because of what is happening in Alberta, primarily. Nova Scotians want to know if the slowdown is as a result of Kyoto or of other costs? They also have concerns about the development itself. I do not know.
Mr. Oulton: To be fair, it is very difficult to second guess a company that has its own costs and other profile, and say it is for this or that reason. Certainly, the information we have been getting since the beginning of the new year from the oil and gas industry in Calgary is not that the concern is all gone, but rather that this appears to be developing in a way that looks more manageable. They are not saying all of their concerns are gone but they are indicating that the way in which the government is approaching covenants is giving them more reassurance. We have seen some companies indicate that it is enough reassurance for them to start proceeding with projects about which they previously had been concerned.
The Chairman: To be more anecdotal, several companies in Alberta who said the same thing before ratification, and before the implementation became more clear — who said ``We may get out of here if Kyoto comes in.'' — have reinstated all their projects and are going ahead. I cannot talk about EnCana in particular, but other mega projects are going ahead.
Senator Buchanan: I hope that will happen offshore.
Senator Cochrane: I would like to go to slide 21, step 1. You have stated that there has been an investment of $1.7 billion made to the Climate Change Action Fund, the Energy Efficiency and Renewable Energy Action Plan 2000 and the Federation of Canadian Municipalities. This has already been done, has it not?
Mr. MacLeod: That is correct.
Senator Cochrane: Who has done the accountability and transparency overview on this investment?
Mr. Oulton: I want to mention two things as I answer the question. This money has been committed but it has not all been spent. Therefore, many of the programs — for example, I will use the $500 million under Action Plan 2000 — are just in the second year of implementation. They have spent probably less than 50 per cent and, in some case, probably about one-third of their resources. Many of these are programs that are still in their initial start-up stages. There are some mature programs; these were added on, and Mr. MacLeod can speak to those.
In terms of accountability, there is very clear accountability in reporting requirements that have been specified by Treasury Board. We will need to meet those requirements and report through to them. Indeed, these will come out ultimately through public accounts that will say, ``Here is how these measures have worked and here is what we are seeing in terms of results.'' For most of them, it is too early yet. Until you get to the third or fourth year, you are not in a good position to say ``This one is doing exactly what we expected.'' However, we did set out expectations in what we gave Treasury Board for each program, and we will be able to see whether these programs are producing what we expected once they start becoming mature, around their third year of implementation.
We also negotiated a provision with Treasury Board that said, under Action Plan 2000, if it looks as if some programs are not doing what we expected, and others are over-performing, we should be able to move money from a program that is under- performing to others that are performing better. We should be able to start looking at that in about the third year of program implementation.
From our perspective, there is a very clear mechanism for accountability, as well as an ability to use it for feedback. It is not just reporting out; it is also being able to act and use your money more effectively and efficiently.
The Chairman: That is not to say you can redirect all of this money, because some of this money has gone to places where it has been used.
Mr. Oulton: No, indeed. I was talking about Action Plan 2000, because that is the plan that is the foundation for most of that. When Mr. MacLeod alluded to the first step in 830 megatons and said 30 are from our sinks and 50 are from the actions we have taken, the lion's share of that 50 is from Action Plan 2000. A number of these funds have gone outside government for things like climate system science, understanding impacts and adaptation, and other things where tons is not the measure of success. Better understanding of how the climate works and what it means to Canada is the measure. That, indeed, is something we follow by looking at the studies that are being done and seeing how we can better incorporate them into our policy.
Senator Cochrane: Would you outline for us how this new partnership fund is structured?
Mr. Oulton: It actually does not exist yet. It exists as a concept. When you looked at the budget, it said that of the $2 billion set aside for climate change, $300 million was for outside foundations, and the $1.7 billion that Mr. MacLeod alluded to was for government programming. Looking at new government programming opportunities, one of the possibilities is to use that for partnerships with provinces, territories and the private sector. We have not yet settled on what is the best way to go about doing this.
The objective was to deal with the feedback we got from the provinces and territories, and from some of the stakeholders — industries and others outside — regarding Action Plan 2000. They said that often what happens in Ottawa is that we invest according to what we see as being the best opportunities, but they have opportunities in the provinces that they think they can access in partnership with us. Not all of the best ideas for reductions, to use the Washington term, are inside the beltway. We should be providing opportunities to take advantage of some of the ideas outside.
A lot of the things we are doing in energy efficiency and alternative energy, we do in partnership with industries, provinces and territories. Certainly, we will grant that there are others outside of Ottawa who can have good ideas. In looking at this partnership concept, we are trying to figure out what is the best way to put programs in place to activate the ideas that come from provinces, territories, industries or other interested groups on how to get reductions. Then we are able to pick them up and say ``Let us try to work with those. Can we lever some of your resources — your dollars or intellectual efforts — with ours in order to get reductions?'' That is the concept, but it is not real yet.
Senator Cochrane: Have you activated any discussion with the housing groups?
Mr. Oulton: There are many ongoing discussions with homebuilders and others.
Senator Cochrane: You mentioned R2000 homes, and that goes back to the 1980s. I know of a few of them back in my province that are energy efficient because that is the way they were built. However, it seems to me that that program did not go far enough. Are we reinventing the wheel again here?
Mr. MacLeod: I do not think so. It is interesting to note that there are R2000 homes being built — although not many of them. However, that program also had an impact on increasing the energy efficiency of all houses. As builders become trained in how to do it, they adopt many of these practices. We have year-by-year statistics, going back to 1945, for the average energy efficiency of new homes. When you look at that graph, it is steadily improving, as we would hope. However, the one place where it kicks up and there is a jump-start is around the late 1980s, which is just after the R2000 program had been around to create this wider training of builders to build these homes. The Builders Association attributes that to the R2000 program.
When the partnership fund is set up, it cannot be just a free-for-all for good ideas. We want to see those good ideas, but the federal government wants to have criteria that we can ensure are maintained. How many emissions reductions will you really get with that? How much will this really cost and what are the benefits? Those criteria will be transparent, and organizations such as the Canadian Home Builders Association, for example, if they had some ideas, they would be totally free to submit an idea to the partnership fund and it would be assessed with others at the same time.
Senator Cochrane: What time frame do you have for our Canadian system to be up and running?
Mr. Oulton: In essence, and this is treating your question broadly, if you remember that graph that I used as the second or third slide that had the Kyoto triangle, the so-called gap, it is not very far off between now and the beginning of the first commitment period. What that says is two things: One is that we will be following closely whether we really do have that 80 megatons because those are tons that we will get in that first commitment period, but we have to see whether our programs are effective enough to do that, and if not we have to start adjusting them fairly quickly. That is why this third year coming up will be important.
The second part is that, with the budget resources that were put out, it will be important for us to be able to get off the mark quickly. Those will not all be spent in one year, or even all committed. They will be committed over a period of five years. In order to get the momentum we need, we will have to start making decisive decisions, if you will, on what those programs will be, at least in the first year, in the coming months. That is an area where we are hoping we will have the opportunity to be allowed to frame proposals that ministers will be able to look at, at least for the initial tranche of programming for the initial year. In that way we can, in essence, get going. However, I ask you to remember that this is a long-term proposition, and we will be looking at wanting to use that resource effectively, so we will do it step-wise over time. As we find that we have programs that work, those are the programs that we can further extend or invest in, and if we find out that some do not work then we will have to look at new ways of doing that. Certainly, we will not be looking at making decisions on the whole 1.7 in the course of a couple of months or a year. It will take longer than that to frame appropriate recommendations.
Senator Cochrane: In regard to the R2000 homes, and building energy efficient homes, you are looking at companies, builders and so on. What about people who build their own homes? Is there any fund or partnership with which individuals can become involved?
Mr. MacLeod: The budget is less than a week old. Here in the plan that came out in November, there is a variety of possible things that can be done. We knew that these would not all get funded in this first budget. Indeed, in the way the budget is structured now, there is no money earmarked for this particular activity or that. Rather, there will be discussions over the weeks and months ahead over the fact that the Minister of Finance has set aside a certain amount of money for this kind of initiative. We have a whole variety of things to choose from. We have to decide which things will get funded.
There was a program in here, a possibility that was suggested, where we would start giving out financial incentives to those who do buy an R2000 home, and it would also apply if you built an R2000 home and lived it in yourself. That certainly is one of the possibilities for the use of those funds, but those decisions will be made in the months ahead.
Senator Milne: To come back to your chart on page 4 and the answer that you gave to Senator Christensen, I look at that little decrease there below the zero point and, if I can still draw straight vertical lines, that drop began about 1940 and ended about 1975. It pre-dates the high energy costs of the 1980s, and either that or the chart is not accurate. I can understand a drop in 1940 because gas was rationed at that point, during the war. My question is: What were we doing right between 1950 and 1975?
Mr. Oulton: I should caution you to just recall that the vertical axis is temperatures and not level of emissions, so it is average atmospheric temperatures.
Senator Milne: The vertical, if you draw a line straight up from the bottom, it is years 1900, 1950s, and 2000. What was happening that was correct there?
Mr. Oulton: What happened in the mid part of the 20th century were temperature changes, and we are talking now not about what we are doing necessarily — and I would not profess to be a climatologist, so we can that ensure you get a more accurate response to what it is that caused the trend in that period of time — but my assumption is that it probably was not related to human activity.
There are a variety of things in play such as volcanoes, for example. You get many emissions from volcanoes that cause atmospheric cover that can cause temperature changes, sometimes for a period of a year and sometimes for periods of more than years. I will not be categorical, but there are many environmental and climate-related factors that are not due to human factors but are simply due to normal cycles of climate. That is as far as my knowledge as a non- professional can take me.
Senator Milne: You are carrying on your projections as though there will never be any natural variations in climate again.
Mr. Oulton: Those projections are done by the UN, and by scientists for the UN, which are based on what they think are variations from what they would predict as being natural. They are saying that there is a baseline of what we think will happen due to natural events and due to natural climatic cycles. These are variations that we think will happen on top of that. This is added, if you will; added to what they are projecting. Again, it is not something I can be authoritative about because these are projections by experts who are at the UN that we have used as some of the basis for our being better informed about what the possibilities are. The range is quite large.
Senator Milne: Yes, I know that, but on the other hand you were answering Senator Christensen by saying that that spike was due to the high energy prices in the 1980s. It was not.
Mr. Oulton: I thought the portion of the graph that was being referred to was the 1980s, and in that one we did have some pretty good — not temperature measurements, but we knew what our energy consumption was in those periods, and CO2 emissions are pretty closely related to energy consumption. Those we knew about, and as an economist we could relate to those on the meteorological side.
Senator Milne: They are not reflected in this graph.
Mr. Oulton: Part of the problem is that this is not in fine detail. We are really interested in projections over longer periods of time.
The Chairman: To take a half step back from what you said a moment ago, you said that the projections on which you were basing all of this were variances from what would otherwise normally occur. This graph says that these are departures in temperatures from 1961 to 1990, on average. Those are different things. Which is it? They cannot both be right.
Mr. Oulton: It is departures from the 1961 to 1990 average used as a basis for trying to define what would be normal. They are trying to determine how we define what would be expected, and so they use that average.
The Chairman: Zero here is the 1961 to 1990 average?
Mr. Oulton: Exactly. They have said ``Let us measure what has happened that is different from that, and we will use that as a basis for looking at perturbations.''
Senator Milne: Coming back to the provincial and federal principles, the PT principles reflected in this plan, I notice that principle 10, which the feds agree with, is ``Pursuing recognition for growth in cleaner energy exports.'' In other words, they are getting credit for exporting cleaner energy. Yet the UN, which you say is being rigorous on this whole thing, has said definitely that they will not allow that. That is still in step 3, which seems to me to be the never-never land of the plan. You are counting on credits for clean exports. What kind of hope can you give us that there will be credits for this? Should there be credits for this?
Mr. Oulton: We would argue that there should be such credits. That is still the Canadian government's position. In reality, the likelihood of being able to get credits for the first commitment period, which is, as you noted, largely a fait accompli in terms of negotiations, is very modest. Therefore, when we looked at what things you could do, we put in a menu.
If you are asking for an observation on what is likely, that is not likely for the first commitment period, 2008 to 2012, that five-year period. We have said, though, that there is another round of negotiations coming up for the next commitment period, and that starts as early as 2006. Therefore, the issue of how Canada is treated with regard to our cleaner energy exports is something that we should be prepared to put back on the table, depending upon negotiations at that time.
We did not win that in the first round. It is unlikely that we will get any recognition of it in the first round, but in these negotiations there are always later rounds, and therefore there is an opportunity to come back. You are right in terms of being sceptical about whether it would help us in the 2008-12 period. No, we are not counting on it. We will have to use other things on that menu.
The Chairman: I have several questions. I will try to be concise and quick, and I would ask you to do the same, if you can.
Is there a timeline with Russia? This does not happen unless Russia signs on. Is there a timeline, or are we hanging here forever?
Mr. Oulton: There is no timeline where Russia has to respond within the course of this or next year. It is open- ended. The expectation is that they will come to a decision one way or the other in the course of this year. Some people believe that it could be as early as this summer, but there is nothing that says they have to.
The Chairman: Who, specifically, is negotiating the covenants with the various industrial sectors?
Mr. Oulton: There is an organization set up within Natural Resources Canada, in Mr. MacLeod's department, and that organization has been given the responsibility for leading those discussions. Howard Brown is the Assistant Deputy Minister in that group.
The Chairman: Covenant, in the sense that you are using it here, does not mean ``covenant'' in the normal sense of the word, in that it is not an undertaking that has any teeth attached to it. Am I right? It is, in effect, quasi-voluntary?
Mr. Oulton: ``Quasi,'' in a sense, is the right word. In the plan, it is referred to as a covenant with a backstop. If you look internationally, the Dutch and others have basically used a similar approach and have become quite good at it. ``Industry, we want to work out a voluntary arrangement with you. If we are not able to do so, and if we are not able to get a level playing surface so that all members in an industry are indeed being part of this covenant, then indeed we will use...,'' and there are a variety of tools. Regulation is the most common one alluded to, but it is not the only one.
One of the issues that indeed has to be discussed in the policy development is just what is that regulatory backstop. In order to be able to have a negotiation, you need to have something that says, ``Well, if you are not prepared to play, here is the kind of regime, regulatory, tax or otherwise, that you would be subject to.'' That is something that is still being developed.
The Chairman: We have just been through that. We are looking at a big stick behind our backs; our safety net, to put it another way.
I am proud to say that the province of Alberta is among those at the forefront of trying to find clean coal. Is there now any such thing as clean coal?
Mr. Oulton: There is not anything that is zero emission coal, although the coal industry, in the research it is doing, is looking at being able to come close to that, but that is probably a generation or two away in terms of technology. They actually have quite a good presentation on technology development. If we are talking in the context of our energy exports, it is probably better to talk about cleaner coal which can greatly reduce emissions from a coal plant. It does not reduce them to zero, but it is less dirty, if you will. Their technology ambitions are to make it truly clean.
Senator Buchanan: When you talk about clean emissions from coal-burning plants, are you still talking about SO2 or NCO2 or NSO2 or any or all of them?
Mr. Oulton: In the context of climate change, it is the CO2 that counts. In the context of the industry, though, when we are talking to industry — you will see this in the U.S. conversation, but it will be true in the Canadian covenants conversation as well — you need to make sensible policy that deals with all the emissions at the same time. While we refer to CO2, because that is the greenhouse gas focus we care about, the industry will say, ``No, you have to put in place a policy that deals with our overall environmental footprint, and that includes SO2 and NOX.''
The Chairman: You described the use of sequestered, usable, captured CO2 in strip wells when the first 25 per cent is gone and then you need to go back and get it out of the rocks. That exists already elsewhere. How close are we to putting that into place in Canada, and why do you think it is going as slowly as I think it is? Will some incentives be put in place for those people operating those strip wells to do that? I ask the question because some Canadian oil companies, for the purposes of their processing, are importing CO2.
Mr. Oulton: Exactly. A number of factors go into the question of whether it is cost-effective for industry. One of most important in Canada's context, though not always true in the U.S., is transportation. Frankly, where you produce an awful lot of the excess CO2 is in the North, in particular. Where you can use it is often in the South.
The Chairman: That is why you talk about a CO2 pipeline.
Mr. Oulton: Indeed. We see — and this is not the only issue, but a major issue in dealing with this substance for this particular use — is the need to start putting infrastructure into place, and therefore Mr. MacLeod's earlier comment about looking at funding within industry and at least getting the start of a CO2 pipeline backbone system into place.
The Chairman: That is not the only way to move it, though.
Mr. Oulton: It is not, but it is thought to be, if you have a continuous high-level demand, the most cost-effective way of doing it.
The Chairman: What are the incentives in place right now? If I am a developer and want to put up a new commercial building, why should I bother meeting the new codes? Are they enforced, or is it, ``Gee, it would be nice if you could do this''?
Mr. MacLeod: We have a program in place, which again I can talk more about on Thursday morning, called the commercial building incentive program. The most important group to deal with on this was the architectural community. We actually pay a financial incentive to designers of new buildings if they design a building that is at least 25 per cent better than this thing called the Model National Energy Code, and we have computer simulation software to measure all the changes there. It is modest, up to $70,000. Once again, the more you do, the more we want to give out, so we base it on whatever the energy savings is during one year, and we give double that amount as the incentive to make it happen. Again, we cap it so that the money actually goes around. Once again, that is encouraging the people who do the most, and we are getting some really interesting projects out of that. Some of these buildings that are coming up now are 60 to 70 per cent better than the Model National Energy Code. Some innovative things are happening, and we are trying to use this program to get them into the marketplace.
The Chairman: If I went to the average architect, would he know about that?
Mr. MacLeod: I cannot say that they all will. I can tell you that more know about it now because a big part of the expenditures in that program are actually targeted to the training of the architectural community and making sure they do this.
Senator Spivak: I have a question about current budget. The money that flows through the foundations is outside the scope of the Auditor General. I wonder if you think it would not be wise to add transparency to that. This budget is $2 billion, and I assume you want to know cost benefit. You want to know where the money has gone and its full effect?
The Chairman: Senator, I understand your question, and I would suggest it is inappropriate that we ask it of these witnesses. That is a question that perhaps should be asked in the context of the National Finance Committee. These witnesses have no influence, let alone control, over who audits whom. Is that fair?
Mr. MacLeod: I am not an expert in all of these arm's length funds, but I can tell you that the accountability and transparency is greater in some than in others. I will use the example of the Federation of Canadian Municipalities, which received at two different times the amount of $125 million. When the first $125 million was announced three years ago, in Budget 2000, I was very involved with the Department of Finance to set it up. Even though it is arm's length and the federal government cannot, by definition, be a major influence on how the monies are spent, we were very much involved in all of the criteria that were to be used to see which projects in which municipalities would be funded. We also ensured that even though we could not be a majority, we would be a minority on the council that makes the final decisions.
I sit on that council with four other federal government colleagues and ten members of the FCM, mayors and what not. We make these decisions two or three times a year. The books are all open. We understand that this is a concern. In areas where there has been new funding, we will probably be making some adjustments to improve the accountability there as well.
The Chairman: I will come back to Senator Spivak. There were two parts to your question.
That is almost program spending. However, some foundations receive money and the federal government is not represented. Those foundations may be excused from those sections of the Financial Administration Act that provide an intrusive special examination audit to which Crown corporations are subject. They may be subject to glaring scrutiny, but it is not the scrutiny of the Auditor General.
Mr. MacLeod: That is correct, it is not.
Senator Spivak: We have had this problem before. This might be a series of questions that is more appropriate when we have the minister appear. I quite understand that.
The Chairman: Are there further questions of the witnesses?
If not, I thank you, gentlemen, very much.
The committee continued in camera.