Canada and Kyoto - What's Next?
By:
Michael Mysak, MBA
Senior Project Manager, PHH ARC Environmental Ltd.
Patric Fancott, M.Sc., P.Eng.
Project Manager, Pinchin Environmental Ltd.
The Government of Canada released its Kyoto plan this week called Project Green – “Moving Forward on Climate Change: A Plan for Honoring Our Kyoto Commitment”1 as part of a broader initiative on environmental and economic sustainability. There still is uncertainty moving forward as we look to be headed towards a federal election soon, which could alter Canada’s approach to Kyoto. How did we get to this point and where are we going?
On February 16, 2005, eight years after its conception, the Kyoto Protocol came into force. Canada joins 144 countries representing 61.6% of the world’s greenhouse gas emissions in the effort to address global climate change. Canada is one of 36 countries in Annexe B of the Kyoto Protocol that have ratified and have legally binding emission reductions (the notable exceptions being the US and Australia). Canada has committed to reduce its greenhouse gas (GHG) emissions to 6% below 1990 levels over the period of 2008-2012.
We have been an active participant in international climate change negotiations and initiatives since ratifying the United Nations Framework Convention Climate Change (UNFCCC) in 1992 and the Kyoto Protocol in 2002, yet somehow we seemed surprised and flustered that Kyoto was actually here. Perhaps we secretly hoped that the deal would fall through and we could maintain the moral authority of having ratified Kyoto without going through the political and economic pain of meeting our commitments. Now that the deal is done, it’s worth looking at the magnitude of the challenge; the options available to Canada to meet its commitments and the potential impacts on Canadian businesses.
Canada’s total GHG emissions in 1990 were 609 megatonnes (Mt) and our target in the compliance period is 572 Mt (a 6% reduction). The latest official inventory 2 estimated emissions in 2002 at 731 Mt and our projected emissions in the Kyoto compliance period are 809 Mt. The difference between our target and the projected emissions, referred to as the “Kyoto Gap”, is 237 Mt. Recent projections have revised the Kyoto Gap to be between 270 and 300 Mt. How big is 300 Mt? Under the European emissions trading program, in mid-March 2005, emission units were trading at just over 10 Euros per tonne (about $16 Canadian). If Canada were to buy credits in Europe today to make up the 300 Mt, it would cost $4.8 billion per year. Recent World Bank Analysis3 suggests the price of a tonne of CO2e in 2010 will be $11 U.S. (+- 50%). The challenge for the federal government and industry is to find a more cost effective combination of domestic reductions, supported by domestic emissions trading, and lower cost credits using the flexible mechanisms under Kyoto. Many experts have noted that it will extremely difficult for Canada to meet it’s commitments without purchasing substantial credits on the international market.
What are our options? If every Canadian implements the One Tonne Challenge we will achieve 10% of our Kyoto Gap. The 2002 Climate Change plan for Canada outlined a three step plan to achieve 240 Mt of emissions reductions, which is now 270 Mt in the Green Plan. This plan was soft on regulation and strong on incentives and goodwill action and has not achieved the expected results in the timeframes anticipated. There have been significant delays in developing a regulatory framework for the Large Final Emitters, a domestic emissions trading program has yet to materialize, a vague off-set plan has been discussed but not details have not been worked out.
Under Project Green, the Large Final Emitters will be responsible for a significant portion of the reductions under Canada’s commitment, about 45 megatonnes (Mt), which was lowered from the originally proposed 55 Mt.
The Climate Fund (referred to as the Clean Fund in the Budget) is where the real meat of the Kyoto Plan lies and where the government hopes to secure up to 40% of our Kyoto commitment. Through the Climate Fund the Government of Canada will buy verified emission reductions from Canadian business and project developers. The fund will also have the ability to purchase international emissions reductions that support Canadian objectives. The fund requires that projects be approved by the government prior to generating emissions reductions and that all reductions must be verified in accordance with a process to be defined. The Kyoto Plan opens the door to a wide range of potential emission reduction projects which is good news for Canadian businesses who can receive a financial reward for climate friendly actions. More detailed rules for the Climate Fund are expected in the coming months. The initial fund commitment is $1 billion but is forecast to be as high as $4-5 billion by 2012.
The other elements that are incorporated into the Plan include 40 Mt for Reduction Programs such as energy efficiency and fueling switching, 30 Mt for Carbon Sinks, which include afforestation and agricultural practices, and 15 Mt from new renewable energy initiatives, including wind power, solar, small hydro and biomass.
What should businesses do now? If you don’t know if you fall into the category of LFE, you should find out immediately because you may have emissions reporting obligations and be obligated to meet emission reduction targets.
It is difficult to know what will happen next with Canada’s Kyoto plan or its participation moving forward. The Conservatives have said in the past that they will get Canada out of Kyoto, but one wonders if we have gone to far (commitment-wise) to withdraw now. Many large companies have invested significantly based on the expectation of Canada’s commitments. The Conference of Parties (COP), which are all the countries that have ratified the Kyoto Accord, are planning to meet in Montreal in December 2005. Also, a Canadian, Ms. Sushma Gera, was recently appointed Chair of the CDM Executive Board, which oversees the CDM methodologies. Further uncertainty and delay in taking action could only set Canada further back, behind most other major industrialized nations in progress on emissions reduction.
The Pinchin Group has personnel who have been involved with emissions monitoring and reporting, strategy development, and CDM project development. We are aligned with international partners with strong experience on capacity development and project development utilizing the flexible mechanisms of the Kyoto Protocol. If you have any questions about your obligations or potential opportunities uner Canada’s Kyoto Plan, please contact Patric Fancott, M.Sc., P.Eng., at pfancott@pinchin.com or Mike Mysak, MBA, at mmysak@phharcenv.com.
References
1 Government of Canada. April 13, 2005.
http://www.climatechange.gc.ca/english/newsroom/2005/plan05_Bgrounder.asp
2 Environment Canada, Canada’s Greenhouse Gas Inventory 1990-2002, August 2004
3 PCFplus Report 19, prepared for World Bank Carbon Finance Business PCFplus Research program by Erik Haites, Margaree Consultants, June 2004. |