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37th PARLIAMENT, 3rd SESSION

Standing Committee on Environment and Sustainable Development

EVIDENCE

CONTENTS

Wednesday, March 24, 2004

1535

The Chair (Hon. Charles Caccia (Davenport, Lib.))

Mr. Matthew Bramley (Director, Climate Change, Pembina Institute)

1540

The Chair

Mr. Matthew Bramley

The Chair

Mr. Matthew Bramley

1545

1550

1555

The Chair

Mr. Bernard Bigras (Rosemont—Petite-Patrie, BQ)

Mr. Matthew Bramley

1600

Mr. Bernard Bigras

Mr. Matthew Bramley

1605

The Chair

Mr. Joe Comartin (Windsor—St. Clair, NDP)

Mr. Matthew Bramley

Mr. Joe Comartin

Mr. Matthew Bramley

Mr. Joe Comartin

Mr. Matthew Bramley

The Chair

Mr. Joe Comartin

The Chair

Mr. Joe Comartin

The Chair

Mr. Paul Szabo (Mississauga South, Lib.)

1610

Mr. Matthew Bramley

Mr. Paul Szabo

Mr. Matthew Bramley

Mr. Paul Szabo

The Chair

Hon. John Godfrey (Don Valley West, Lib.)

Mr. Matthew Bramley

1615

Hon. John Godfrey

Mr. Matthew Bramley

Hon. John Godfrey

Mr. Matthew Bramley

Hon. John Godfrey

The Chair

Hon. John Godfrey

The Chair

Mr. Bob Mills (Red Deer, CPC)

The Chair

Mr. Bob Mills

Mr. Matthew Bramley

1620

Mr. Bob Mills

Mr. Matthew Bramley

Mr. Bob Mills

Mr. Matthew Bramley

Mr. Bob Mills

Mr. Matthew Bramley

1625

The Chair

Mr. Julian Reed (Halton, Lib.)

Mr. Matthew Bramley

1630

Mr. Julian Reed

The Chair

Mr. Roy Bailey (Souris—Moose Mountain, CPC)

Mr. Matthew Bramley

Mr. Roy Bailey

Mr. Matthew Bramley

Mr. Roy Bailey

Mr. Matthew Bramley

The Chair

Mr. John Herron (Fundy—Royal, PC)

Mr. Matthew Bramley

Mr. John Herron

1635

Mr. Matthew Bramley

Mr. John Herron

Mr. Matthew Bramley

Mr. John Herron

The Chair

Mr. Matthew Bramley

The Chair

Mr. Matthew Bramley

The Chair

Mr. Matthew Bramley

1640

The Chair

Mr. Matthew Bramley

The Chair

Mr. Matthew Bramley

The Chair

Mr. Bernard Bigras

Mr. Matthew Bramley

1645

Mr. Bernard Bigras

The Chair

Mr. Bernard Bigras

Mr. Matthew Bramley

The Chair

Mr. Joe Comartin

Mr. Matthew Bramley

1650

The Chair

Mr. Matthew Bramley

Mr. Joe Comartin

Mr. Matthew Bramley

The Chair

Mr. Matthew Bramley

The Chair

Mr. Bob Mills

Mr. Matthew Bramley

Mr. Bob Mills

Mr. Matthew Bramley

1655

Mr. Bob Mills

Mr. Matthew Bramley

Mr. Bob Mills

Mr. Matthew Bramley

Mr. Bob Mills

The Chair

Mr. Bob Mills

Mr. Matthew Bramley

The Chair

Mr. Paul Szabo

1700

Mr. Matthew Bramley

The Chair

Mr. Julian Reed

1705

The Chair

Mr. Matthew Bramley

The Chair

Mr. Roy Bailey

Mr. Matthew Bramley

1710

The Chair

Mr. Bob Mills

The Chair

1715

Mr. Joe Comartin

The Chair

Mr. Joe Comartin

Mr. Bob Mills

Mr. Joe Comartin

Mr. Bob Mills

Mr. Joe Comartin

The Chair

Hon. Serge Marcil (Beauharnois—Salaberry, Lib.)

The Chair

Mr. Julian Reed

Mr. Bob Mills

Mr. Julian Reed

The Chair

Mr. Paul Szabo

1720

The Chair

Ms. Anita Neville (Winnipeg South Centre, Lib.)

The Chair

CANADA

Standing Committee on Environment and Sustainable Development

NUMBER 008

3rd SESSION

37th PARLIAMENT

EVIDENCE

Wednesday, March 24, 2004

[Recorded by Electronic Apparatus]

¹ (1535)

[English]

The Chair (Hon. Charles Caccia (Davenport, Lib.)): We have a quorum.

[Translation]

First off, I want to welcome our witnesses, Mr. Bramley and Ms. Whitmore.

[English]

The Pembina Institute has a very fine record, and we're very glad to have you.

The practice in this committee is to invite you to make about a ten-minute presentation, so as to allow then for one or two rounds of questions, if that is agreeable with you, so that we get also a good discussion on the current situation regarding Kyoto in your findings, which are extremely important and useful in guiding also decisions here on the Hill.

[Translation]

You have the floor, Mr. Bramley.

[English]

Mr. Matthew Bramley (Director, Climate Change, Pembina Institute): I'd like to thank the committee and the chair very much for the opportunity of speaking to you today.

[Translation]

Thank you, Mr. Chairman, and thank you, committee members. I will be making my opening remarks in English, but I will be delighted to answer any questions in French later on.

[English]

Regarding the Pembina Institute I won't say very much, other than that we are among Canada's largest and most prominent environmental NGOs working on the climate change issue. We have in particular had a focus for many years on emissions trading of greenhouse gases. I'd be happy to answer any further questions about the institute after my presentation.

I like to describe the federal policy on large final emitters, as they are called, as the centrepiece of Canada's Kyoto plan. I think it's fair to say that if the government gets this policy on large final emitters right, we will be well on the way to meeting our Kyoto Protocol obligations. If we get this policy wrong, Canada will be very far indeed from meeting those obligations.

What I'm going to do is start by explaining why large final emitters are so important to Canada's implementation of the Kyoto Protocol and why this issue needs attention now. I will say a few words about what the large final emitters system the federal government is envisaging actually consists of and how it would work. Then I will describe a number of important potential loopholes that threaten the environmental performance of this very important piece of the federal Kyoto plan.

Large final emitters are major industrial facilities. They are, according to the definition the federal government is using, projected to emit some 44% of Canada's total greenhouse gas emissions in 2010, according to the so-called “business as usual” projection. Clearly this is the single largest portion of Canada's greenhouse gas emissions, nearly half the national emissions, and obviously the policy to address those emissions and to reduce them is going to be a very major component of our Kyoto implementation plan.

Indeed, the federal government has recognized this. In the Climate Change Plan for Canada, published in November 2002, a system of regulated emissions targets with emissions trading--and I will explain that in a little more detail--for large final emitters is by far the single largest component of that plan. In fact, of a total emissions reduction of 240 megatonnes in Canada's annual emissions, of that total reduction needed to comply with the Kyoto Protocol, the plan allocates 55 megatonnes specifically to this system of targets for large final emitters. So it is, by far, the single largest component of the federal Kyoto plan.

Not only is that the case, but if one looks at how emissions from Canada's industrial sector have evolved over the past many years, Canada's industrial greenhouse gas emissions have risen more rapidly than the national total since 1990. Canada's industrial emissions, as a whole of greenhouse gases, rose by 23% between 1990 and 2001. Within the large final emitters category, the two largest sectors are electricity generation and oil and gas production and distribution.

Electricity generation represents 19% of Canada's national emissions. Those emissions from electricity generation rose by 44% between 1990 and 2001. These are official figures from Canada's greenhouse gas inventory. Emissions from oil and gas production and distribution rose even more rapidly, by 50% between 1990 and 2001. So clearly it's critical to put in place an effective policy to address emissions from large final emitters.

Why do I believe opinion leaders generally and members of Parliament in particular should be paying attention to this issue now?

¹ (1540)

Officials at Natural Resources Canada are currently preparing drafting instructions for legislation with a view to that legislation being tabled in Parliament as early as the latter part of 2004, and officials are readying themselves for cabinet to look at those drafting instructions as early as this spring.

The government, through Natural Resources Canada, which is leading this file, has already made a number of promises to industry. It has made a number of agreements with particular industry sectors or companies on particular elements of the large final emitters system. This has essentially been taking place behind closed doors. We're talking about a system of emissions targets. Very few of the numbers that those targets would be are in the public domain, so all kinds of discussions are taking place on potential targets for different industry sectors, and there is great difficulty for anyone who is outside government or the industry sectors involved to have a sense of what those numbers are.

A very important point is that as far as one can tell about the shape of this system as it is currently envisaged from materials the government has made public, there are several potential loopholes that if allowed would considerably reduce this system's contribution to meeting Canada's Kyoto target. Those 55 megatonnes of reductions that the system is supposed to deliver, again, the single largest element of the federal Kyoto plan, would be undermined by this series of potential loopholes. I will come back to a description of some of those loopholes in just a moment.

First, what is the system? I've said it's a system of emissions targets and emissions trading. It would cover some several hundred major industrial facilities across Canada and it would require new federal legislation to give the government authority to regulate targets for greenhouse gas emissions from these facilities. The targets would be set for the Kyoto Protocol commitment period, 2008-2012, by regulations adopted under the legislation.

Companies would be able to meet their targets either by reducing their actual emissions or by purchasing emissions permits or emissions credits, which essentially represent emission reductions achieved by other emitters.

The Chair: How about conservation?

Mr. Matthew Bramley: Conservation at the demand side--

The Chair: Or is it implied in--

Mr. Matthew Bramley: The system as it is proposed is a system of so-called emissions-intensity targets. Emissions intensity is emissions per unit of production. This means that government measures to reduce consumer demand for energy, for example, would not be directly covered by the system. They would be covered by so-called targeted measures, which would be other government policies that are intended to secure emission reductions over and above the 55 megatonnes from this system.

In the government's plan, the Climate Change Plan for Canada, there's a whole series of other policy initiatives that are outlined, some of which address conservation and are over and above the 55 megatonnes. Setting the targets in this emissions targets and trading system, setting them at the right level and ensuring that those targets are met, is in many ways an accounting issue. What we're talking about here is emissions accounting.

There's quite a straightforward analogy to be made with financial accounting. As is well known, there are many ways in which financial accounts can be less than straightforward and in which loopholes can appear when financial accounts are based on less than rigorous accounting. One undermines the real financial gains that have been delivered at the end of the day. It's the same thing with emissions accounting. If there is a lack of rigour, or loopholes, in emissions accounting, one ends up with fewer real emission reductions at the end of the day.

I'm going to describe briefly three potential loopholes in this system for large final emitters. If any one of these loopholes is allowed in the system in its final form, that system will deliver significantly fewer emission reductions than the government has committed to in the Climate Change Plan for Canada, and every emission reduction that the large final emitter system fails to deliver is a reduction that the government and taxpayers will have to find elsewhere.

Canada's Kyoto target is fixed, it's set in absolute emissions, and if through this policy for large final emitters, representing nearly half our emissions, we fail to secure the reductions the government has committed to, those reductions will have to be found elsewhere and the burden will fall on the public sector to do that.

I will describe some of these loopholes briefly. There is limited time, I know, for these initial remarks and I'd be very happy to elaborate on any of them in the question period.

First of all, the Climate Change Plan for Canada is cast in terms of emission reductions below a business as usual projection of where Canada's emissions would be in 2010 if government was not implementing the Kyoto Protocol. The business as usual emissions projection that the Climate Change Plan for Canada is based on has never been published. An earlier version has been published, but the version that creates this 240-megatonne gap, which is what we have to close to comply with Kyoto, has never been published.

Currently my understanding is that officials at Natural Resources Canada are in discussions with industry subsectors as to what the correct business as usual projection is for each of those subsectors. There is a risk that many industry sectors will argue that the correct business as usual projection for their sector is higher perhaps than the government believes it is.

This means we could end up with a situation where, under pressure from industry, government agrees to increase the overall business as usual projection of emissions. If that happens, we may still have a 55-megatonne reduction, but it will be a reduction from a higher starting point and there will be an extra burden created for the public sector, for the government, to comply with Kyoto.

Officials at NRCan assure me the government is going to stick to this current business as usual projection, but clearly, given that these numbers are being discussed behind closed doors with the industry sectors involved, the government is under pressure to increase that projection. I'm not hearing sufficiently reassuring signals that this will not happen. That's the first loophole.

¹ (1545)

The second loophole speaks to a point that you began to raise, Mr. Caccia, regarding policy initiatives outlined in the federal Kyoto plan that are intended to reduce the emissions of large industrial emitters, but which are over and above this 55 megatonnes from this policy.

We have to ensure that the targets are set in this emissions targets and trading system in a way that ensures that those other policy initiatives deliver reductions that are additive to the 55 megatonnes from the system.

I'll give you an example. There is a program called the Canadian industry program for energy conservation. The federal government, in a number of publications, has attributed numbers of megatonnes of reductions to that program. Those need to be over and above the megatonnes that are coming from this large final emitter system. But everything I've seen from the group at Natural Resources Canada suggests that there is likely to be a double counting of emissions from programs like the Canadian industry program for energy conservation.

My third point is that the government has said it will be prepared to negotiate easier targets for certain companies or certain sectors who can make a compelling case that they have issues with, for example, competitiveness or that they have taken early action to reduce emissions. Clearly, if the government agrees to easier targets for some players, there have to be tougher targets for someone else, to ensure that the total still adds up to 55 megatonnes. In other words, there needs to be some kind of true-up or scaling up of the overall set of targets to ensure that they still add up to the 55 megatonnes. The government has discussed this a little bit in a couple of its discussion papers that have been published, but again, there is not a clear signal coming that there will be that true-up to ensure that the targets add up.

I'm coming to the end now. As I've said, the targets in this system will be set in terms of emissions intensity. What this means is that if a company's emissions increase because its emissions intensity increases—its emissions per unit of production increase—then the company is liable under the system. But if its emissions increase because its production has increased, it has no liability. Its targets are, in a sense, adjusted upwards to account for its higher production. What this means is that if overall production from large final emitters is higher in 2010, or in the Kyoto period, than the government is expecting, the system will deliver less in terms of absolute emission reductions than that 55 megatonnes.

Now, there would be a way of putting some limits on that, by maybe putting some limits around those emissions-intensity targets, perhaps allowing them to be adjusted if production were much higher than expected.

The final loophole I'm going to describe now is another double counting issue. Again, these are largely accounting issues.

The Climate Change Plan for Canada lays out a whole series of policy initiatives across the economy, for example, in the area of energy use in buildings, or in transportation, or in agriculture. It is proposed that so-called offset credits be granted for emission reductions from projects in, for example, agriculture. Those credits would be sold to large final emitters who could use them to meet their targets. The problem is that if the government has already committed to achieve a certain number of reductions from a sector like agriculture, then every time it grants an offset credit, that credit or reduction becomes part of the 55 megatonnes and cannot be counted towards the reductions that have already been committed for agriculture, in my example. So you have an issue with double counting there. Again, there is currently no clear assurance that this will not happen.

The briefing note—which I think has been distributed to members of the committee—outlines five other potential loopholes, which I don't have time to get into now, but I'd be very happy to answer questions on them.

I would just close by saying that what I think is lacking at the moment is a clear and specific ministerial commitment to close each of those loopholes. My understanding is that this system was discussed by cabinet in June, I think, of last year. I have no idea whether there has been any further discussion at the ministerial level. To some extent, officials are developing the system in quite some detail, and I think that without that clear direction from ministers, then certainly the risks I've identified of these loopholes continuing to exist remain.

¹ (1550)

In conclusion, I'd like to thank the committee for giving attention to this issue, and I would certainly welcome your questions and comments.

¹ (1555)

The Chair: Thank you, Mr. Bramley, for the insight you are bringing to the committee today.

Perhaps without delay

[Translation]

Mr. Bigras will go first, followed by Mr. Comartin.

Mr. Bernard Bigras (Rosemont—Petite-Patrie, BQ): Thank you, Mr. Bramley. The proposed system is complex, to say the least. Everyone is in agreement on that score. In my view, we need to monitor very closely the measures that will be taken within the framework of this bill. Again, I ask that we call Assistant Deputy Minister Brown to have her explain to us the direction of the bill, or the proposed plan of action, whether it's in a draft state or not. We'd then have some idea of the various loopholes that have been identified to us today.

Loophole number 4 in particular gives cause for some concern owing to the fact that the government is proposing to set targets in terms of emissions intensity, whereas Kyoto calls for evaluating emissions. Consequently, what steps should we be taking to ensure that the system put in place in Canada truly enables us to meet our international commitments in this area?

As I see it, the danger lies in having two parallel systems in place where ultimately, reductions in greenhouse gas emissions would not satisfy Canada's international commitments. What more can you tell us about the target set in terms of emissions intensity, rather than in terms of the Kyoto Protocol targets?

I have another question as well. I understand what you're telling us today. However, the situation is rapidly evolving. We know for a fact that automobile manufacturers were excluded from the large emitters category and that the Minister of Natural Resources undertook, by way of a letter of intent, to limit any increase to 15 per cent. The manufacturing sector has not been exempted and yet, between 1990 and 2001, emission levels in this sector increased less than 10 per cent.

We have made certain commitments and we have exempted certain sectors of industry which fall into the category of large greenhouse gas emitters - I'm thinking here about hydrocarbon production, an area that has seen a 50 per cent increase in greenhouse gas emission levels - without working out any kind of agreement with them, written or otherwise. Yet, the manufacturing sector has taken steps to reduce emission levels. Are we not running the risk of creating distortions, or loopholes, in the system?

Mr. Matthew Bramley: To respond to your first question, yes, the government does intend to set emissions intensity targets. What that means is that if the overall production levels of the large emitters end up being higher than the projected levels, the reduction in emissions secured by the system will be less than 55 megatonnes and the government will be forced to look elsewhere for reductions. The burden is being shifted from large final emitters to the government, and by extension, to the taxpayers. That is indeed cause for some concern, because LFEs have limited responsibility. However, there is no limit in so far as this loophole is concerned.

I have advanced the following proposal: if we agree to have a system based on emissions intensity targets, then the rules according to which these targets are set must allow for the possibility of adjusting these target levels. For example, if a company's overall production exceeded projections by 20 per cent, the regulations could allow for emissions intensity targets to be adjusted. I've suggested this on two or three occasions, but I don't think the government has really taken the suggestion to heart.

I should also mention that the European Union is in the process of implementing an emissions trading system as well. The European system will operate according to absolute emissions levels. The EU has opted for a different approach.

A question was raised about the target agreed to for the petroleum sector. In a letter dated December 18, 2002, Minister Dhaliwal undertook, on behalf of the government, to accept a 15 per cent target in terms of emissions reductions for the petroleum sector. It's important to understand that this approach...The government appears intent on setting the same 15 per cent emissions intensity reduction target for all sectors. From the standpoint of fairness, this approach is problematic because, as we've already noted, emissions in the oil sector have already increased dramatically and will undoubtedly continue to do so until the year 2010.

Therefore, to use the year 2010 as a target date for achieving emissions reductions benefits those sectors that are seeing an increase in overall emissions levels, as well as sectors that are slower to achieve emissions intensity reductions, or even those where emission intensity levels are rising. In the oil sector in particular, we are increasingly seeing a shift from conventional oil to oil extracted from tar sands, and hence to an increase in emissions intensity.

As far as the automobile sector is concerned, Minister Anderson has already stated publicly that the plan was to exclude the industry from the large emitter category in exchange for demanding that the sector increase product efficiency. The federal plan also calls for a 25 per cent increase in vehicle efficiency ratings.

º (1600)

Mr. Bernard Bigras: When I look at loophole number six, namely giving credits for business as usual, that is for conducting R&D, it seems to me that this has become the new Canadian policy for addressing climate change issues. Take yesterday's budget, for instance. Instead of allocating funds to cut emissions at source, the government is attempting to adopt a strategy that calls for investing in R&D. Ultimately, however, this approach will have little effect in terms of reducing greenhouse gas emissions at their source. Therefore, I have to wonder if loophole number six in fact reflects a policy the aim of which is ultimately not to reduce greenhouse gas emissions, in order to achieve the Kyoto targets, which must be met sooner.

Don't you think this kind of loophole only delays having to address the problem until after the Kyoto timetable?

Mr. Matthew Bramley: In the case of this particular loophole, the government is proposing to give the equivalent of a one tonne credit for the Kyoto timeframe, but this would not correspond to a true reduction in emissions during the actual Kyoto period. It amounts to a kind of banking of future reductions. In so far as environmental responsibilities are concerned, this is not a course of action we can take, so again, we're seeing a shift in responsibility away from private emitters to the government which in turn, will need to achieve real reductions in order for Canada to meet its Kyoto commitments.

º (1605)

[English]

The Chair: Thank you, Mr. Bigras.

Mr. Comartin.

Mr. Joe Comartin (Windsor—St. Clair, NDP): Thank you, Mr. Chair, and Mr. Bramley, thank you for being here.

Just in terms of further follow-up here, who is responsible in Natural Resources for these negotiations? At what level of officialdom is the negotiation carried on?

Mr. Matthew Bramley: The work at Natural Resources Canada is being led by Howard Brown, who is the assistant deputy minister for large final emitters. His responsibilities have recently been enlarged to include other parts of the energy sector at NRCan.

That being said, my understanding is that the commitment made to the oil and gas sector in the letter from Minister Dhaliwal in December 2002 was made at a much higher level in the government. Indeed, there was also a letter from the former prime minister to the petroleum producers in July 2003 that also made commitments regarding the system.

Work on the details is being led by the assistant deputy minister, but for certain elements there have been higher-level interventions.

Mr. Joe Comartin: In terms of these negotiations going on behind the scenes, is there any reason--I'm thinking of business confidentiality, business secrets, and commercial interests that need confidentiality to protect their business interests--we are hearing that as the excuse for why it's not being done in public?

Mr. Matthew Bramley: Well, yes. Officials have often said to me that this is a negotiation between government and industry. It's a negotiation that has two parties and you can't negotiate in a broader sense.

In response to that, I make a distinction between negotiations of specific numbers on the one hand and more general questions of the design of the system. I think I would include in that latter category at least some sense of the numbers that are being talked about. With the exception of the electricity sector, we don't have any sense of the numbers being talked about at all.

And these agreements are being made. Some of them have already been made. Perhaps next week it will be too late to change some of these numbers that will have already been fixed.

Mr. Joe Comartin: I'm jumping over to the experience in the European Union when they went through trying to meet their requirements under Kyoto. Is there a model there? Were they faced with the same thing, negotiations carried on and agreements reached behind closed doors?

Mr. Matthew Bramley: What is happening in the EU at the moment is that there has been an EU directive that creates the emissions-trading system at the EU level. Each country, each national government, produces a so-called national allocation plan. That allocation plan is what sets the specific targets for each sector within each country, and that is happening in a different way in each country.

I do know that the United Kingdom established its own greenhouse gas emissions-trading system a number of years ago. It began operating fully in April 2002. One technique that was used there to set targets was actually a form of auction. They kind of auctioned off the targets to the highest bidder, as it were, which was one approach to achieving a set of targets. I'm not necessarily advocating that.

There were also negotiations. I honestly don't know to what extent those were open.

The Chair: Thank you, Mr. Comartin, unless you're meditating on your next question.

Mr. Joe Comartin: I was looking to ask another question but trying to figure out how to frame it.

The Chair: A brief one, please.

Mr. Joe Comartin: I'll come back in the next round.

The Chair: Thank you.

Mr. Szabo.

Mr. Paul Szabo (Mississauga South, Lib.): I will ask just a couple of questions.

Mr. Bramley, you have raised serious concerns about the credibility of the ultimate reductions of the large final emitters. This is quite disturbing, quite frankly, because I believe all stakeholders, all those who are interested in meeting our commitments under the Kyoto accord, would presume that any plan was verifiable, auditable under all the criteria.

What you're suggesting to me is that there is the spectre of loopholes that could get around any checks and balances that would be in place. I don't understand how that can be. Can you explain?

º (1610)

Mr. Matthew Bramley: In terms of Canada's international reporting, there's no way we can really cheat on our compliance with Kyoto. We have to produce a national greenhouse gas inventory in a transparent way.

The problem is domestic. It's how the government puts together a series of policies that deliver the reductions we need for Kyoto. We're talking about accounting for those policies internally.

Clearly, if those policies fail to deliver reductions that we need to show internationally, we will have to go and find the reduction somewhere else. We can't cheat internationally.

It's probably worth making a distinction, when you talk about verification, between two things. Clearly, the emissions and the production levels of the companies that participate in the large final emitter system will have to be verified. It is something that I highlight in my paper. We'll have to ensure that is done rigorously. But presumably it will be done rigorously.

The problem with the loopholes is really up front. It's setting the targets at the right level to start with, and where there isn't any verification going on is in the setting of the targets. It's a very closed process. Indeed, when parliamentarians get their opportunity to debate the legislation, they won't really be talking about the targets because the targets will be set by regulations--that is my understanding--under the legislation.

So I don't really see a solution to the problem you're highlighting, even in the opportunity to debate the legislation.

Mr. Paul Szabo: Well, I do. Ultimately, 55 megatonnes out of the 240 is verifiable. What you're suggesting is that there are going to be pressures to create some artificialities. You may be able to come up with that number because bases are moved and so on. When you suggested that bases can be moved somehow, the “business as usual” numbers down at 210 or 212 megatonnes, to me that flies in the face of verifiability, and I would hope, or I think we'll have to ensure, that the mechanisms are in place for that.

Let me ask you one other question. Have you a sense of the extent to which the large final emitters pressures are driven by the fact that they either cannot pass on the costs because of competitive pressures and so on, or simply are not on side and are looking for an opportunity for commercial gain?

Mr. Matthew Bramley: It's a little difficult to answer that question, but it seems to me that if I were an industry sector negotiating my target with the government, it would be in my interest to find arguments to make my target as relatively unrestrictive, unconstrained, as possible.

Clearly most sectors are expecting some costs from this system. The federal government has done economic modelling, which is reported in the Climate Change Plan for Canada, which suggests those costs are all rather minor and quite manageable, and in most cases do not represent a serious threat to competitiveness. But I think it's the reality of a negotiation between government and a sector that each sector will try to tirer son profit.

[Translation]

Mr. Paul Szabo: Yes, I understand. Thank you.

[English]

The Chair: Thank you.

Mr. Godfrey.

Hon. John Godfrey (Don Valley West, Lib.): Thank you. It's nice to see you again.

I have three questions, the first being whether there is any other country that has signed or ratified Kyoto that parses out industrial groups the way we have. In other words, in Europe, do they talk about a similar group of large final emitters, or is this a Canadian specialty?

Mr. Matthew Bramley: The EU is using quite a similar definition of large final emitters.

º (1615)

Hon. John Godfrey: When you look at their model, understanding there are tremendous differences and national strategies, would you be more satisfied if they had addressed the same loopholes that you've identified? In other words, can we learn anything from them?

Mr. Matthew Bramley: Well, that system is so different. First of all, it's based on absolute emissions, so all the loopholes that have to do with using emission intensity are eliminated at the outset. The whole issue of making things relative to a “business as usual” projection is not in the EU system.

I was reading a proposal that has been tabled for the German national allocation plan. It was talking about making allocations of targets based on historical emissions, I think, in a three-year period around the year 2000. Instead of making things relative to projected emissions in 2010, it was making things relative to actually measured emissions in 2000. You don't have to argue about what the correct projected levels are. In several of those respects, these problems are being avoided.

Hon. John Godfrey: I would say that it doesn't sound like it's a particularly useful comparison, then, because it's such a different system.

Let me press on to two more points.

The second is that you've obviously been thinking about this for some time. Your organization has raised these questions before. Have you had any thoughtful detailed response from NRCan and the officials you've identified?

Mr. Matthew Bramley: I would like to start by making clear that there has been very good access to the officials at NRCan. They're very open to discussing with anyone who wants to discuss. There hasn't been any problem there.

On the other hand, if you look at the 20 or so discussion papers on the details of this large final emitter system that the NRCan officials have produced, which are on their website, by and large, these loopholes are not addressed in those systems. The officials at NRCan have done a lot of thinking about various details of the system, but these overall environmental integrity issues have really not been addressed, or at least not at all clearly.

Generally speaking, I do not get reassuring answers when I raise these issues with officials. I get the sense that there really is a need for some clearer direction from the ministerial level to ensure that these things are closed.

Hon. John Godfrey: Then I would make this final observation, and perhaps Mr. Bramley wants to comment on it.

If the committee decided, in its collective wisdom, that the issues raised here about loopholes are sufficiently troubling that we would, as a committee, like to have some assurance or some response from the minister, then I suppose we have a couple of alternatives. We could either ask the minister to come and address the question or as a committee we might issue a report that had, as an appendix, the work done by Pembina, which would trigger the necessity of a response within a certain number of sitting days.

I simply put that out on the table, Mr. Chair, as two possible outcomes for this afternoon's discussion, depending on whether the committee is collectively as concerned about the loopholes as I think some of us are.

I suppose if that were the situation, we might want to negotiate with you as to what sort of a document we would make the appendix, which would be part of our report.

The Chair: While we welcome your suggestions, Mr. Godfrey, we would first want to hear from Mr. Brown. An arrangement has been made to hear him on April 21, and after that, we will decide what will be our next step.

Hon. John Godfrey: Okay. Thank you.

The Chair: Thank you.

Mr. Mills.

Mr. Bob Mills (Red Deer, CPC): Thank you, Mr. Chair.

I'm not sure where to start exactly.

The Chair: Well, you can think it over.

Mr. Bob Mills: I've thought it over.

First of all, going back to the question that was asked earlier, who's in charge? Originally, in the last cabinet, there was someone there who was in charge. It was actually the agriculture minister. He was in charge of environment and natural resources, and so on, and all the Kyoto file.

Are you aware of who's in charge now?

Mr. Matthew Bramley: I believe you're referring to the so-called reference group of ministers on climate change that used to exist. My understanding is that group no longer exists, and there is no specific cabinet committee or structure with specific responsibility for climate change. I'm not privy to those things, so I may be mistaken there.

º (1620)

Mr. Bob Mills: Mr. Anderson says we're going to go after the auto industry and have them increase their efficiency by 25%, or we're going to impose California standards. Then Mr. Efford says, “There's no damn way. That's my area and you're not going to do that.” So I guess maybe we have to see that there are some differences within cabinet, in terms of who's in charge of the file.

Mr. Matthew Bramley: I've raised this issue, and the answer remains that Environment and NRCan are co-leads on domestic climate policy. As far as I know, that remains the case.

There's no doubt that those of us who work on the climate change issue have noticed the tensions and differences in approach and opinion between those two departments. Some of us have recommended that a more centralized structure be established within the federal government, to ensure there is clear leadership from the centre on Kyoto implementation.

Certainly many of us in the environment community are very disturbed at the pace of implementation of our Kyoto commitments. There's a strong sense that if there were a more centralized and clear accountability structure within the government, things might be going more quickly.

Mr. Bob Mills: When we look at yesterday's budget we see that Petro Canada is going to be sold for more than $2 billion, and $200 million is going to be spent in an agency that has spent only 40% of its allotted money at this point--and it's been used for advertising, probably. So why would we give another $200 million to that group?

Are you not troubled that the rest of that money, which may be as much as $800 million, will not be available for any environmental enhancement technology development until 2006? That doesn't seem like a great commitment to Kyoto or its implementation.

Mr. Matthew Bramley: I'm quite concerned that the government, at least as reflected in the budget yesterday, does not appear to be setting the correct balance between supporting deployment of technologies that are available today and could reduce our emissions tomorrow, versus investing in putative future technologies that are unlikely to deliver significant emission reductions in time for complying with the Kyoto Protocol.

Mr. Bob Mills: In terms of the heavy emitters, I've always felt that to hit those targets--as much as we negotiate and make deals with the industry behind closed doors--the ultimate bottom line is that the average Canadian is going to have to pay more for power, heat, and transportation--be it through a carbon tax or whatever--in order to cover the cost of buying those carbon credits.

We have a huge country with little infrastructure and a small population, and we are very different from the European countries in all of those respects. So if you're going to pay for that, the money is going to have to come from the people who consume those things. Do you not agree?

Mr. Matthew Bramley: There are two aspects that I don't agree with. First, there's considerable evidence that the costs you refer to are really quite modest and manageable. A large amount of economic modelling was conducted by the federal and provincial governments, together initially and later by the federal government. Some of those numbers are published in the Climate Change Plan for Canada.

Second, some energy prices might well fall if we place sufficient emphasis on energy efficiency and conservation. Prices are obviously a reflection of supply and demand, and there's a tremendous amount that can be done to reduce the demand, particularly for electricity. Some of the economic modeling that was done actually suggested that prices might fall as a result of that phenomenon.

The other thing that's perhaps inaccurate is the implied assumption that costs are necessarily passed on to consumers. It may well be that some of the participants are unable to pass on costs to consumers and may have to have a modest reduction in their own financial performance.

º (1625)

The Chair: Thank you, Mr. Mills.

Mr. Reed. It would be nice if questions could continue to address the large final emitters, please.

Mr. Julian Reed (Halton, Lib.): Thank you very much, Mr. Chairman.

I apologize for being late. I was tied up with Mr. Mills.

An hon. member: That's not very funny!

Mr. Julian Reed: I should bring up one area that seems to be talked about here in the Torrie Smith briefing paper, which is really a distortion of fact. Electric power production is provincial in jurisdiction; therefore, if anything concrete is going to be done, it has to be done through the cooperation of the provinces. This constitutional problem poses a bit of a dilemma for us as a federal government.

The other thing is the question of cogeneration, which was brought up here in terms of offsetting large final emitters. Cogeneration in Europe, for instance, accounts for 40% of all the electric power generation in Germany. But the reason it exists and does well is because electric power is sold at cost; it's not sold below cost the way electric power is sold in Ontario. Power has been sold at below cost in Ontario for the last 25 years. This is a problem that has been the responsibility of four successive governments in Ontario, because it's a political bomb. Now you know what the province is faced with in terms of supply, and so on.

The challenges then with electric power become provincial, the business of citizen empowerment for demand management, which you talked about. They really all sit with the province and the distribution system, the municipal utilities, and so on.

So as for your concept that prices might fall if there's conservation, the question is, from where? I can just visualize initially that if the truth is shared with the citizens of Ontario, the price of electric power is going to find a new level. Hopefully, it'll be accompanied by the empowerment to conserve.

I only throw that out because if you're going to get at these large emitters and so on, and curtail their activities, it really will only manifest itself through conservation, as you point out. But you have to give the citizens the power to conserve. If they have no power or incentive to conserve, they're not going to conserve a thing.

Mr. Matthew Bramley: The electricity sector is a very good example of where a certain amount of reduction in emissions from electricity generation can be driven by this large final emitters system. For example, there are scenarios where a coal-fired generation station could be replaced by an efficient gas-fired station. There would essentially be a credit that would be created through the system, or an incentive to do that.

It's very important that the so-called targeted measures—to use the language of the federal government in referring to policy initiatives outside the large final emitters system, many of which will need to be provincial—are essential to capturing the full potential of emission reductions from the electricity sector, I would certainly agree with you.

Perhaps one thing that's worth mentioning is that the federal government has been seeking to negotiate bilateral agreements on climate change with provinces and territories. I would hope that in agreements with provinces they would implement some of these measures, such as demand-side management programs and renewable energy portfolio standards, and so on. Those could be components of agreements between the federal government and provinces on climate change.

On cogeneration, the large final emitters group has paid some attention to cogeneration and is seeking to set targets in such a way that cogeneration will remain an attractive option within the large final emitters system. That isn't an area where I've identified a particular concern.

º (1630)

Mr. Julian Reed: Thank you, Mr. Chairman.

The Chair: Thank you, Mr. Reed.

Mr. Bailey, Mr. Herron, and the chair.

Mr. Roy Bailey (Souris—Moose Mountain, CPC): Thank you, Mr. Chair.

Whenever something along the nature of this agreement, large as it is, comes along and hits society--and this isn't the first thing that's ever happened in society's history--there are always two sides of the story that emerge. Also, even within the scientific community there are two different viewpoints.

There will be--if they're not present already--the effects of the lobbying when you look at the size of the industry. Have you experienced any of that lobbying to this point or do you expect there will be lobbying before this becomes a reality? This Kyoto plan is going to affect so many people in so many different ways.

Mr. Matthew Bramley: I can tell you an anecdote. I went to meet a senior official at one of the central agencies of the federal government recently to talk about Kyoto implementation. He told me he had met eight representatives of the oil and gas industry and that I was the first representative of the environmental community.

Mr. Roy Bailey: And do you expect more, sir?

Mr. Matthew Bramley: I think what I've described is the symptom of a reality that--

Mr. Roy Bailey: That is coming.

Mr. Matthew Bramley: --that is already here.

The Chair: Thank you, Mr. Bailey.

Mr. Herron.

Mr. John Herron (Fundy—Royal, PC): Thank you, sir.

Just very briefly before I begin, on Mr. Godfrey's comment, doing a report would probably be more comprehensive, but perhaps it would be even more expeditious to write a letter in advance to the minister flagging these potential loopholes and expecting him, when he shows up, to offer some solutions in that presentation. It's maybe a more informal way to do it, but probably it would be more expeditious.

I'm a little curious about how the inventory itself is collected with large final emitters. More importantly, once the inventory is developed, what process is in place in terms of how it's audited down the road?

Mr. Matthew Bramley: Currently, Environment Canada is responsible for compiling Canada's national greenhouse gas inventory, which is what we report to the secretariat of the United Nations Framework Convention on Climate Change.

Regarding industry, Environment Canada relies on a Statistics Canada survey of the industrial use of energy. Those data of industry energy consumption are then passed on to Environment Canada, which calculates the greenhouse gas emissions from those data.

I'm honestly not aware of the verification and data quality procedures in place with regard to those data. Having said that, Statistics Canada has a good reputation for the integrity of the numbers it produces.

The government a couple of weeks ago published a notice in the Canada Gazette announcing mandatory greenhouse gas emission reporting for large industrial emitters of greenhouse gases. This would now be publicly disclosed on a facility-by-facility basis. This is the beginning of a more detailed system of emissions reporting that will feed into the large final emitter system when it is eventually implemented.

Mr. John Herron: A second question, and it was touched on before, is whether there was any best practices example of how we could address the types of loopholes the EU faced. If we can't do it from an entire EU perspective, the national governments within the EU have different challenges, and I always look very closely at Sweden: like us, they're a cold climate; like us, they have an export-driven, energy-intensive economy; and like us, they have a large land mass and a small population.

Are there examples in terms of how we may be able to...? How do the Swedes address these types of issues and loopholes? And because our economies even mirror each other so much, are they allowed to trade within different sectors as well?

º (1635)

Mr. Matthew Bramley: Yes. I think Sweden will be like all the 25 EU member states, including the states that are just joining. They will all be part of the EU emissions-trading system for greenhouse gases. They will be able to trade amongst sectors within that country and also with all other sectors and countries within the EU.

To be clear, when speaking to you, I had no intention of casting any doubt on the concept of emissions trading itself. It's just that for it to deliver real reductions, the accounting has to be very clear and rigorous.

There was an earlier question about the extent to which we can learn lessons about closing these loopholes from, for example, the comparison with the EU. I think it is rather difficult to do because it is such a different system, but perhaps we could look at that more closely.

Certainly, in the EU there will be the issue of how the emissions-trading system interacts with other of these so-called targeted measures, other government policies that may also affect the emissions of large emitters. I confess, I haven't looked closely at that comparison with the EU, but it might be a fruitful path to pursue.

Mr. John Herron: I was curious about making a comparison with a specific country within the EU, even though they're all within that same basket itself, because the Swedish and Canadian economies mirror each other as closely as most, if not almost all.

When the Swedes were able to negotiate within the EU to take a much lower target than most European nations are taking, how did they get around the issue? If we have growth or higher production in resource-based energy-intensive industries, how do you help us in that regard?

Mr. Matthew Bramley: I must confess that I'm not familiar enough with the national climate change plan that the country has adopted. There's no doubt that in terms of the whole range of measures needed to reduce greenhouse gas emissions, with energy efficiency and renewable energy programs, there are a lot of lessons to be learned in western Europe, generally. There's no doubt about that.

It's often alleged that the Kyoto Protocol is somehow generous to the EU and unfair to others, but the reality is that a tremendous amount of implementation of policies to reduce emissions across the board has taken place in the EU for many years. We have some catching up to do in that regard.

Mr. John Herron: Thank you, Mr. Chair.

The Chair: Thank you, Mr. Herron. It's nice to see you again in committee.

Mr. Bramley, in an attempt to summarize what you have brought to this committee today, would it be correct to make the conclusion that, one, the problem is in the setting of targets? Is that agreed?

Mr. Matthew Bramley: That's one of the problems.

The Chair: Right.

Secondly, while the commitment by Canada to Kyoto is on actual emissions, when it comes to this particular sector, namely the large emitters, the calculations are carried out on intensities rather than actual emissions.

Mr. Matthew Bramley: Yes.

The Chair: We are switching from apples to oranges.

Now, if that has taken place, we are in trouble. You have outlined the problem we have as a result of that switch in methodology for measuring criteria. How can we bring it back? Is it possible to bring it back?

Is it your conclusion, then, that it is too late to bring back the actual emission criteria instead of continuing with the intensity criteria? It's too late, isn't it?

If it is too late, then how do we develop a methodology that will convert the intensity criteria into actual criteria?

Mr. Matthew Bramley: The new government has made a number of statements to the effect that the Climate Change Plan for Canada from November 2002 requires at least some revision. I understand the government is in the process of undertaking that revision, so in theory there's nothing to stop--

º (1640)

The Chair: When was that statement made?

Mr. Matthew Bramley: I believe the Prime Minister has on a number of occasions made statements to the effect that the plan is insufficient or incomplete--in other words, in need of a revision. My understanding is that the government has, in principle, accepted that some new version of the plan, the overall Kyoto plan, will be forthcoming at some point. I don't know when. So in theory, of course, we could go back to a system with absolute targets.

That said, on the kinds of commitments that were made in particular to the Canadian Association of Petroleum Producers by Minister Dhaliwal and by Prime Minister Chrétien, I think one can anticipate a tremendous backlash in protest if those commitments were gone back on. I leave it to the powers that be to decide how they want to approach that.

If we do stick with an intensity-based system, I have proposed a way to partially bring the system back to absolute emissions. It is as follows. In the regulations that establish intensity targets, one might say we're setting this intensity target and the level of production we expect from this company or this sector is this number. If that production level is exceeded by a certain percentage, then it would trigger an adjustment of the intensity target to try to compensate at least in part.

I think that might have some acceptability to industry because it would still retain some of the certainty that industry has asked for in terms of being able to increase production. One would not be allowing a totally unlimited adjustment of intensity targets. One would place some limits around it perhaps. So that would be a kind of compromise between the absolute system and the intensity system, which I would certainly commend for consideration.

The Chair: It would be a type of questioning that we could adopt when Mr. Brown appears before this committee.

Mr. Matthew Bramley: Certainly.

And I do want to emphasize that these loopholes that I've outlined--and the one we've just talked about is one of them--are not clearly addressed in any of these discussion papers that Mr. Brown and his officials have prepared. I think that's a symptom that is of considerable concern.

The Chair: Thank you, Mr. Bramley.

For the second round, Mr. Bigras, followed by Mr. Comartin and Mr. Mills.

[Translation]

Mr. Bernard Bigras: Thank you, Mr. Chairman.

I'd like to come back to the potential loopholes for a moment, in particular to loophole number 7: “Giving credit for long-term R&D”. I'd like to cite a concrete example to give us a clearer picture of the situation. You can tell if this case meets the criteria and if this company is entitled to receive credits.

I'll use the example of an oil sector company that receives $6 million from the Canada Foundation for Sustainable Development Technology to develop carbon extraction processes. Experts are a long way from agreeing on whether this process reduces greenhouse gas emissions and the project will not be achieved within the Kyoto Protocol timeframe.

In your opinion, would this type of initiative qualify for R&D credits?

Mr. Matthew Bramley: This idea of giving credits for R&D was floated in a letter from Jean Chrétien to oil producers in July 2003 and the details of the proposal were rather vague. One of the discussion papers released by Natural Resources officials also alludes to the possibility of receiving credits for R&D, but the government has not announced the criteria that would be used to determine whether or not a particular research project qualified for these credits.

What's clear, however, is that the notion implies giving a credit that would be valid between 2008 and 2013, but would only correspond to reductions achieved after 2012. Again, this represents a shift of responsibility to the government. The government claims that reductions have been achieved, but these are merely reductions on paper. This is contrary to the spirit of the Kyoto Protocol. Canada can always choose not to comply with Kyoto, but that decision comes with a price.

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Mr. Bernard Bigras: My sense, Mr. Chairman, is that the government is creating foundations and giving them money that they can use to fund projects which will not necessary reduce greenhouse gas emissions at their source. Such projects include the development by oil companies of carbon sinks and other processes. Subsequently, these foundations are given credit for and acquire some legitimacy for their actions. That's the impression I'm getting, particularly in light of yesterday's budget and the upcoming proposed legislation.

The Chair: This is a question that we can ask Mr. Brown.

Mr. Bernard Bigras: Exactly.

As we know, the energy sector has increased its emissions by 98 per cent. Net oil exports represent 309 per cent, and natural gas exports, 162 per cent. I wonder if loophole number 4, which would allow Canada to increase emissions tied to higher production levels won't ultimately mean , in the case of LFEs, that the oil sector benefits from federal funding, to the extent that according to yesterday's budget, oil and gas exploration activity in Canada is a source of wealth. The Mackenzie Valley was cited as an example.

In the LFE sector, would you not agree that the oil and gas sector has an advantage, given that growth projections in this sector are much higher than they are for other sectors, for instance, the manufacturing sector? In my view, this potential loophole creates inequities among the various sectors of industry.

Mr. Matthew Bramley: There's no question that a system based on emissions intensity favours those sectors where production is strong. In some respects the system provides a subsidy for production. As such, the oil sector is in an even more advantageous position because emissions intensity tends to be on the increase, with the move toward oil extracted from tar sands, which produce higher emissions than conventional oil.

[English]

The Chair: Merci.

Mr. Comartin, followed by Mr. Mills.

Mr. Joe Comartin: Mr. Bramley, I'm sitting here listening, and if in fact even some of your fears about the potential loopholes come to be, I'm wondering where do we then turn to get those reductions in emissions. I ask that in light of the material we already have on the one-tonne challenge and the pressure that puts on individual citizens.

It's further complicated by the fact that I understand a week or so ago Minister Anderson signed an agreement with Manitoba to deal with the reduction of emissions at the provincial-federal level with that province. I don't know if that was a final agreement or just an interim one.

If we are not going to get the reductions from these large emitters, is it logical to look to the provinces to make up the difference, and if so, can you tell us if you know where the negotiations are with the provinces? Should we perhaps be putting those negotiations on hold until we see what the outcome of the sectoral ones are?

Mr. Matthew Bramley: It seems to me the federal government has three choices. If the large final emitter system delivers less than the 55 megatonnes that the government is committed to, the three choices are, one, to implement so-called targeted measures at a federal level in other parts of the economy, or even in the industrial sector for that matter. Another choice would be to try to seek agreement from provinces to implement a variety of different measures that reduce greenhouse gas emissions. The third option is to purchase, on the international emissions-trading market, Kyoto-compliant units. As I'm sure members of the committee know, the Kyoto Protocol does create international emissions-trading mechanisms. So in theory, Canada can always go and find units through international emissions trading and comply in an accounting sense with Kyoto.

The government has, on a number of occasions in the past, made political commitment to secure at least 50% of the reductions needed for Kyoto through domestic action--through reductions that actually occur within Canada--and clearly the fewer reductions obtained from this large final emitter system, the more difficult it becomes at a reasonable cost to find reductions elsewhere in the economy and the greater the temptation becomes to go and purchase foreign units, which I don't think a lot of people would find a particularly appropriate way for us--certainly if we relied massively on that mechanism--to comply with Kyoto.

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The Chair: Philosophically, it's the adoption of the elements of a strong conserver society, where there is a potential for considerable reduction in demand.

Mr. Matthew Bramley: There's no doubt that conservation can and should play a large part in our Kyoto implementation, but, to be realistic, that is only going to take place if governments put in place incentives, and in some cases regulations, that make it happen. And in regard to reliance on voluntary action by individuals, I don't think there's any economist who models policies to comply with Kyoto targets who will tell you that kind of an approach is going to deliver very many reductions on its own. It can work in conjunction with financial incentives and regulatory approaches, but those are needed.

Mr. Joe Comartin: Mr. Chair, I didn't get an answer from Mr. Bramley as to whether he knows what the status is of the negotiations with the provinces across the country.

Mr. Matthew Bramley: My understanding is that memoranda of understanding have been signed with Prince Edward Island and Nunavut and that negotiations are in a relatively advanced state with some other provinces.

The Chair: And Manitoba yesterday.

Mr. Matthew Bramley: Yes. I saw a reference to an agreement signed between Mr. Anderson and Manitoba on electricity transmission specifically, but it may or may not have been a broader climate change agreement. I wasn't aware of that.

The Chair: Thank you.

Mr. Mills, please.

Mr. Bob Mills: Basically, conservation, development of technology--I can understand that. Helping China, helping India, to develop that technology, that's great. I do not understand how having heavy emitters buying carbon credits on an international market helps the environment. To me, that just doesn't help the environment; it's just an economic transfer.

Mr. Matthew Bramley: There are three different emissions-trading mechanisms internationally under the Kyoto Protocol. Two of them, the clean development mechanism, which is for developing countries, and joint implementation, which is for countries in the former Soviet bloc, involve credits being created in exchange for quantified real reductions in emissions secured in those countries. So the trading itself doesn't reduce any emissions; the trading allows Canada to take credit for and to purchase real emission reductions achieved elsewhere. That's one thing to consider.

The other thing to consider is that supposing a particular large industrial emitter can reduce its emissions a certain extent in its own operations--only up to a certain extent at reasonable cost--but to meet its target it has to go further, and purchasing real reductions from other emitters is an important way for that emitter to take responsibility for those emissions. The emitter can take responsibility partially by reducing, where that is feasible and realistic, and it can take further responsibility by purchasing reductions elsewhere.

Mr. Bob Mills: But then you have to raise the price of power, the price of heat, the price of fuel, and so on. That's what you have to do. That's the bottom line. And who pays for that?

Mr. Matthew Bramley: As I've mentioned in earlier remarks, none of the economic modelling conducted in advance of Canada's decision to ratify the Kyoto Protocol suggested anything more than a very slight impact on our rate of GDP growth. As long as the plan is implemented in a way that ensures there is equity, I don't think there's any good evidence to suggest there will be dramatic economic impacts.

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Mr. Bob Mills: But obviously the reason Russia is having difficulty is because they say it could have an economic impact. Britain and Germany are giving the same reason as to why they can't reach their targets. The reason 8 out of 10 provinces--and I've been in touch with those provinces--say they're not ready to go after their heavy emitters is they don't feel they can without having severe economic impacts.

For instance, IPSCO Steel in Regina says if you raise our power rates by 25%, which you have to do, we are going south. That's the bottom line. We have to do it, because we cannot.... So to say it's not going to have an economic impact I think is just a dream, looking at the figures.

Mr. Matthew Bramley: With respect, I've looked at a lot of the figures from the economic modelling that's been conducted on the cost of Kyoto. I didn't say there would be no economic impact; I said there would be no dramatic economic impact, and there is a difference between those two comments.

In regard to Russia, I think most observers internationally recognize that Russia is in a unique position and that it holds the power of entry into force of the Kyoto Protocol. It is seeking to tie a decision on ratification with other diplomatic objectives that it has, such as entry into the World Trade Organization, and perhaps some other things.

There is one economic adviser to President Putin who has been making some rather outlandish remarks about the potential economic effects of the Kyoto Protocol on Russia, but most well-informed international observers believe Russia has a lot to gain economically from Kyoto, starting with the expectation that it will have a surplus of tradable emission permits to sell to other countries.

Mr. Bob Mills What will be the price of those carbon credits?

Mr. Matthew Bramley: The federal government has said in the past that it expects a price of around $10 Canadian per tonne for CO₂. I think most experts are still looking at prices in that range.

Mr. Bob Mills: Talking to Mr. Putin's experts in Johannesburg, they said, “We would not sign that without U.S. $35 per tonne”—

The Chair: It was one person who said that, and it is just one man's opinion.

Mr. Bob Mills: They started at $50.

Mr. Matthew Bramley: Perhaps it is worth mentioning that the individual who has been much quoted in the media, an economic adviser to President Putin, is not actually a spokesperson for the Government of Russia.

The Chair: Thank you, Mr. Mills.

We have now Mr. Szabo, Mr. Godfrey, and Mr. Reed.

Mr. Szabo.

Mr. Paul Szabo: Mr. Bramley, the Pembina Institute is spending an awful lot of time on this, and we look to you for insight to help bring some focus to our concerns that we should express and follow up.

The whole economic impact issue is fundamental to this whole question, and I don't have a strong comfort level that you understand it as well as maybe I was hoping you would. To suggest that somehow there would only be a modest impact on GDP would be unrealistic from most people's perspective, but on top of that, you have to look at the components of what impacts GDP. Most people are going to expect, in terms of the commodity prices of oil and gas and electricity, etc., that the commodity prices are going up. This may very well affect demand, because of the substitutes that might be available, or other competitive forces, or whatever. If demand goes down because prices have gone up, the net impact on GDP may be very small, but the fact is that prices have gone up dramatically. Those elements, the rate and the volume of activity, really make a big difference, and we have to understand that.

This is going to be in the psyche of virtually every Canadian as well, because they are going to see these things, and their attitudes toward our efforts with regard to Kyoto may change dramatically if in fact we are going to see a significant increase in commodity prices. I think we have to know a little bit more, and all of the key stakeholders and key players who are trying to bring clarity to the whole Kyoto project need to talk a little more clearly about the impacts of achieving a Kyoto target.

It is really very dynamic. To segregate large final emitters is one thing, but now we're talking about negotiations with some of those people who can deliver the big deals.

If you raise the spectre that people are going to start playing games, and the government is not going to be strong enough, or has conflicting interests, we have to address how to alleviate the pressures and how to put into place verifiable measures and controls to ensure that real targets are achieved by real reductions.

» (1700)

Mr. Matthew Bramley: The Climate Change Plan for Canada itself--the federal Kyoto plan--reports on economic modelling of the likely impacts of Kyoto implementation on Canada's economy.

I am not an economist, and I certainly don't pretend to be one. I was a member of the expert advisory panel to the analysis and modelling group, which was a federal-provincial government group, as part of the national climate change process that oversaw the economic modelling of measures proposed to implement Kyoto. The analysis and modelling group conducted some 10 different scenarios of implementation of Kyoto. In the worst case, GDP in 2010 was 3% lower than it would have been otherwise. What that means is that over a decade, over the course of which one normally expects economic growth in the order of 30%, one would have economic growth of perhaps 26% or 27%. I think by any reasonable standards that's a relatively slight impact. That was the worst case, I stress. The economic modelling reported in the climate change plan for Canada has considerably more modest numbers.

I don't have any expert opinion on commodity prices. Perhaps there are other people who can help you with that. But I did want to point out a couple of things. There is no doubt that the longer we delay in implementing the measures that can reduce greenhouse gas emissions significantly in this country, costs are likely to rise. So there is a cost to delay, there is no doubt about that. It does take time to get policies in place and for their effects to manifest themselves, and I think that's worth bearing in mind when we look at the pace of implementation of this plan.

The other point would be that Natural Resources Canada officials who are negotiating targets with industry have stated that sectors that have particular competitiveness concerns would be able to negotiate different targets to take account of those concerns. What I have said is that if that happens, we had better make sure we scale up the overall set of targets so that when we do have to give a concession in one sector, we can still ensure that the overall system delivers the results the government is committed to.

The Chair: Thank you.

Mr. Reed.

Mr. Julian Reed: Thank you, Mr. Chair.

I'm more optimistic about how this will wash itself out. We have some experience from the past that demonstrates what happens when commodity prices change, and so on. All you need to do is go back to the 1970s when oil prices were spiking on the spot market at $40 U.S. or $50 U.S. a barrel.

The experience in the northeastern United States is that when prices of electricity doubled, consumption was cut in half because consumers had an incentive to change their consumption patterns. Their quality of life has not suffered; it has gone on just the same, and so on. So we have that last experience to go by.

I can recall, during those years, sitting on a committee in Toronto, with the spike in prices, where major corporations were coming to us and telling us how they had been able to conserve, and the inventions and creativity that elicited from that.

For instance, Dofasco, I believe it was, from Hamilton, came and told us about developing a new technique for repairing leaking steam pipes under pressure. It hadn't happened before. There had been no incentive to do it. But because the incentive was there, they did it, and they advanced some technology in order to overcome it.

When we hear this concern about purchasing credits from offshore, remember that when one purchases credits, it adds to the cost of the product. Naturally, what it incurs is a gradual transfer of capital from the large emitter to the non-emitter--providing the non-emitter is able to sell credits to the larger emitter. Therefore, it allows the large emitter to allow whatever it is, that machine, that factory, or whatever, to run its life cycle and run it out so that it doesn't suddenly bring down the economic hammer and destroy it.

I see that with coal-fired generating plants, for instance, which could very much buy credits and then allow their lifespan to run out. Sure it increases the price of the product, naturally, but that's what it should do, so then the non-emitter gradually gathers the capital.

» (1705)

The Chair: And the question is, isn't that so?

Mr. Bramley.

Mr. Matthew Bramley: On the question of how costly these kinds of activities by industry are, I would like to, with your permission, very briefly quote Lord Browne, the group chief executive of BP, the major oil company, in a speech he made in London in November 2003. He described how BP had set a target to reduce its own emission levels to 10% below 1990 levels by 2010, in line with the spirit of the Kyoto Protocol. He described how the company was able to meet that target by the end of 2001, nine years ahead of plan.

One of the three key reasons he cited for being able to do that was, and I quote:

...we found that efficiency and emission reduction was good business. So while some remained locked in a debate about predicting the cost of reductions, our staff were pursuing activities that added value. In fact within the first three years we added $650M of value, for an investment of around $20M.

I think that kind of statement from, after all, a representative, and a prominent one, of one of the key sectors we've been talking about today, the oil and gas sector, is worthy of consideration.

The Chair: Thank you, Mr. Reed.

Mr. Bailey.

Mr. Roy Bailey: Listening to the credit system, as we have, Mr. Chairman, and discussing in the House the other day about world trade with other nations, one would have to come up with the idea, why would a country like Canada, which has signed the Kyoto agreement, want to buy anything on world trade that polluted the air a great deal? Why not just ignore trading with those people until they've measured up to some sort of world standard? I don't think we've considered that idea, but it may work better than trying to buy these carbon credits.

Mr. Matthew Bramley: Well, Canada has ratified the Kyoto Protocol and thereby agreed to meet a target for net emissions in the period from 2008 to 2012. When I say “net” emissions, that means net of international emissions trading.

At Kyoto it was recognized that for the rich countries that had been overwhelmingly responsible for the accumulation of greenhouse gas emissions in the atmosphere up to now, the onus was on them to lead and take on initial targets, which are only a first small step towards meeting the objective that the international community has agreed to, which is under the Framework Convention on Climate Change to stabilize their concentrations, and if a country like Canada was unable in good faith to meet its target purely through domestic action, the flexibility would be granted to allow us to meet our target in part by purchasing reductions achieved in other countries. That was lobbied for very hard by some of the same industry representatives who now are saying they don't want to send Canadian money overseas. So there's a bit of a contradiction there.

I would also add that when we meet our target in part by purchasing reductions from other countries, perhaps...and I would agree with you that ideally we would be able to make all the reductions here, but it is an alternative way of taking responsibility for the very high level of emissions that Canada has when you look at those numbers on a per capita basis.

We have some of the highest per capita greenhouse gas emissions in the world. We have to show some leadership internationally; otherwise, however can we expect the likes of China and India to agree to take on targets in the future? We have to show some leadership.

» (1710)

The Chair: Thank you, Mr. Bailey.

I'm glad, Mr. Bramley, that you quoted British Petroleum's chief executive officer. His findings are not limited just to his company, because when you talk to the people at the International Energy Agency, who conduct regular studies on energy policy globally, they confirm that through energy conservation and energy efficiency there will be a lower energy consumption per unit of industrial production than at the present time. So that goal can be achieved at a lower cost, even in the industrial settings at least. In manufacturing there's no doubt that can be achieved, but there has to be the determination and will to adopt conserver policy and efficiency policy. We have a tremendous amount of elbow room still available to achieve the desired potential. So the people who are pointing at doom and gloom and higher costs may be right, but I doubt it very much.

Keep in mind also that at least in North America we live almost in a fool's paradise as far as energy costs are concerned compared to other continents. That is a well-known fact.

What you brought to the table today is extremely useful and very informative for us, this dichotomy that is shaping up within the national calculations and the Kyoto commitments. So we will pursue the line of questions with Mr. Brown on April 21. Maybe we will make some progress.

On behalf of the committee members, I thank you very much.

I would like to ask Mr. Mills whether he wants to put his motion now or on another day.

Mr. Bob Mills: I suppose I could do it now if we have a quorum.

Basically, I've been approached by a number of scientists on both sides of the issue, particularly on the side, of course, that finds some flaws in the Kyoto Protocol, and also economists. Mr. Szabo probably brought that up the best of all. And, as Mr. Bramley said, he is not an economist.

There are some pretty noted Canadian economists who would question what he just said. I think the onus is on this committee to listen to all sides. I would like to have them both here together, if we want. But to just hear one side of an issue is certainly not what I think a committee should do and it's not in good conscience that we can do that.

I've left it pretty open. I have 50 scientists here who I know of, and there's another 100 we could get, plus a number of economists. I would make this motion and work with the committee to come up with some of these names. Some of them are American, some of them are foreign who we couldn't bring, but there are certainly a number of Canadians who have not been heard on this issue.

Seeing as we are getting fairly deep into Kyoto, deeper than I thought we might, I think it would be good for us to do that. So I make this motion with that in mind, and with the intention, as I said, of hearing both sides of the argument.

The Chair: Thank you, Mr. Mills. As you know, we had considerable debate in the House before the Kyoto agreement and debates also within the scientific community. We know that at least 90% of the scientific community is on the Kyoto side. I couldn't think of a more undesirable use of the committee's time--

» (1715)

Mr. Joe Comartin: You see, that's your interpretation of it.

The Chair: Definitely it is, but it's also because I have at heart the overall agenda of this committee, which looks forward rather than to setting the clock back and revisiting the flat earth society.

But, Mr. Comartin, you want to speak.

Mr. Joe Comartin: Because you got yours in first, Mr. Chair, I don't know if there's much more I can add.

The debate has taken place. The House, in its vote confirming the ratification, that we go ahead on the ratification, was quite clear. Mr. Mills is attempting to revisit an issue that's been decided.

Mr. Bob Mills: We just did that today, though.

Mr. Joe Comartin: No, we didn't. He raises a point, the only valid one he made in his argument and that I could agree with, around the cost issue, the economic cost issue. I think if we were looking at some witnesses in that area there would be some merit to pursuing that.

But to reopen the scientific side, which is what this resolution is about--

Mr. Bob Mills: Let's change that to economists then.

Mr. Joe Comartin: I want to be clear. I'm not prepared to vote for this in the perspective or the assumption it's making that there is still a reasonable debate in this country--and I don't think there is in the world, quite frankly--about the human element in causing the problem we have with excessive amounts of CO₂.

There are scientists, I know there are--and I think your estimate, Mr. Chair, is probably accurate, that it's probably at about a 90:10 ratio, that is, 90 in favour of accepting that at least part of the problem we're having with climate change is human-activity-related.

So I'm actively opposed to it. If Mr. Mills or someone wants to bring another motion to bring in the issue of costs and the impact it's going to have, I quite frankly would indicate, depending on how we balance off the economists, that I would probably be prepared to support that.

The Chair: Thank you, Mr. Comartin.

[Translation]

Go ahead, Mr. Marcil.

Hon. Serge Marcil (Beauharnois—Salaberry, Lib.): I tend to agree as well. If we were back in 1990 or 1995 or at the stage of initiating an analysis of the whole phenomenon of global warming, then I think the motion would be valid, but we've already debated the matter at considerable length... I also served as Parliamentary Secretary to the Minister of Industry and we did hold a debate on the industry's perspective. I think virtually all parliamentary committees have called in experts and so forth to discuss the issue.

Now that we have signed on to the Kyoto Protocol, the remaining question is how it will be implemented in concrete terms. Clearly then, I will be voting against the motion because at some point, we need to move on to other matters.

[English]

The Chair: I will now put the question.

Mr. Julian Reed: Actually, I just want to reinforce what has been said.

We're on a journey. We've made the decision. We decided to ratify the Kyoto accord. To regurgitate it now really is not going to serve a purpose, and quite frankly, we could be going through panels of experts and representatives of flat earth societies until the cows come home.

Mr. Bob Mills: Some of them are in your riding.

Mr. Julian Reed: The cows? There are good cows in the great riding of Halton.

So that's all. I just wanted to reinforce that, Mr. Chair.

The Chair: Thank you.

Mr. Szabo.

Mr. Paul Szabo: Mr. Chairman, I don't think the intent of anybody on the committee is to go back to debating whether or not we should ratify the Kyoto accord, be a signatory, make a commitment. We've been there. But even today's presentation raises the spectre of massaging, loopholing, doing some things.

Although you had encouraged us to continue to keep our focus on large final emitters, the impact on the entire country and the assumptions that have been made are very significant and very important for the understanding and the buy-in as we move along.

We haven't seen a complete plan of how we're going to get 240 megatonnes. It's not on the table. We don't have the other lists of some of the activities and the assumptions stuff. This seems to be a matter that's much in progress in terms of being a development.

I think we agree that the Kyoto commitment is an agreement to an end result. How we get there, I still haven't seen. I don't think anybody has ever seen “the plan”, and there are now questions about whether the plan might be artificial, and there are still many, many other things.

So I would think in terms of keeping up the education of the committee members and public education, it's useful for us to be brought up to speed on the significant elements. I would think the state of the economic model, the assumptions that have been made with regard to commodity prices by key sectors, GDP impacts and how it relates, those kinds of things, are very relevant to our work and to our knowledge, because there will be some important decisions yet to be made, and I would hope that this committee would continue to be kept up to speed so that we can participate in the dialogue leading to those decisions.

I don't think we have to bring motions before this committee to say, “Let's hear a bunch of witnesses.” I think the committee has a mandate to keep abreast of the developments and to seek input as there is new information coming forward, and that as a normal course this committee would simply engage itself. So maybe Mr. Mills simply wants to withdraw that motion, with the understanding that if it's important for us to get some input, we should.

» (1720)

The Chair: Thank you, Mr. Szabo.

For the information of the new members of this committee, the Climate Change Plan for Canada was introduced in October 2002, so there is a plan in existence.

Madam Neville.

Ms. Anita Neville (Winnipeg South Centre, Lib.): No, that's fine. I'm just calling the question.

The Chair: Are you ready for the question? Fine, we'll put the question.

(Motion negatived [See Minutes of Proceedings])

The Chair: Thank you.

On Monday we will meet with the minister on the so-called 60-tonne or 30-tonne deficit--depending on how you read the plan.

The meeting is adjourned.