Thanks for having me.
First, I should say that all of the opinions I express today are my own and may or may not reflect the views of the members of the Greenhouse Emissions Management Consortium.
When you look down, you'll see a handout. When I read through the blues for some of the previous meetings of this committee, it seemed to me that witnesses kept showing up and tossing numbers out at committee members. I don't know how, as MPs, you can decide who is right and who is wrong, so I've prepared a package that includes the data I looked at that has formed my opinions. I'm not going to walk through it for you today; I might refer to it once in a while, but it's more intended to act for you as a resource. Those are all numbers in the public domain and they're the numbers that have an impact on my way of thinking. I thought maybe instead of just saying stuff off the top of my head, I'd leave you with that resource and you might do with it what you will when it's time to form your own opinions.
The focus of this panel is emissions trading. My bottom line is I'm going to suggest that Canada should not, and probably will not even if we set out to try to, implement cap and trade or a greenhouse gas quota-based emissions market in Canada. When you look at the submission, you'll see that some of the front pages I've dedicated to walking you through the question of carbon taxes—“carbon taxes” being defined as “direct production and consumption taxes”—and I try to make a point in this submission that no matter what other people say to you, they haven't worked in Europe, where they've been tried.
The reason I say that is because I'm going to argue vehemently in favour of the creation of emissions markets and regulations that form the foundation of emissions markets, but I'm going to say that cap and trade is not the right place to start. I want to put direct consumption and production taxation to bed, away, because when you inevitably, in my view, decide that cap and trade won't work, I don't want you defaulting to the consumption and production taxes that don't work either.
So I'm not going to talk about taxes today, but that's why the first part of this submission has that focus.
In the submission—I won't go over it—I touch on some of what I'd call the dark side of the U.S. sulphur dioxide market and the European carbon dioxide allowance market. I won't go through it. It's there for you.
But stepping out from what's there, in a European carbon dioxide market, we have a problem as we enter phase two in Europe, which is the Kyoto commitment period. All of the European national action plans that I've seen to date do, unlike phase one, propose to cause emissions to be reduced in the industrial sector as a whole. But 100% of the European quota allocations place 100% of the burden to reduce on the electricity sector, and most of the European nations actually allocate excess allowances to oil and gas producers, aluminum producers, chemical producers, and large manufacturers.
That's a problem for Canada in two ways. First of all, however rational that might seem in Europe, in Canada, if we essentially lay a huge reduction burden on electricity generators and give oil and gas producers a free ride, all we're doing is taxing made-in-Canada energy, when it's consumed by a Canadian, to create a subsidy for our exports to the United States. That's an economy killer of the highest order.
The other complication that arises from the European allocation procedure is if we in Canada implement a cap-and-trade regime that assigns large obligations to reduce the oil and gas sector, then oil and gas companies will be competing in an international market with European oil and gas companies that have a free ride. So we're caught on both sides by the European allocation, which is strategic and really doesn't have a lot to do with the environment.
That's a market reason why I think we can't do cap and trade in Canada. There's another reason why I think we cannot do cap and trade in Canada. I'm not a lawyer, and I know there are differing opinions, but I would suggest that over time the federal government is likely going to find out that it's very questionable whether or not the federal government has the jurisdictional authority to impose a cap-and-trade market system on the provinces.
More important than the jurisdictional question is the practical reality that no province can afford to accede to federal jurisdictional authority to implement a cap-and-trade program. The reason is that when you think about how an inventory is developed, any region's greenhouse gas quota supply governs that region's combined rights to produce fossil fuels, plus consume fossil fuels, plus produce beef, pork, and rice; pulp and paper; aluminum; cement; iron and steel; glass; and pretty much everything else. So if and when provinces accede to a federal authority to unilaterally issue a greenhouse gas quota, the provinces have given up economic sovereignty--they've given up their place in the federation. And I know that at least three provinces, regardless of what their legal opinions are in the matter, are preparing to fight tooth and nail.
Where do we go from here? We've got a competitive issue with how Europe has done cap and trade. If we don't have a jurisdictional issue domestically, we at least have an emerging major federal-provincial dispute that will tie us up into doing nothing for a long time. What do we do?
My constant theme is we follow Massachusetts' and California's lead and we implement product standards, particularly, but not only, emission performance standards. We allow for credit trading and joint implementation so that multiple companies can come together to comply with the product standards. In fact the most robust, vibrant, and valid emission markets that exist today in North America and Europe are markets in which entities trade credits for overcompliance with product standards. Those are much more vibrant, robust, and valid markets than the emerging emission markets; they're much more robust, vibrant, and valid than the now aged, and still not working, sulphur dioxide allowance market.
In my submission I've described for you various different product standards that have histories of success. As I said, Massachusetts has been regulating emissions from a product standards standpoint since 1997, and when California passed Bill AB 32 in September, which was passed into law by the governor in December, the legislature of California in that legislation actively rejected cap and trade and elected to pursue a product-standard type of regulatory approach.
My recommendations are encouraging you to hook up with other jurisdictions that are meaningful to us and that are moving forward; it's not about stepping back.
I think I'll close my remarks there, and we'll see what you want to talk about in questions and answers.