Bill C-30 (39th Parliament, 1st Session) Committee on Feb. 13th, 2007

[The Chair, Conservative, Laurie Hawn]

Ladies and gentlemen, we have a quorum, and I'd like to bring the meeting to order.

I'd like to welcome everyone to meeting number 8 of the Legislative Committee on Bill C-30.

As we said yesterday, we are short one witness due to a family situation, which is regrettable. So we have two witnesses today: Mr. John Drexhage, director of climate change and energy from the International Institute for Sustainable Development; and by video conference from Brussels, Mr. Jos Delbeke, director, climate change and air, from the delegation of the European Commission to Canada.

Welcome to both our witnesses. And Mr. Delbeke from Brussels, thank you very much for joining us.

As is customary, we will give each of the witnesses about ten minutes for an opening statement. We'll probably have a little bit more time for Mr. Drexhage, as he has some helpful information that will assist the committee with regard to the witness we're missing.

Mr. Drexhage, the floor is yours for your initial ten minutes, and then we'll take it from there.

[John Drexhage, Director, Climate Change and Energy, International Institute for Sustainable Development]

Thank you very much, Mr. Chair.

Allow me to thank you and the other members of this committee for the opportunity to speak to you today on this critical issue.

I will focus my comments on relevant international aspects, including the lessons Canada might want to consider from the experience of others, particularly the United States and the European Union; how the development of a domestic climate change plan is intimately linked with ongoing discussions on a post-2012 climate change regime; and the implications for Canada of the recently released report of the Intergovernmental Panel on Climate Change.

First of all, allow me to address some of the comments that I would expect from the European Union.

The IISD facilitated two workshops last December to which we invited European and American experts to comment on two compliance elements of the Clean Air Act, namely, emissions trading and a technology investment fund. The messages coming out of these various fora are basically the same. I think the first message that resonates strongly is that in implementing any sort of regulatory framework, start with a relatively simple system that begins gently. This is easier said than done, since an effective framework in Canada needs to have in place a framework that balances international developments with the unique circumstances of Canada as a major energy exporting developed country.

At the workshop IISD facilitated on December 12 and 14 of the past year, the experts included people from Jos Delbeke's shop in the EC, as well as participants from the U.S. EPA and other organizations within the United States.

We specifically reflected on these two compliance elements that have been the subject of much discussion over the last few months as the Clean Air Act has been developed, and as is found in the statement of intent.

The two main compliance mechanisms being discussed—emissions trading and the technology investment fund—represent distinct approaches to climate policy. Trading relies on emissions limits or caps, while allowing the price to be determined by the market. Depending on its design, the technology investment fund, on the other hand, could fix the price while allowing the quantity of near-term emission reductions achieved to vary.

At the workshop we facilitated—where we had some 60 experts from across Canada, North America, and the European Union, with 30 of them participating in each of the workshops—some participants preferred the certain environmental outcome provided by emissions trading, while others preferred a defined price to allay fears that addressing climate change and reducing your greenhouse gas emissions would be too costly an enterprise. I guess you could say there generally were two perspectives, one of them related to quantity certainty, with some participants placing a high priority on a simple and economically efficient trading system that could link with other systems, such as the one being developed in the EU. People who preferred to focus on quantity certainty were concerned that mechanisms such as the technology investment fund would compromise the effectiveness of the trading system and make linkages with other systems more challenging.

On the other hand, the champions of price certainty were more concerned about the cost of compliance, particularly given the issue of capital stock turnover, and wanted a dedicated fund with a price cap as a more effective means of ensuring that action would begin in one way or another. A technology investment fund would feed into the achievement of long-term commitments by stimulating innovation, but it should be designed to minimize impacts on the effectiveness of the emissions trading system.

Both the technology investment fund and an emissions trading system can be mechanisms for compliance, but they perform largely separate roles. However, despite these potentially conflicting priorities, a system could still be envisioned whereby you could have both a technology investment fund and emissions trading.

Many agreed there was a need for some sort of an emissions trading mechanism where companies that over-complied with their targets could sell credits to other obligated companies. There was also some support for another mechanism whereby companies that could not meet their targets internally could contribute to a technology investment fund in return for nontradeable compliance units.

Companies that met their targets could sell excess credits to companies that could not meet their targets, and companies that could not meet their targets could also have the option to purchase these non-tradeable technology investment fund units.

We also addressed the whole issue, as is within the mandate of the Clean Air Act, of local air pollutants. One of the really startling lessons coming out is that as far as long-term targets for local air pollutants are concerned, you don't have anything beyond 2020 in any constituency around the world--and that's found only within the European Union itself, and has itself only been legislated recently as well--so in terms of this work on long-term emission limits and targets for local air pollutants, you could say we're very much on the leading edge in terms of the precedents in developing this.

I think there was an overall conclusion that in any kind of regulatory system that addresses both local air pollutants and greenhouse gases, you look at it from a perspective of asking where the co-benefits are, but to try to regulate local air pollutants as you would greenhouse gas emissions under one system would be extremely problematic. You would need to have--and in fact it would be much more effective to have--separate regulatory systems for greenhouse gas emissions and local air pollutants.

It was thought that there could be some very real potential for cross-border trading with the United States when it came to local air pollutants, and there was strong interest on both sides of the border in pursuing that.

Notwithstanding the previous comments I made regarding the conclusions of these two workshops that we facilitated in Ottawa and Montreal in late December, I would like to continue on in my intervention to state that what we need to do--and urgently--is put in place a regulatory framework for our large industrial emitters that gives clear signals that significant emission reductions in the not-too-distant future will be required, but that also provides the necessary wherewithal to make the transition as smoothly as possible.

I would like to note, notwithstanding the comment I made earlier, that we are not--and I would like to emphasize we are not--operating in a vacuum here, and the more the system we develop here allows for linkages with our major trading partners, the more effective it will likely be. There is a keen interest in many of these countries to develop an effective global carbon market, and Canada needs to seriously consider its role in such an equation. We're well aware of the United States and the European Union, but we are also hearing the same sort of message from countries like Australia, where Prime Minister John Howard recently established a joint government-business task group on emissions trading. Their terms of reference include advising on the nature and design of a workable global emissions trading system in which Australia would be able to participate. Why? Because economic model after economic model convincingly demonstrates that a global carbon trading mechanism will significantly reduce the costs of meeting our ultimate objective of delivering a safe climate system to future generations.

As it was put to me yesterday, in the case of climate change, just as emissions know no borders, so do emission reductions. Of course, we also need to focus on developing mechanisms and technologies here in Canada, but it is not an either-or scenario; in fact, if these technologies were properly designed, Canada could take advantage of the carbon market as a way of launching and commercializing relevant carbon-reduction technologies.

But what of meeting Kyoto, once again? Who knows, at this point? Remember, we are talking about trying to forecast Canada's emission trajectory six years from now, and we mustn't lose sight of the many flexibility provisions in the Kyoto Protocol beyond the so-called market mechanisms. In particular, I am referring to the compliance provisions under the Kyoto Protocol. Under it, the Government of Canada has an opportunity to borrow from its future commitment period and add an interest rate to meet its target of 2008 to 2012. Doing so credibly would mean we could still begin developing a regulatory framework that begins sensibly, with a clear message that significant reductions would be required in the next commitment period--after 2012--and, crucially, a much more comprehensive plan that will address all relevant sectors of Canadian society.

This would include significant support now towards large infrastructure investments in areas such as carbon capture and storage, clean coal, and a clean east-west transmission line across Canada; the rapid acceleration of incentives for alternative energy initiatives, including distributed generation or cogeneration, and combined heat and power; accelerated fuel efficiency standards in the transportation sector; and strong policy signals directed towards energy efficiency and conservation programs.

I am convinced that if we put these elements in place over the next year, we will be pleasantly surprised at the scale of reductions we actually will be able to achieve, and we will demonstrate to the global community that we are a serious player in addressing climate change.

In regard to this latter consideration, it is important that this committee consider that the government made a series of commitments at the last meeting of the ad hoc working group on further commitments for annex 1 parties under the Kyoto Protocol, held in Nairobi, which commits it to undertake and communicate an analysis of the mitigation potential of current and future policies, and identify a possible range of emission reductions and the means available for achieving them. The sooner we have a comprehensive plan and analysis in place here in Canada, the sooner we can play a meaningful role in these critical discussions regarding post-2012 commitments. As I understand it, we have a deadline of February 23 to provide initial submissions, and it would be useful to know what the Canadian government is planning to provide in that respect.

I would also be curious to know the status of two other submissions for which Canada has missed deadlines. Under the Marrakesh accords, Canada, along with all other annex B parties to the Kyoto Protocol, committed to provide an initial report by January 1 of this year. That in essence demonstrates that Canada has the infrastructure in place to participate in the first commitment period, including the ability to measure and track our greenhouse gas emissions. This includes, among other elements, providing a complete inventory of our greenhouse gas emissions, including sources and sinks, a clarification of what will be counted under managed forests, and a description of our national registry. To my knowledge, Canada has yet to even develop any such registry.

Canada has also missed the deadline in submitting its fourth national communication, which provides an update on Canada's national circumstances and progress in reducing its greenhouse gas emissions. This was due January 1 of 2006, which means that the government is more than a year in arrears in meeting this commitment.

These oversights, unintended or otherwise, point to the fact that for too long, and I must emphasize under a number of prime ministers—this didn't just start a year ago, this has been under a number of prime ministers—there has been a serious gap in federal policy-making between domestic and international considerations. I cannot emphasize the extent to which we are suffering in terms of our international reputation and credibility for it.

The very word “Kyoto” has taken on all sorts of connotations, most of which unfortunately have only worked to needlessly politicize the issue of climate change in Canada. In particular, all the attention on our specific targets has resulted in our losing sight of the fact that the Kyoto agreement has critically established, and continues to establish, the international policy architecture for addressing climate change, from methodologies for how we count, verify, and report our emissions, including biological sequestration activities, to developing work programs for adaptation, and establishing the rules for the operation of the many flexibility provisions in the agreement.

I have one final thought, Mr. Chairman, on the implications of the Intergovernmental Panel on Climate Change report out of Paris a few weeks ago. In my view, the most critical conclusion coming out of that report was the indisputable link demonstrated between human activities and the global warming phenomenon. In response to that, the way forward means a carbon-constrained future over the 21st century. Let us be clear: there is no more ambiguity around that. This means that the Canadian economy must adjust to that reality.

More to the point, I would submit that the time is right for a comprehensive national dialogue on Canada's energy priorities and interests. All constituencies in Canada, as far as I'm aware, whether at the federal, provincial, or municipal level, appear committed to becoming “clean energy leaders of the world”. What that actually means, and how we can make it happen for the sake of the environment and the economy, need to be urgently addressed.

In closing, Mr. Chairman, allow me to simply repeat what I already stated before the Standing Committee on the Environment last November: Ultimately, successfully addressing the grave and pressing threat of climate change means an evolution in understanding what national interests truly signify: acting responsibly for the sake of the environment and our children.

The latest polls clearly demonstrate that Canadians are ready and impatient to face the challenge. It is time, I humbly submit, for politicians of all stripes to demonstrate the same resolve in a constructive spirit.

Let us not let the issue of targets get in the way of getting started in a real, productive, and constructive way that benefits our global environment and works to put Canada truly in the lead as a global clean energy leader.

Thank you, Mr. Chairman.

[The Chair, Conservative, Laurie Hawn]

Thank you, Mr. Drexhage.

We'll turn to Mr. Delbeke.

Mr. Delbeke, could you identify your assistant, please?

[Jos Delbeke, Director, Climate Change and Air, Delegation of the European Commission to Canada]

Good afternoon...or good morning in Ottawa.

My name is Jos Delbeke. My colleague is Mrs. Dranseikaite, from the International Department of the European Commission dealing with environmental issues.

It's a great pleasure to address your committee today.

I can assure you that within the EU we are having a very lively debate on climate change. We had unusually high temperatures during the winter. We also had very convincing new scientific evidence--the IPCC report was mentioned, and we had the economics review by Sir Nicholas Stern from the U.K. I would even go as far as to say that not a single day is passing without newspapers and media making reference to climate change and the issues in front of us.

Within that context, Mr. Chair, allow me to make three basic points: the first is the global political context of decision-making in the EU on climate change; then, to perhaps go into more specific issues on the European's emissions trading scheme; and then some specific comments related to the economics of what we are doing--air pollution, local air pollutants and things like that.

First, on the global political context, I think the European Union is preparing its act to address not only the commitments under the Kyoto Protocol but also how to prepare for the longer term. In terms of the climate change science, 2012 is around the corner and we have to put it into a perspective of at least 2020. That's so we can reassure our economic decision-makers in private companies and give consistent and coherent signals to our consumers in terms of using the technologies and equipment we need in the future.

Cost-effectiveness is a very important element of our discussion. In fact, on January 10 the commission made some important decisions to put on the table of our heads of state meeting on March 8 and 9--in a couple of weeks from now. These heads of state and government are expected to pronounce themselves on long-term climate change objectives for the EU. They are addressing a coherent package of measures in the fields of energy and climate. It deals basically with three sorts of issues, which are an important overlap in what we are discussing here. These are issues related to the improvement of energy efficiency generally--buildings, cars, appliances, etc. We think we are not doing too bad in the world today, but there is a lot more we can do. We have the technologies available for that.

The second issue is how to put much more effort into the development of renewable energy sources. It's not only about solar and wind, in which we are doing relatively well so far, but also to develop biofuels and the new technologies in this respect.

A third element that we are developing is on carbon capture and storage. We think this new technology is about the future of using fossil fuels in a sustainable manner and the future use of coal. This is a very important message when it comes to other parts of the world, not only in Europe, but in China, for example, or South Africa or Australia, where plenty of fossil fuels and coal resources are available.

In that context, the European Union will discuss two kinds of targets. In view of 2020, there is a target for the developed countries as a group. We think we should put a target on the table for the developed countries of a reduction of 30% by 2020 on 1990 levels.

At the same time, our heads of state are going to discuss how within the EU, irrespective of the international negotiations on this 30% target, we should now adopt a target of a reduction of 20% of our greenhouse gas emissions by 2020, measured on 1990.

To put that into perspective, today under the Kyoto Protocol, the EU is reducing its emissions by 8% by 2012. We would take a unilateral commitment to go further from the minus 8% in 2012 to minus 20% in 2020, primarily through the use of new energy technology.

It is our firm commitment to develop and to take leadership in the development of technologies, the energy technologies of the future that the world is going to need.

Only a few days ago the European Commission also put forward, at the table of the council, quite an ambitious proposal to radically reduce the fuel consumption of cars from the more or less 160 grams per kilometre that we have today down to 130 grams in 2012, which means a significant improvement.

Our car manufacturers are looking into that. On average, we think we have all the technologies at hand, but putting it into reality is of course going to be a major industrial challenge that we are happy to take on.

Similarly, when it comes to fuels, we have on the table the commitment to gradually decarbonize the fuel content of our transport fuels, with 1% on average between 2010 and 2020. The cars in the fuel proposal would bring us a reduction of 500 million tonnes of carbon dioxide by 2020, which is the equivalent of the member states, Spain and Sweden, today.

As an introductory comment, the European Commission and other heads of state are going to discuss these issues in a couple of weeks. They are very much determined to continue our commitment on climate change within a long-term perspective, and that means beyond Kyoto.

My second point is on the emissions trading scheme the EU has developed. In fact, our scheme has been up and running since January 1, 2005. As we see it, it is the pre-period, 2005-2008, the period before the Kyoto Protocol starts. We know our system is up and running, but at the same time, we have a number of points to address.

In fact, Europe lacked the database, if not to say the very demanding database, that was needed to launch the system. The pre-period of 2005-2008 has now given us all the tools to be ready by January 1, 2008, when the Kyoto period starts, to have all the elements of the infrastructure in place.

Our scheme today is covering all major industrial installations of the industry in the power sector, some 11,000 installations, covering roughly half of the emissions of the EU, and that means the 27 member states we are forming today. In 2006 the market volume of real changes of emission allowances was in the order of magnitude of $22.5 billion Canadian.

The system is up and running. As I said, we have some teething problems to address, and we are addressing them. As part of the review, we are also studying how to extend the system in two ways.

On more sectors, we have international aviation on the table. A proposal is being discussed these very days in your beautiful country, in Montreal, in the context of ICAO.

We also have a lot of proposals and ideas on the table on how to internationalize the European trading scheme, and we in fact have two vehicles to do that. We have the Kyoto Protocol that is creating the so-called project-based instruments, the clean development mechanism and the joint implementation mechanism.

Today our European member states have committed more than $4 billion Canadian for the period up to 2012. When I observe what our public authorities in the member states are planning, I think this figure is going to increase.

Before I move on to the other possibility of linking, we think that investing in projects related to clean technology, such as in the context of the clean development mechanism, is a very good case of technology transfer. It is a very effective way of cooperating with developing countries, and on top of that, it is a very cost-effective way of reducing the compliance costs that our companies are incurring. There is quite a bit of support, because after all, greenhouse gas emissions do not know any borders. If we can, with the same euros spent, reduce emissions more in other parts of the world compared to what we do in Europe, we think that is a good economic case to be made, and we collectively think we should go for it.

Of course, a very important question for public opinion here is that any moneys spent on the clean development mechanism and on joint implementation should be spent in a very solid way, not in a way where we just would transfer moneys, finance, but in a way whereby it is money spent in tangible emission reductions, in tangible investments wherever in the world, but in tangible emission reduction projects. That's a very important element. What we are discussing here in the context of the CDM NGI is not what some are calling hot air coming from the ample availability of emission allowances in the transition economies, which have a quite significant downturn in economic terms.

Where we are putting a lot of effort in is to see whether, in a medium-term perspective, we could link up our own cap-and-trade scheme with trade schemes elsewhere in the world. We were more than happy to be present in a working group, as was mentioned by John Drexhage, in Canada, and we are more than eager to follow up that discussion if there is an interest in Canada to do so.

We are in close cooperation with our colleagues from the California Air Resources Board. We are increasing our contacts wherever in the world on this issue, and this possible way of linking trading schemes around the world is becoming an issue of very high attention here. Let me underline that it would be our pleasure to cooperate with Canada further and in a more operational way in this respect.

Just to finalize, I have a couple of comments I would like to say on issues that were just raised. We think indeed in dealing with local air pollutants there are a lot of co-benefits to be reached also in terms of climate change. In fact, there is some ability to go either for tackling local air pollutants and have a side benefit in terms of greenhouse gas emissions, or just go the other way around. I think we are looking at both sides, but in particular also at the co-benefits when we regulate cars and fuels in the European Union, as I indicated. But there is a strong economic case to be made for acting in transport. If we are clever, we can have co-benefits in terms of traditional local air pollutants and climate change.

We did a lot of economic studies. In fact, related to the climate paper that the commission was adopting we have a full-fledged economic analysis attached to it that is available on our website. We think there is a good economic case to be made about climate change and the policies related to that, if only we go for the development and deployment of the new energy transport and industrial technologies in our economic system.

As my last comment, Mr. Chair, we have had in the European Union now almost a decade and a half to two decades of reflection on what needs to be done on climate change. The Europeans made a deliberate choice not to go for carbon taxes. We had a discussion on carbon taxes. We have a standing tradition on energy taxation, but we were making a deliberate choice for emissions trading, emissions trading primarily among actors within the EU but also with an openness to link up with those mechanisms created under the Kyoto system and with those, wherever in the world, who would develop similar trading systems.

So there is a strong determination for the Europeans to continue with emissions trading. The emissions trading we currently have is not limited to the Kyoto Protocol, so it's not going to stop in 2012. But in operational terms, with the targets that are now on the table, we are extending the timeframe up to 2020. We are open to any discussions, with whoever in the world, to follow that up in more operational terms.

Thank you, Mr. Chairman.

[The Chair, Conservative, Laurie Hawn]

Thank you very much, sir.

I'll remind members that Mr. Delbeke will be back before the committee on February 27 to speak about emissions trading specifically.

We'll start our round of questioning with Mr. Godfrey, for seven minutes.

[John Godfrey, Liberal, Don Valley West, ON]

Thank you both for being here--in Mr. Delbeke's case, in such a carbon-saving way.

I'd like to pick up where Mr. Delbeke left off and ask both of our guests a question about the clean development mechanism as envisaged under the Kyoto scheme. Let's say someone were to describe the clean development mechanism in the following way: We will not spend taxpayer dollars to buy international hot air credits just to meet our Kyoto targets; these hot air credits would be a bad investment for Canada, spending billions of dollars abroad for zero environmental benefit.

I would like to ask both of you whether that represents a complete and well-informed understanding of the way in which the clean development mechanism is supposed to work, or is actually working, under the Kyoto Protocol.

Mr. Drexhage.

[John Drexhage]

I think it's perfectly within the government's mandate to decide exactly what kind of actions it feels are the most effective in meeting the targets we have committed to. I don't want to get into the business of saying that the government should or should not get into the business of buying credits. I'm simply trying to clarify that in terms of what's available out there, there are an awful lot of legitimate activities taking place where real reductions are happening.

I'd like to give you the examples of the Ukraine and Russia, because hot air is mostly identified with them. If the government so chose, it could provide the flexibility to industry--and as I understand it, the government is still considering this option--to purchase internationally. I would strongly urge the government to keep that option open as far as industry is concerned.

To give you an idea, some 45 projects have now been fully approved through the UN system. These are referred to as joint implementation projects, but they are of the same type as the clean development mechanism projects you just referred to, Mr. Godfrey.

Some 93 megatonnes in reductions have been achieved through these projects. If you look at the areas, they're areas where in fact Canadian industry has an awful lot to contribute. They're areas such as energy efficiency, fuel switching, coal mine methane, and--the most significant one--fugitive emissions from oil and gas.

To give you a very concrete example, we're incredibly efficient with our natural gas transmission compared with countries like Russia or the Ukraine, where they have significant fugitive emissions. Now, what is more cost-effective from the perspective of a company like TransCanada Pipelines? Is it to spend a certain amount of dollars for a very minute reduction in greenhouse gas emissions--which would be the case in Canada, because we're already relatively so efficient in that department--or is it, for the same money, getting a much bigger bang in terms of greenhouse gas reductions in countries such as the Ukraine or Russia?

Some 42 megatonnes have already been saved. The methodologies for demonstrating that kind of saving are very easy to establish. The monitoring is very easy. I'm not trying to say here exactly whether the government should get in the business of buying credits or not buying credits. I'm simply trying to say that we should keep that option open if in fact we want to try to allocate that responsibility, then, to large industry.

[The Chair, Conservative, Laurie Hawn]

I'll just point out that we've lost Mr. Delbeke. I think we're trying to get him back now.

Why don't we continue, Mr. Godfrey, with your questioning?

[John Godfrey, Liberal, Don Valley West, ON]

I'm sorry about Mr. Delbeke. Maybe we can have another chat.

Mr. Drexhage, there has been a lot of talk about intensity targets. Can you tell us the challenges of intensity targets versus hard caps with regard to emissions trading?

[John Drexhage]

Yes. Mr. Delbeke could probably deal with this as well.

By no means am I a technical expert on this, but I think the biggest problem is simply “truing up”. When you're doing an intensity-based system, you basically have to make an estimate at the beginning of the year of how many megatonnes you would expect that reduction to provide. Then you can put those megatonnes on the market for trading purposes, and then at the end of the year you have to verify how many reductions it actually provided. It can be done, but it represents one more little wrinkle in terms of the overall efficiency of the system.

I would also point out that in the United States it's sort of “let a thousand flowers bloom” time as far as the different cap and trade systems that are being proposed. There are systems being developed in New England, in California, and there are over a dozen proposals on the Hill right now in terms of these emissions trading proposals. Of all of them, only one, proposed by Senator Bingaman from New Mexico, is an intensity-based system.

There are a couple of other Canadian wrinkles as well that are seriously being considered and have been considered for the last few years. The other one relates to the technology investment fund. There is quite a bit of interest in the United States in some kind of technology wrinkle in part of the system, so I wouldn't be surprised if that is somehow captured. And also, in terms of some kind of price signal or price cap, the jury is split as to whether or not an American system would eventually provide that.

[John Godfrey, Liberal, Don Valley West, ON]

Can I go back to Mr. Delbeke briefly?

[The Chair, Conservative, Laurie Hawn]

Yes.

Mr. Delbeke, you're back?

[Jos Delbeke]

Yes, we are back, and I was so sorry that we missed the question.

[John Godfrey, Liberal, Don Valley West, ON]

Let me rephrase the question. Quite simply, is the clean development mechanism and the joint implementation mechanism under Kyoto the same thing as buying hot air? Or can we be assured that there is verifiability for these emissions internationally and that there is a true reduction, as is envisaged under the Kyoto plan?

[Jos Delbeke]

For us there is a very fundamental difference, in the sense that the credits we earn under CDM are related to projects, to investments, to real tangible things that are controlled by the UNFCCC. In that context, a CDM executive board was created.

To my knowledge, we have had only one accident so far, and that was projects related to HFCs in China that were relatively cheap, a cheap way of trading emissions that sparked a little bit of controversy and which we will bring to the table to redress. But it is the exception, not the rule. We have very good experiences with CDM projects. What we will have to pay attention to is that we diversify CDM projects all over the globe, and not just concentrate them in Asia or in one major country such as China. It makes a lot of sense, but at the same time we should not forget about other parts of the world, and in particular Africa.

These CDM credits are to be distinguished from trade in the so-called “assigned amount units”, the AAUs under the Kyoto Protocol, because we are less sure that AAUs being traded are corresponding with clear emissions reductions. To date, no single European country has traded AAUs outside the EU, and the reason is exactly this. Within the EU and in the context of the emissions trading system, we are exchanging AAUs, but there is a whole infrastructure behind that EU ETS to make sure that real emissions reductions are corresponding with what is being traded.

So while we are, in public opinion, definitely positive about CDM, I see a completely different case with the AAUs and in particular those that come from Russia, since we do not know exactly whether corresponding emissions reductions would happen.

Thank you.

[The Chair, Conservative, Laurie Hawn]

Thank you, Mr. Delbeke.

We'll move on to Monsieur Bigras, for seven minutes.

[Bernard Bigras, Bloc, Rosemont—La Petite-Patrie, QC]

Thank you very much, Mr. Chairman.

My questions will be for Mr. Delbeke, from the European Commission.

Europe, which has to reduce its greenhouse gas emissions by 8% from the 1990 level certainly has a better record in this regard than that submitted by Canada in Nairobi. You have decided to rely on section 4 of the Kyoto Protocol, that is the option of reaching your goals in a joint manner. So you have decided as soon as June, 1998 to adopt a so-called tryptique approach that reconciles the sectorial and territorial approaches.

Thus, Europe must reach a goal of minus 8% compared to the 1990 level of emissions. However, this system allows countries such as Greece to increase by 25% their greenhouse gas emissions. By contrast, Luxembourg must reduce its emissions by 28%. During the negotiations, an English representative had described the proposal of putting forward the tryptique model as being logical, defensible and transparent. Only if the tryptique approach had been deeply flawed could it have been rejected out of hand.

What benefits do you perceive in such a model that you have implemented in order to reach the Kyoto Protocol objectives?

[Jos Delbeke]

Thank you very much.

This is a very important issue indeed, and with hindsight I think at the European Union we thought that this differentiation was necessary in order to cater to the very different circumstances in the member states in climatic conditions, but also in economic conditions. We have very different energy structures, for example. We have member states that are relying heavily on nuclear power--France or Belgium, for example--while we have member states that rely very heavily on coal-fired power stations and things like that.

It was not possible for the EU, given that we are dealing with a large number of relatively small member states, to deal with one single number that we would impose on each of them. Some have very many cost-effective reduction possibilities, others do not have that. But together, we can sort it out. That's why, while today we have a commitment of minus 8%, together for the EU it's 15%, because we have to take the historical conditions of the EU into consideration. Today we are at minus 1%, so we still have 7% to go. It's not because we have the luxury, so to speak, of the joint approach that we are not having very intensive discussions of how to economically cope with emission reductions, because emission reductions do not fall out of heaven. We have to invest in it; we have to spend money on this. We are doing it together. But one lesson we have learned in this entire debate, and certainly after a couple of years of intensive implementation, is that cost-effectiveness really does matter a lot. That is one way.

Sectorally, we differentiate, but also according to member state we differentiate. But after all it is the result that matters. We are going to deliver the minus 8%; we are on our way to doing that. Cost-effectiveness has been the issue that brings us to where we are today, and that is going to bring us to the minus 8% by 2012.

[Bernard Bigras, Bloc, Rosemont—La Petite-Patrie, QC]

I do want to congratulate you for having succeeded, starting in 1998, in reaching an agreement in only two years and this, in a market that was made up at the time of 15 independent countries. It is rather interesting to see that these 15 countries have been able to agree within two years on a common approach enabling them to reach the objectives of the Kyoto Protocol.

I would like to know whether, in your view, this tryptique approach, which reconciles the sectorial and territorial approaches, has facilitated the quick implementation of a carbon market and exchange within the European construct.

[Jos Delbeke]

Well, definitely, because in fact the 15 member states—now we have 27—do hang together very intensively within a common economic market. So environmentally speaking, we can learn from each other. Economically speaking, within such an integrated economic market we have to minimize economic distortions. Otherwise, member states are blocking each other. They are sitting on the fence and seeing what the others are going to do.

As part of our emissions trading scheme, we have to agree on national allocation plans. The commission has been developing a common methodology to make sure that industry, the power sector, and energy-intensive industry is treated in a very comparable way in the different member states. I'm absolutely sure that without such a common approach, it would have been extremely difficult for every single member state, on its own, to reach the targets in a cost-effective manner.

Our experience to date I think has been helpful, and emissions trading has facilitated that a lot.

Thank you.

[Bernard Bigras, Bloc, Rosemont—La Petite-Patrie, QC]

Mr. Lussier.

[Marcel Lussier, Bloc, Brossard—La Prairie, QC]

Mr. Delbeke, there are 11,000 installations that are being targeted by the regulations concerning greenhouse gas emissions. What are the categories of installations or plants that are not targeted by this regulation?

[Jos Delbeke]

In fact, what we have targeted are the major industrial installations of Europe. That's power, that's steel, that's ceramics, that's pulp and paper, and so on, and that includes chemical crackers--not the refined chemical applications, because we have lots of small companies, but really, the major industrial installations.

Now, we had a problem with them. We knew them. We had a permit for traditional pollutants, but we didn't know exactly what the greenhouse gas emissions of these plants were. So we asked every single plant to make a report, themselves, and to have that report verified by an independent verifier, very much like we see in the financial markets with accounting procedures, where a financial report is made and that financial report is verified by a third party. That has helped us to create, in less than one year, a coherent database that is very transparent and is available on the Internet and can be looked at by everybody. It has created a lot of transparency about the emissions of every single plant.

Even stronger than that, I have been told that because of the emissions trading market, and because of a price now being attached to carbon, the attention of every single CEO has been raised about what is happening in terms of greenhouse gas emissions in his own plant. So it's a very simple way of making accounts and speaking the language of the CEO and those making economic decisions.

Thank you.

[The Chair, Conservative, Laurie Hawn]

Thank you, Mr. Delbeke.

We'll move on to Mr. Cullen for seven minutes, please.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Thank you, Chair.

I have a question for Mr. Drexhage on the reporting to the United Nations, on Canada's behalf, that is not happening. Could you be a bit more clear? To the public hearing this--that Canada has missed some reporting dates and we're more than a year late--that might not sound all that controversial. Why is such a thing so critical to Canada's efforts related to Kyoto and to climate change in general?