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

[Jeff Watson, Conservative, Essex, ON]

I want to pick up on something Mr. Jean started on earlier. I'm coming back to the idea of a global carbon market. Of course, with people watching these proceedings here today, would a global carbon market allow transfers of wealth from developed countries with good human rights records to developing or underdeveloped countries with poor human rights records?

[John Drexhage]

It's all up to the originator, so there is nothing to stop the Canadian government from designing such a system in such a way that in fact those kinds of things do not occur.

On the other hand, if we're talking about needing to have more global engagement, more commitments by the global community, how do we get them engaged? Let's show them first-hand through things like the clean development mechanism. I don't care whether it's the government doing it or industry doing it, but make those investments overseas in China and India and elsewhere where in fact one can be green and still allow the economy to prosper. It's very important to show that on the ground.

[Jeff Watson, Conservative, Essex, ON]

Okay, I hear you with respect to being green, but you haven't addressed the issue of human rights.

[John Drexhage]

Again, there's nothing to stop the Canadian government from developing a system that explicitly states whatever conditions it wants under which such trading would take place. So if it in fact is not comfortable having a carbon trading system with a country or a region within a country that has some suspect human rights issues, it has every means at its disposal to make that explicitly clear.

[Jeff Watson, Conservative, Essex, ON]

Fair enough.

In discussion around making or not making the Kyoto target, you brought up the concept of buying from the future.

[John Drexhage]

Yes.

[Jeff Watson, Conservative, Essex, ON]

Let me just review this so I've got it straight in my head. If we go ahead and make investments in certain technologies now and we demonstrate that it's going to lead to a certain amount of verifiable emissions reductions, that would apply in post-2012, or would you say we'd go to them and ask that it apply in the 2008 to 2012?

[John Drexhage]

In our negotiations, which are going on right now and are at a very critical part right now, the focus is the commitments that countries are going to be taking on after 2012. Canada, in defining what its commitment should be after 2012, can make some calculations based on investments that it's making now on carbon capture, on clean coal, on east-west, and make calculations that these will result in these kinds of reductions and that it will put us on this kind of emissions path.

Out of that scenario, we will use so many megatonnes, at an interest rate that the Kyoto Protocol obliges, to compensate for the fact that we didn't meet the specific allocation defined under the Kyoto Protocol between 2008 to 2012. That is the mechanism by which Canada could do it.

[Jeff Watson, Conservative, Essex, ON]

If we make investments in these technologies, which are presumably low-hanging fruit, to some degree--I mean, they're almost ready to go or pretty close to that--does that leave us in a position, at some point, where the next stage of technological breakthroughs would be costlier than purchasing on an international market?

[John Drexhage]

Well, they already are, to a large degree.

[Jeff Watson, Conservative, Essex, ON]

So some are probably purchasing on an international market, then?

[John Drexhage]

Again, it's the decision of the government, in terms of how much it wants to scope out. If it wants to bring in a definite limit on how much should be purchased internationally, it could do so, saying that such and such a percentage of our reductions could be done through this means or through that means.

On the initial cost from carbon capture and storage—this is not low-hanging fruit, per se, at this point in time—this would still require some very significant initial capital investment, but once that's rolling I would expect that the costs would be significantly decreased, not increased.

[The Chair, Conservative, Laurie Hawn]

Thank you very much.

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

We're going to split up—

[The Chair, Conservative, Laurie Hawn]

Okay, for five minutes.

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

I think this has been really helpful. The whole point of this exercise was to demonstrate that in fact the things we're being told that won't work in Canada are actually working elsewhere. That is to say that Europe seems to be the furthest along among the industrial nations. It's the largest group of countries that is actively working towards greenhouse gas reduction and using the Kyoto Protocol in an active way, like the clean development mechanism.

I'm asking John Drexhage this question. Does it make sense, given the fact that Europe is the furthest along and the largest group of countries currently involved in this exercise, that we take our lessons there? That is to say that we probably want a cap-and-trade system rather than a carbon tax system because that's where Europe is, and that gives us a market to go to. We probably want to pick up on their experience in terms of the clean development mechanism, as Mr. Delbeke has described it--the working out of the bugs, the problem with the China factory, all the rest of it--because they're the furthest along. So the more our system looks like their system and lines up with that, we have a precedent and we have allies and we're part of a bigger system.

[John Drexhage]

Yes. As we found out this morning, there's an awful lot of valuable learning that we can take in from the EU system. For example, as I've repeated on more than a couple of occasions, in developing a regulatory framework begin simply and gently. That's very much a lesson that's being taken on board in the United States.

The other thing I would note is in the development of the regional systems in the United States. Certainly with the regional initiative in New England, which is up and running, and in the development of the California greenhouse gas registry system as well, under Governor Schwarzenegger, they are very active, as Jos already mentioned, in discussions with the EU about the kind of system they're developing and they are very, very keen on making sure there are linkages.

You have the agreement, for example, between Prime Minister Blair and Governor Schwarzenegger, ensuring that in fact there is such a linkage. Clearly we are already beginning to see the beginnings of an international regime on this, as it were. It's important, number one, that we link, but number two, the sooner we get in on this game, the sooner we can make sure our particular sensitivities are sufficiently reflected that there's sufficient flexibility to address that.

[The Chair, Conservative, Laurie Hawn]

Mr. McGuinty.

[David McGuinty, Liberal, Ottawa South, ON]

Thank you very much, Mr. Chair.

It might be actually important for us to hear from more American witnesses, Mr. Chair, particularly from the Pew Center on Global Climate Change, about some of the trends in Washington. I will just put that to the committee.

Perhaps I could go back to Mr. Delbeke. Mr. Delbeke, there are varying estimates of the size of an international carbon market once up and running. I know Deutsche Bank has been leading, out of Germany, a lot of the analysis. The World Bank has been completing analysis. Some of the numbers I've seen here in Canada show that in 2005 it was an $11-billion market worldwide. It is growing rapidly. I've also learned just this morning about Canada's move from about 33% of the market in the late-1990s to probably less than 1% today, and there has been a massive shift to Europe and to the London, U.K. markets in particular, in the city, which has become the hub of international emissions trading.

Can you give us a sense of the magnitude of the international market? I'm told by some experts in Canada that a mere domestic market here in Canada is likely to be very small, very illiquid, and largely irrelevant on the international scene. What is your thinking? What does your analysis show? How big a market do you anticipate? I know Deutsche Bank, about four or five years ago, estimated that a fully fledged international emissions trading system under Kyoto would be larger than any stock exchange presently on the face of the planet. How big is this going to get?

[Jos Delbeke]

It's very difficult to make a forecast, because we have to make speculations about the magnitude of the emission quantities traded and about the price. What we have been looking at is that for the short history we have, we are now today, in 2006, with the market volume of $22 billion Canadian. I calculated that according to the latest exchange rate in order to put the order of magnitude forward. Of that, 80% is now located in Europe.

What I see following the national allocation plans that we are currently negotiating with the member states is that the interest in JI and CDM credits is rapidly increasing. The reason for this increase is that we have been coming forward with long-term targets, targets in the perspective of 2020. One of the reasons we would declare ourselves with a unilateral target is motivated by that. It has a double motivation.

First, we want to give to the developing countries the signal that we are serious with them--that if they are setting up these CDM projects, we are not going to let them down after 2012, because it takes some time to develop those credits.

Second, we want to give the signal to those developing the technologies of the future inside Europe that we are not going to let them down either. It's not a question of having the technologies there and no longer supporting them after 2012. That's why we are so committed to a long-term signal, 2020. It's long term, but not too long term, because we have observed when we are trying to discuss figures for 2050 that they may be too long term, and not drive the political action that we need. So we thought 2020 was the right balance, with the right technologies we need and the right signals we need to engage developing countries.

[The Chair, Conservative, Laurie Hawn]

Thank you, Mr. Delbeke.

For the final five minutes, Mr. Manning, please.

[Fabian Manning, Conservative, Avalon, NL]

Thank you, Mr. Chair, and I'd certainly like to welcome our guests.

First of all, to Mr. Delbeke, recent polling here in Canada has placed the environment at the top of the concerns of Canadians. Under that environmental umbrella, two main priorities are air quality and human health. I've seen efforts put forward in the EU--in 2001, the clean air for Europe, the CAFE program, and in 2005, thematic strategies on air pollution--and I wonder if you could tell us how these programs complemented your efforts to reduce GHG emissions in the EU.

[Jos Delbeke]

As I indicated, there are lots of co-benefits. When we act in the context of air quality, we have side benefits on greenhouse gas emissions and the other way around. When it comes to sulphur and NOx, in Europe--and I think it's very much your experience as well--on both sides of the ocean, we have made tremendous reductions thanks to the technology that we have been developing.

In terms of NOx concentrations and particulate matter concentrations, in urban areas we are not yet there. We have a problem primarily with transport, and that's the common problem between clean air and climate change. We have lots of progress when it comes to the emissions from big industrial installations, but we are neutralizing that progress with a very rapid increase of the emissions coming from our transportation system. I can give you figures that for industrial installations since 1990, we are reducing our emissions between 10% and 25% in the power sector and the industrial sector, according to which subsector we are talking about, but we are increasing our emissions from transport by 33% over the same period. So transport is what we have to look at for the traditional local air pollutants, but equally so for reduction of greenhouse gas emissions--hence our regulations on cars and on fuel--because it is private transport, the mobility problems we have in urban centres, that are at the core of the problem on climate change as much as on traditional air quality.

[Fabian Manning, Conservative, Avalon, NL]

Thank you.

To Mr. Drexhage, in our conversations this morning we talked about voluntary compliance and a higher cap, and you mentioned under the regulatory framework the notion to go forward sensibly, simply, and gently. Can you tell us what you believe would be some of the possible negative outcomes that could come as a result of higher caps?

[John Drexhage]

More than anything else, I have a concern that the toothpaste may be a bit out of the tube. Intensity targets have been discussed not only by this government but previous to that, particularly with Alberta and the large final emitters in the west. If we were to have a very strong political discussion now and insist on absolute caps, it would once again detract from taking action. That's where I'm most concerned.

A lot of this stuff is just polemics and debate: no hard cap, soft cap; Kyoto, not Kyoto. To me it's a matter of starting with some kind of program and getting the act going. Theoretically, having absolute caps is probably the simplest way of implementing something like greenhouse gas emissions trading. But because intensity has been part of the political dialogue for the last few years, my concern is that if we bring that back again it will needlessly politicize the situation, particularly vis-à-vis Alberta.