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

[Brian Jean, Conservative, Fort McMurray—Athabasca, AB]

Mr. Drexhage, I feel that you have a pretty good perspective on international matters.

[John Drexhage]

Thank you.

It's a very interesting question and a very relevant question that you pose.

There's one thing to point out as far as the China experience is concerned, which Jos has mentioned. The Chinese government has unilaterally suggested that it is going to set up a sustainability fund. All funds collected through the sale of the HFC, through the credits of the HFC projects, will go into specific discrete funding for sustainability and clean energy, etc. It's yet to be defined exactly how it will be addressed, but at least China is going some way towards addressing those concerns.

At IISD we are very mindful of the fact that a clean development mechanism has two mandates, and it's laid out very explicitly in the Kyoto Protocol under article 12. It's to help annex 1 parties reduce greenhouse gas emissions, but as importantly, on the same level, it's to provide development benefits to developing countries. It's to provide them with a means to address poverty eradication. For us, it's a very integral part of what the CDM needs to be about.

We're in the third phase of what we call the “development dividend” for clean development mechanism projects. We're looking for those projects that can provide significant greenhouse gas reductions, such as energy efficiency, transportation, avoiding deforestation, etc., that can also provide significant development benefits. We're very much working in that direction.

You were asking about the lessons to be learned, etc., from the EU. I would very quickly like to reiterate what I said at the beginning of my intervention.

Begin simply and gently as far as the regulatory framework. With all the political heat as far as the target is concerned, I'm a little concerned that people are going to call for some kind of regulatory framework in which we could try to bite off more than we can chew. Remember that when the EU initially put in their system, they did so within a very moderate allocation system.

In other words, we need some time to prime the system. It's unfortunate that we've had to wait until now to start developing it and we're so late in the game. But whenever we're going to start, let's do it sensibly.

[Brian Jean, Conservative, Fort McMurray—Athabasca, AB]

Thank you.

[The Chair, Conservative, Laurie Hawn]

Thank you.

Mr. McGuinty, for five minutes.

[David McGuinty, Liberal, Ottawa South, ON]

Thanks, Mr. Chair.

Thank you, witnesses.

Mr. Drexhage, if I could start with you for a second, I want to confirm something and I only have five minutes. You could help me with a yes or a no.

I understand that we're not meeting our targets in Canada now under Kyoto. We're also not meeting our reporting requirements under Kyoto.

It appears that in the new government's “Moving Forward on Climate Change” report, it states that the associated federal investments by our country were envisioned to be in the range of $10 billion, over seven years. In fact, what the government has done is restate our government's previous green plan. But we've now discovered those numbers have in fact gone forward, even though the government cut $5.6 billion off the program.

The second point I want to put to you is this. Not only are we not meeting our reporting requirements, but internationally we have knowingly misrepresented what we're doing in the country.

Third, we heard from the Minister of the Environment last week. To quote him: “We're not looking at participating in an international carbon market.” Apparently, we're now not going to use Kyoto mechanisms like the CDM and joint implementation.

On all three fronts, we are in breach of Kyoto. Are there any other ways that we're in breach of our international obligations under Kyoto?

[John Drexhage]

In which we are what?

[David McGuinty, Liberal, Ottawa South, ON]

Are there any ways in which we are in breach of our international obligations under this treaty?

[John Drexhage]

Not that I'm aware. I want to clarify that it's certainly not an international obligation that Canada or any constituency has to buy international credits to meet their targets. We have to find some means of trying to demonstrate what we're doing to meet our targets, but under no condition is a government obliged to take a certain route.

[David McGuinty, Liberal, Ottawa South, ON]

I turn to our guest, Mr. Delbeke, in Europe and Brussels. I'd like to ask about your experience in Europe on two fronts. You have set up a pilot emissions trading system, which you say now is going to be revisited because there is systemic fine-tuning to be done.

Can you share a little bit about that systemic fine-tuning? Can you answer critics who would say that, for example, Canada ought not to participate in the Kyoto agreement because the United States...? And they go further, suggesting that China and India are not a part of the international treaty.

How have Europeans and the European Union dealt with the fact that the United States--at least until there's a new Democratic president, I would propose--is still outside the ambit of Kyoto, and how have you dealt with this allegation by some that because China and India are purportedly not in the treaty, we ought not to participate?

Can you help us understand how the debate has gone in Europe, and what your position is now?

[Jos Delbeke]

On the first question, the main weakness we had when we started our pilot period in 2005 was that we did not have a solid database on the greenhouse gas emissions plant by plant of 11,000 installations. So we had to build that up and we had to do some well-informed guesswork, but it was well-informed guesswork, and now we have that database. Since April 1, 2006, we have had that on the table just for implementing the emissions trading scheme and all the provisions related to that.

So that question is now out of the way, and what we are now concentrating on is extending the system to incorporate more sectors. For example, the aluminum sector is not covered, and some parts of the chemical sector are not covered, so we want to extend the system.

On the second part of your question, the U.S. argument related to China, I think we have that argument very much in Europe. It doesn't point primarily to China, but it does point primarily to the U.S. So the same economic argument is directed first to the U.S. and then to China. So we are having a very intensive public debate that does not underestimate the importance of having China on board, but when we have to put the emphasis right, we first put the emphasis on the United States. So the same reasoning that is present with our friends in the United States is the one that we turn against them, so to speak, and that is why we are putting a lot of effort and my commissioner is just now getting on a plane, going to the White House, going to Capitol Hill to deepen our understanding of the issues being debated, the new committee on Capitol Hill.

I mentioned our work with the California Air Resources Board. I mentioned also our contacts with the northeastern states. So it's very important that the U.S.--and, it goes without saying, Canada--joins those implementing the Kyoto Protocol to have a good argument vis-à-vis the Chinese.

Thank you.

[The Chair, Conservative, Laurie Hawn]

Thank you.

Mr. McGuinty, your time is up.

Mr. Warawa for five minutes, please.

[Mark Warawa, Conservative, Langley, BC]

Thank you, Chair.

I appreciate the witnesses' being here.

My questions are going to be primarily for the EU.

And to Mr. Drexhage, thank you for being here. You may want to forge in.

First of all, I want to assure you that your comments are being received in a political environment in which the government is hoping to move forward in dealing with the very important issue of reducing greenhouse gas emissions. We've committed to doing that. And as my colleague Mr. Jean mentioned, we're looking forward to your recommendations on how to strengthen Bill C-30, the government's bill to reduce greenhouse gas emissions and to clean the air that Canadians breathe.

I'm tempted to correct some of the comments made by Mr. McGuinty, but I'll save that for the House and get down to business today.

Concerning the EU's experience in curbing greenhouse gas emissions through voluntary versus mandatory means, the history in previous governments in Canada is that they've used the voluntary means, and we have not found that successful. As you are aware, we are now 35% above the Kyoto targets of 6% below 1990 levels--35% above. So we're in a very difficult situation, and we're looking forward to reducing greenhouse gas emissions.

I really appreciate the positive comments you've made. You've acknowledged that it's a major industrial challenge, but you're happy to take that challenge on. And we are happy to take the challenge on here in Canada.

But specifically on mandatory measures, how did you find the importance of moving to mandatory, which is what the government plans to do, to move from voluntary to mandatory? What was the experience in the EU?

[Jos Delbeke]

Well, we have been discussing at length any voluntary schemes in the field of the environment, not just greenhouse gas and climate change. Our experience has been much less convincing compared to what we had hoped for.

The latest one--and perhaps you have seen this in some European newspapers--is the voluntary agreement we signed with the car industry, which was a commitment made by the car industry vis-à-vis the European Commission to improve by 25% in one decade the fuel efficiency of cars.

We are a bit stuck halfway. A voluntary system, in our history at least, has very few or weak compliance provisions. And now that we are stuck halfway, public opinion is very much disappointed.

In the European Parliament people are now looking for a mandatory scheme, legislation that would put a very clear-cut obligation that has to be delivered by everybody. Otherwise, there is very weak discipline. Some are doing it; some others are not doing it. And too many are sitting on the fence.

So our experience with voluntary schemes is a mixed blessing, so to speak, and that is now a very widespread feeling that we have here.

Now, on the mandatory, when it comes to trading I think you need both buyers and sellers, and you have to have fair rules on how to distribute the allocations before the trading period starts. But you need both of them. And what is most important is that we need to bring down the emissions to have the real reductions implemented.

The question is that those that have the cheapest emission reduction opportunities can earn money by doing more than what they otherwise would be forced to do, and they can make money on top of that. And if the global or the overall emission reduction is cleared, then the environmental constituency is happy because the emission reductions are there. The economic constituency finds it acceptable because the least-cost options are being used and not the other ones.

Thank you.

[Mark Warawa, Conservative, Langley, BC]

Thank you.

[The Chair, Conservative, Laurie Hawn]

You have 30 seconds.

[Mark Warawa, Conservative, Langley, BC]

Then very quickly, could you elaborate on the auto industry? In Canada we've heard that if we try to meet the Kyoto targets, it would decimate the auto industry. What were the comments you were receiving in the European market?

[Jos Delbeke]

There are two comments. The first is that we had a very intensive debate on what the car of the future is going to look like. I think we came to the conclusion that the future is going to require a fuel-efficient and low-carbon-emitting car.

So then the question is, who's going to make that car? The discussion has evolved from an exaggerated fear that we will lose our entire car industry to the question of what we can do and what kinds of cars we should invest in to make sure that we are also going to be the producers of the car of the future.

That debate has now delivered a clear objective, a clear compliance mechanism. We still have to put it into legislation, but a decision in principle has been made. I think a very important variable in that is time. We cannot do it all overnight; otherwise we will create economic problems. But if the perspective is clear, we see that the car industry is coming along.

[The Chair, Conservative, Laurie Hawn]

Thank you.

Monsieur Lussier.

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

I come back to Mr. Drexhage.

You have mentioned that penalties will be assessed against Canada for not reaching the Kyoto Protocol objectives between today and 2012.

First of all, could you explain once more the process regarding penalties?

Also, will there be a risk of reprisals from European countries regarding imports from Canada in light of the failure to meet the Kyoto Protocol objectives by 2012?

[John Drexhage]

As far as the compliance provision is concerned, I prefer to characterize it much like the government has characterized emissions trading and the technology investment fund in the notice of intent under the Clean Air Act: as a compliance provision. Under the Kyoto Protocol, that particular mechanism or flexibility provision allows countries, as I put it, to borrow from their future commitment periods. That's the compliance or consequence for not meeting your target.

If in fact our situation is that we're so close to 2008 that we won't be able to see the kinds of reductions that would be required to meet Kyoto itself, we can start making those investments now. We can give clear indications about some of these large-ticket items, such as carbon capture and storage, clean coal, and clean east-west transmission. We can start making those investments now. You can credibly and transparently show the international community that you're making those investments and that they will result in real greenhouse gas reductions after 2012. Use that in your negotiations in deciding how much of it; you will then work to compensate for your 2008-2012 period.

Meeting or not meeting Kyoto is not as simple as it seems. You in fact have the opportunity to go into the future and use your future reductions to compensate for falling short between 2008 and 2012.

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

And what about reprisals by the Europeans regarding products imported from Canada?

[John Drexhage]

There has been the suggestion, particularly out of France. President Chirac has talked about border tax adjustments. I would expect that in the post-2012 discussions there will definitely be a strong push by a number of countries to make the compliance provisions more effective during the post-2012 period and for the post-2012 period to include some trade provisions. There is going to be some very, very interesting stuff.

If we think things are complicated now, we ain't seen nothing yet, because that's when we start getting into all the discussions with the World Trade Organization. It was a very good point.

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

Mr. Delbeke, is there a risk that European countries might use reprisals against imports from Canada? Does this also apply to countries that are not a party to the Kyoto Protocol, including the United States?

[Jos Delbeke]

The issue of border tax adjustments has come on the table on several occasions, but I think it would be very fair to summarize the debate, in particular in the European Parliament, on border tax adjustments as between those that have signed up to Kyoto and those that have not yet signed up to Kyoto, so there's a distinction there.

Second, the European commission responsible for trade matters has made clear in its statements after January 10 that we have to look first at positive trade measures, and that these border tax adjustments have to be looked at in a very long-term perspective. I see this coming up as an element of the debate.

Very important on the compliance issues in the European context is that when we have emissions trading, we have liberty for a company either to buy allowances at home or to import them in terms of CDM. Now, this import of CDM credits is very important in terms of compliance issues, because we now have a liquid market for these credits. If a company risks not being in compliance, there is a cost-effective way to go into compliance: you turn to the market and ask some traders or brokers to cater for a number of credits. These JI and CDM credits have turned out to be a very cost-effective way of bringing your company into compliance.

[The Chair, Conservative, Laurie Hawn]

Thank you very much.

Mr. Paradis, you have five minutes, please.