Environment Committee on Nov. 7th, 2006

[The Chair, Conservative, Bob Mills]

Mr. Villeneuve, we'll go to you right after I ask Mr. Silva to pose his question, please.

[Mario Silva, Liberal, Davenport, ON]

The issue of math and the costs and economics have certainly been raised by Mr. Paton, but also by others. Mr. Kovacs was talking about the insurance industry and others who are also quite alarmed about where we're going if we don't act.

It's not that we're not concerned about manufacturing; of course, we are. But at the same time, we realize that if we don't have an economically sustainable environmental policy at work that is also in partnership with world economies and world leadership--the first step is the Kyoto Protocol--then we will not have an economy in the future.

I was speaking just yesterday with a member of Parliament from Tanzania who was talking about the problems with a light shortage in her country. I was a bit confused, because I was talking about the melting of the glaciers on Mount Kilimanjaro, but she was talking about the fact that the hydro power they use for their electricity is drying up. There is no more water in their lakes, no more water in their rivers, and it's having a dramatic impact on Africa.

So the actions we take in Canada have an impact around the globe, and that's what we're not seeing, the devastating cost, not just to our environment but to economies throughout the world. If we, the rich countries of the world, are not prepared to start living up to our obligations, how are these other countries, who are receiving the negative impacts of our lack of decisiveness, going to be able to manage this?

There is a cost, but the question is, where do you measure the cost? You can measure the cost right now, just one specific sector, or you can measure the cost in terms of the impact it will have on the whole country within the next ten years, or what impact it already has around the world. There's a huge financial cost, in the billions of dollars, maybe the trillions of dollars, and we have to look at it. It's not just the immediate costs we have to be focused on.

It's a comment, but maybe somebody else would like to add to it.

[The Chair, Conservative, Bob Mills]

Professor Villeneuve, we'll give you a chance to start.

[Claude Villeneuve]

Thank you very much.

There are a number of factors. The first concerns costs. I'm not an economist either, but the life cycle approach absolutely has to be put forward.

The life cycle approach enables us to establish, from the cradle to the grave, the costs incurred by production or for an activity, not only economic costs, but environmental costs as well.

In the field of climate change, the guilty parties are rarely the first victims, which is an enormous problem as regards responsibility. That's why elements were put in place with regard to responsibility and fairness in the UN Framework Convention on Climate Change, and in which an attempt is being made to apply the precautionary principle.

The second comment I'd like to make concerns the carbon market. That market makes it possible to make adjustments within countries and between countries, and within industrial sectors and between industries, so that we can change reductions, make lower cost reductions available to everyone in a single market. So this market is one of a number of very powerful instruments and absolutely must be put in place so that we can hope to achieve Kyoto Protocol targets and go even beyond Kyoto, if we want to control the problem.

In closing, I'd like to comment on the bill. This bill would have been excellent if it had been introduced in 1998.

[Some hon. members]

Oh, oh!

[Claude Villeneuve]

Today the bill can't be valid if the tools to achieve the desired ends aren't available. So an enormous effort has to be made upstream from the bill to provide the accountability and audit tools.

Environment Canada only began to train auditors last summer. In Canada, there may be perhaps 200 to 250 trained auditors, which is clearly inadequate at present.

The bill must also contain a vision that goes far beyond the Kyoto Protocol and does not stop at the 2008-2012 reference period.

The bill must also separate export-related emissions from domestic consumption-related emissions.

Lastly, the bill must make reference to the life cycle approach. Let's take ethanol as an example. Everyone wants ethanol put into gasoline, but if you attribute emissions reductions to the ethanol that you put in your engine and the production of that ethanol causes more emissions, you won't be improving your national performance.

[The Chair, Conservative, Bob Mills]

Thank you, Professor Villeneuve.

Again, I remind our witnesses to please try to keep your answers as short as possible.

Mr. Bigras.

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

Thank you, Mr. Chair.

This morning, it's not the presentations and statements of the scientists and meteorologists that surprise me, but rather those of the industry. During his presentation this morning, Mr. Paton told us that we needed a long-term strategy that takes economic analyses into account; that the Kyoto Protocol objective can't be achieved without purchasing international credits; that the entire strategy regarding the Kyoto Protocol must take into account a cost evaluation in order to achieve objectives.

I'm a bit surprised to hear that. We could conduct an economic analysis of the effects of achieving the Kyoto Protocol objectives, but I think we should also do an evaluation of the costs associated with not complying with the Kyoto Protocol. I think the British study released last week, which puts the cost of climate change at $7 billion, must be weighed as well. When we talk about a nearly 20 percent reduction of global GDP, I think these are also economic analyses that have to be taken into consideration when public administrations are required to make decisions.

I put the question to the industry because its record is good. A 7.4 percent reduction in greenhouse gas emissions is similar to that of Quebec's industrial sectors. Wouldn't it be in your interests to promote the Kyoto Protocol and for the progress that you've made to be recognized in the form of offset credits in the approach that should be presented to Canada? As Mr. Villeneuve said, in a domestic carbon market, I think you'd have every interest in selling the credits you've achieved to other industrial sectors, probably the oil sector, which doesn't have the same footprint as you. Wouldn't you have an economic interest in the Kyoto Protocol being reinforced?

[Gordon Lloyd, Vice-President, Technical Affairs, Canadian Chemical Producers' Association]

I'll respond to that.

One of the concerns is, what will be the impact on the economy as a whole? There are two ways to meet Kyoto. One is by actually reducing emissions, and that's what our sector and manufacturing have done. We've done even better than the minus 7% that manufacturing did; we've done over 50%.

As a whole, Canada won't be able to do that. As a number of the speakers have said, it's just too late. Using the figures of the previous government from their green report, our emissions gap was estimated at 240 megatonnes in 2002. Then they talk about how the economy has increased. The emissions gap is more likely in the range of 270 megatonnes and could be greater. It probably has increased since then.

So it's not really economics; it's just simple mathematics. We have at least a 270-megatonne gap. The cost is $20 a tonne. In the short time still available, we aren't going to be able to address this, other than by going to credits.

There will be some sectors, such as ours and manufacturing, and some provinces, such as Quebec, that will achieve the Kyoto targets. But as an economy, as a country as a whole, we won't. We will have to send billions of dollars abroad, and that's not good for the economy.

What we're arguing for is the recognition that we're going to do a lot better, if we can recognize that our improvement in environmental performance is tied to new investment. I think the chart, which we tabled, shows that.

There aren't that many things the Canadian government can do to attract investment here instead of elsewhere. We can't do too much about the dollar, and certainly we can't do too much about what's happening in the Middle East, China, or India. But one thing the government could do, which we hope all parties would support, would be to improve capital cost allowance provisions. This would be something that money could be used to invest in, that would be returned later in taxes, and that would get us the kind of new investment that would help improve our performance.

Over the medium and long term, this will drive intensity improvements that can probably reach reductions and absolute reductions. Our sector's experience shows this.

But as a lot of the people have said, it's short, medium, and long term. In the short term, it's just too late, unless we send all this money abroad, which doesn't make sense.

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

I'd like to know what the industry thinks of a carbon market in Canada. In view of your present strategic position, with the figures you've presented to us today, wouldn't there be an economic interest, from a sustainable development perspective, in taking part in this type of carbon market? You'd also be enabling Canada to move toward its Kyoto Protocol objective, while making economic gains. You seem to be telling us that the environment and the economy don't go together, whereas the carbon market aims precisely to make environmental gains in a regulated free market.

[Claude Villeneuve]

I'd like to speak on that point.

[The Chair, Conservative, Bob Mills]

We'll go to Mr. Paton first. Then we'll go to Mr. Villeneuve.

[Richard Paton]

I know a carbon market is a very innovative idea, but let me make two points about it.

First of all, it can't be domestic; it has to be international, because with the gap we have in this country, we're all going to be buying from somewhere else.

Second, to establish a carbon market you have to understand what it would take to make it happen. It's literally the equivalent of setting up a completely new economic system in this country. It is an absolutely huge and very complex endeavour that has been understated tremendously by people arguing that this is the magic bullet.

You literally have to decide on numbers for every plant in this country. That means the federal government--and it will be the federal government, Mr. Bigras, so this is going to be a little bit of an issue for you people--will have to go into a plant, Patrimoine Québec, and decide on the level of emissions it should have, because if you can't set a number, you have no differential with which to trade.

That means an unbelievably heavy hand of government. Some people would argue you need to do that, given all of the science. I haven't seen government do a very good job on these kinds of things. It would take literally years to even understand our sector and our companies. The chance of setting the wrong number is probably more likely than setting the right number, so that would likely result in driving investment out of the country to countries that have less environmental performance.

On the last point, Mr. Bigras, you've seen these numbers. I know you have the same arguments for Quebec. We haven't received one single bit of credit for this since the climate change discussions started, so I don't believe we'll get any credit, and I don't believe we'll have anything to sell. We'll just end up with higher numbers, and in fact that is exactly what happened. We ended up with higher numbers based on our previous performance.

[The Chair, Conservative, Bob Mills]

Mr. Villeneuve, do you have a brief comment?

[Claude Villeneuve]

Yes. The carbon market was based on the SO2 market model, and the difference is unfortunately very great because the SO2 market in the United States, which worked relatively well, is linked to a pollutant that is subject to the same regulation in the same area. Establishing an international carbon market currently represents a difficulty with regard to the setting of ceilings for each industry, which is possible, but which also represents all the recognition of credits that will have to be put on the market to ensure they are unique and that they are additional and so on.

An international standard has been established on this: ISO 14064-2 and 14064-3. In Europe, a carbon market is currently operational, in which each of the industrial sites concerned has received a limit. It's working there.

[The Chair, Conservative, Bob Mills]

You have about half a minute, Mr. Bigras.

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

I'd like Mr. Villeneuve to tell us about the impact of climate change in Quebec. I read the report he helped produce: “Adapting to Climate Change.” Could he summarize the impact of climate change in Quebec for us? Among other things, I'm thinking of the Quebec high north and the St. Lawrence, that is all the coastal areas. Could he briefly summarize those effects?

[The Chair, Conservative, Bob Mills]

Mr. Villeneuve, you have about fifteen to thirty seconds to do that. Possibly you could provide Mr. Bigras and the committee with details, but just very briefly reply to his question, please.

[Claude Villeneuve]

The issues are enormous, particularly for the coastal area and northern Quebec. As regards the St. Lawrence, the river could disappear in the medium term.

[The Chair, Conservative, Bob Mills]

Thank you.

Mr. Cullen.

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

Thank you, Mr. Chair.

It seems that part of the elephant in the room, if we're going to take a look at the CCPA and at manufacturing in general in Canada, is that when we talk about the implications, today we're trying to understand the implications of what this bill and law would look like and what this would mean. I know in future testimony we'll have more of the economic analysis. I think this is critical. This is the joining of the environment and the economy in some fundamental way.

Why is credit for early action not being considered, Mr. Paton? What have you heard from government--this government and the previous one--as to why that's not on the table?

[Richard Paton]

If you take a look at these numbers, for us and for manufacturers, which are about 17% of the total of the amount the previous plan tried to reduce of industry, either 45 or 55 megatonnes, if you actually recognize this contribution, you're now 17 megatonnes short. You have to find it somewhere else, and you're going to find it from oil and gas, or you're going to find it from electricity, or you're going to find it from consumers. The target structure sets up a zero-sum game, and by recognizing anybody's performance, you penalize others. It's the same issue that Mr. Bigras has for Quebec.

It has been in the interests of government not to recognize performance, because the penalty for others would have been higher. That's why we included it in the charts, and also the graphs that were put in the Environment Canada submission. If you start looking at what consumers are as a piece of this problem, it's fairly significant, either in driving their cars, heating their homes, or using various products. That 17-megatonne burden would probably shift to either one of the other sectors or to consumers. Frankly, I don't think governments have wanted to deal with these realities. It's easier to say that industry is a problem. It has been easier to ignore the fact that manufacturers have already met Kyoto. We've always argued, “Give us the Kyoto numbers, thank you very much, for 1990. We'll take them right now.” But nobody has ever given us that number. It has been 2001 and 2003, and nobody has ever given us that number.

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

Is it not a false argument, though, to suggest that it's some sort of tug-of-war between consumers and the producers of those goods, whether it's energy or whether it's a manufactured good, in looking at this bill, because at some point what this bill calls for is that the government formulate a plan to meet our Kyoto targets? Now you've raised the spectre of international credits as being the way to do that, but it seems to me a false positive to suggest that it's either the consumers' or the manufacturers' fault.

A consumer, in consuming electricity, will consume the electricity available to them. If government has set policy that has supported dirtier pollution, why is it suddenly now between the consumer and government where the fight exists, rather than government and the industry providing that energy?

It seems to me--and I guess this is advice to the clerk and committee--that if we don't have the energy sector come before us while studying this bill, this is not a complete study. Would you agree with that?

[Richard Paton]

Yes.

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

Mr. Villeneuve.