Thank you very much, Mr. Chair, and good morning.
Bonjour à tous.
I'm accompanied today by Nancy Coulas, who is our director of national environmental quality policy. Nancy and I have both worked on climate change issues for well over ten years, and it may be a reflection of how long we've worked on this.
Let me say at the beginning how much I agree with John and much of what he has said, and I hope that some of my presentation will support his argument as well.
I'm going to be speaking to my handout.
I had planned to show you my presentation today rather than read it to you.
I wish to thank the Clerk for taking care of the translation. Unfortunately, the presentation is not in colour.
I'm sorry for that. I think the English presentation has been circulated, along with the French.
I'd like to speak today about how we could move to an effective greenhouse gas reduction approach in Canada. In our view, there are some key policy objectives that have to underline that approach. The first is that we have to focus on improvements in emission intensity reduction.
Emission intensity is a measure of greenhouse gas emissions per unit of economic activity. It's a snapshot of the state of emissions right now with respect to what we do in the economy. The objective must be to accelerate reductions by increasing technological progress. Only in this way can we make real emission reductions. This has to be a key priority.
The second objective is the development and adoption of new technologies. I'm talking about technologies, I'm not just talking about industrial processes or new sources of energy. I'm talking about the way Canadians use energy. I'm talking about the way we drive, what we drive. I'm talking about the way we dispose of our waste. I'm talking about the way we run our farms. I'm talking about the way we heat our houses. These are the technologies, the industrial processes, and the energy generation technologies that we have in place. They safeguard the international competitiveness of Canadian industry. Addressing these issues brings with it tremendous economic opportunity. How can we take advantage of this and build a centre of excellence in Canadian industry for dealing with these issues?
Manufacturing accounts for a little over 13% of our total greenhouse gas emissions. The energy sector, electricity, and oil and gas account for close to 35% of total emissions. But the main point is that this is not just an industrial issue. This is an issue that affects all Canadians. That's why it's so important—every Canadian has to be involved in environmental improvements. It's an environmental and economic issue. If we're going to respond to it, then it has to be a social issue as well. It's going to change the economic, social, and environmental well-being of all Canadians.
Manufacturing is a capital-intensive and energy-intensive industry. Almost two-thirds, 61%, of emissions come from large final emitters—industries like steel, aluminum, paper, cement, the chemical industry. Those are the industries included in the LFE sector.
I want to point out that manufacturers in Canada have a very enviable track record in reducing greenhouse gas emissions. Between 1990 and 1993, manufacturing emissions fell by 7.4% in spite of a 48% increase in production. That represents a 38% reduction in emission intensity.
About half of the emission reduction in the manufacturing sector came from improvements in energy efficiency. Another 30% came from the replacement of industrial processes, the progress we've made in replacing technology. The other 20% came from fuel switching—switching away from higher carbon-intensive sources of energy to lower carbon-intensive sources.
If you look at the total megatonnes that manufacturers have reduced, this sector is leading the Canadian economy in emission reduction. We've also seen emissions reduced on the part of the forestry sector, the construction sector, and the mining sector, if you exclude oil sands development. These sectors made significant progress in reducing their greenhouse gas emissions between 1990 and 2003.
I've included this table to show you the progress that various sectors have made in reducing their emissions and in reducing their emission intensity as well. What you see here is that for the large final emitter sector, emissions have fallen by 20% in those areas. These are the businesses that are investing in emission reduction over that period of time.
However, in spite of the progress that Canadian manufacturers have been making in reducing emissions, if we're looking at emission intensity alone we're unlikely to be able to meet our Kyoto target. The graph I show here shows the relationship between greenhouse gas emissions and overall economic growth in Canada. What it shows is that emissions grow at about 1% less than total economic activity in the country on a year-over-year basis.
That difference between emissions and economic growth represents the technological progress that we make every year in improving energy efficiency and switching away from fossil fuels. That's the technological progress that we have to continue to make if we're going to either keep on this emission trend line or reduce it.
The green line, the very swift reduction, shows what we would have to achieve in order to meet the Kyoto target through real emission reduction in Canada, and that would represent an increase in technological progress by a factor of eight, or 700%, over the next five years.
Technologically speaking, that is not likely to happen. There are technologies where we can make extremely large reductions in emissions, but they're not going to be brought on within the next five years. We have to identify those technologies. I agree that we have to focus investment in those technologies. It's something that industry has to do, and it's something that public authorities have to focus on as well.
But we're not likely to reach the Kyoto target through real emission reduction alone. If we are going to reach the Kyoto target, we have only one of two other alternatives. One is not a very good one. It would entail a reduction of economic activity by 30% over the next five years, simply drive less and heat our homes less. You could take large sectors of industry out of production.
If you go back to the chart that I showed you before, you could take every vehicle off the road and you could shut down all of manufacturing. You would have probably a lot of very cold people and unemployed people in the country, but you would still not reach the Kyoto target through real emission reduction without taking some very serious economic consequences.
The other alternative is to purchase emission credits at a cost, probably, of about $20 billion over the period of the Kyoto implementation timeframe. But I want to speak about what we can do, actually, to reduce emissions and speed up the rate of technological progress and reduction of emission intensity in Canada.
I agree with John in one very significant respect--that is, that the focus on the Kyoto target has led us not only to bad policy but it's led us to counterproductive policy. I think the LFE system was a very good example of a counterproductive approach here.
There were two basic things wrong with the LFE system. Number one, any progress that manufacturers were making toward actual reduction in greenhouse gas emissions was never counted toward meeting the Kyoto target under the scheme. Number two, if you could buy your way out at $15 a tonne, why would you ever continue to invest? The technological requirements are far more expensive than $15 a tonne for industry, and if nothing was being counted toward achieving the Kyoto target, why would anybody make any further progress to actually reducing greenhouse gas emissions?
In my view, the LFE system was going to be effective simply by passing the cost of buying international emissions onto the shoulders of industry. It really was not going to be an effective way of leading to real emission reduction on the part of industry.
What are the elements, then, of an effective approach to reducing greenhouse gas emissions? I want to conclude by making some suggestions.
First of all, I think we need regulated intensity-reduction targets, but those targets have to be technologically achievable over a period of time and they have to be commercially viable as well. Both Luc and John have made the point that this is an investment issue, even more so than an environmental issue here. If we're going to make progress, the right investment incentives, the right type of structure has to be in place.
Secondly, all Canadians have to be engaged. All levels of government have to be engaged and industry has to be seen as a solution and not the number one problem here, because it's not.
Thirdly, we have to see a complementary fiscal and regulatory structure that is going to encourage investments in new industrial technologies. We are recommending that the government introduce measures like an accelerated CCA for manufacturing, processing, energy technologies. This is as much an issue about replacing existing technologies, existing processes, as it is an issue about investing in new technologies. That's very important. We need a streamlined regulatory process in Canada that makes it easy for companies to invest in these new technologies, and we have to really support that.
I want to acknowledge the efforts of one program in particular, the Canadian industrial program for energy conservation, and the work it's been doing on a voluntary basis with industry to achieve improvements in energy efficiency. This has been extremely important for Canadian manufacturing in reducing overall emissions. We should be aligning the NRC and other types of investment behind similar progress.
What's really important here for manufacturing and for the economy as a whole is investment. As you may see, the rate of progress in reducing emissions and improving energy efficiency has slowed down since 2000, but that's attributable to the fact that our rate of investment has also slowed down. In fact, the value of the capital stock and the value of the technology in place in manufacturing today is 5% less than it was in 2000, so we're lucky that we've seen stabilization here.
This is an investment issue, number one, and this graph, which you may have seen before, shows the relationship--