Thank you for having me. I'll try to be quick.
I'd like to point the committee in a different direction than prior witnesses have. I've enjoyed reading the blues, and for a change, I've decided not to cover ground that others have covered before me.
For a bit of background, GEMCo is a not-for-profit consortium of Canadian large emitters. The large emitters join GEMCo to share in the process of learning how to trade carbon credits, how to manage their inventories, and how to develop business strategies to accommodate a carbon-constrained future. GEMCo has existed since 1995. A typical Canadian company belongs to GEMCo for three or four years and then moves on. At any point in time, GEMCo companies are competitors. They don't like each other very much. They share in the cost of learning. As soon as they feel they've reached a certain threshold, the last thing they want to do is talk to each other about how they're going to approach the carbon market competitively.
Together, GEMCo and its members have fought carbon credits and greenhouse gas credits speculatively in the carbon market since 1995. Our market activity is much reduced now compared to years past. But because of our historical activity, I'm still the largest carbon credit buyer in Canada and the third largest in the world.
Having said that, it tells you more about how little real market activity is happening than about how large an influence I am in the market. To put our current level of activity together this year, which has been a slow year, by the end of the year, we and our members will have firmly contracted to acquire 350,000 tonnes of future greenhouse gas reductions from Canadian landfill gas operators, and we will have optioned another 350,000 tonnes. And this will be our smallest year for commercial activity.
The principal goal of our commercial work is not to scoop the market, but to learn how the market should work, and will work, before we're stuck in it. You'll find that we have recommendations or ideas that are fundamentally different from what you may hear from many others. I think the difference between our recommendations or views and others is based on our commercial experience.
I have two other points. I put together the very first agriculture biological sequestration credit trade in the world in 1998. Prior to our putting together that transaction, which committed us to buy 2.8 million tonnes of carbon credits from 137 farmers, Canada's position was opposed to recognizing soil carbon gains. Our sole purpose in doing that one transaction was to prove that you should change your position. In 2001, I put together the first ever CO2 injection enhanced oil recovery carbon credit trade. It's not about to be done. We did a 700,000-tonne deal in 2002, where we are financing a CO2 injection project in the Texas panhandle.
Based on those experiences, I guess my punchline is--and I should say that my views don't necessarily represent my members or speak for all of industry; I've already described our group as diverse--if this Parliament passes Bill C-288, you're sending a strong signal to industry that you still don't know where you're going. It's pretty reasonable to predict that if you pass Bill C-288, the civil service and the politicians will be thrown into a six-month tizzy of writing reports--on the one side why, and on another side why not, you can achieve the Kyoto targets. That adds six months to a schedule that we're already behind on--at least six months.
The question I would ask you to ask yourselves is what you need to move forward. We're revisiting an old topic.
What we've handed out is a two-pager, in two languages, that has my key messages. I apologize to those of you who are French speaking. At the last minute, I also decided to hand out the speaking notes I made for myself, because I have tables and data in my speaking notes that you might find useful.
The bottom line is that when you look at the speaking notes, you'll see that in the international market, before accounting for Russian hot air, the Kyoto Protocol created a massively oversupplied quota market. At the end of 2004, the global greenhouse gas quota supply, created under the Kyoto Protocol, exceeds the maximum physical capacity of the countries covered by the emissions quota supply by 1.7 billion tonnes.
To go at this number in a different way, assuming that Canada has to enter the international market to buy 1 billion tonnes to meet our Kyoto commitment, after we withdraw the required billion tonnes from the Kyoto market, there's still 1.75 billion extra quota units out there. As well if the CDM/JI board keeps approving projects at its current rate, another billion tonnes of excess quota units will added to the market.
To use up all of the Kyoto limit, every nation in the world would have to increase its greenhouse gas emissions at a rate of 4.5% per year from now on. In other words, there's no cap; it's a false market, and we don't know why Canada wants to participate in this market.
The Kyoto Protocol is a trade agreement; it is not an environmental agreement. The Montreal Protocol is a fine example of a very effective environmental agreement. I was surprised to see that witnesses before me actually described the Montreal Protocol and Kyoto Protocol as parallel. They couldn't be more different. If you want to know what an effective international greenhouse gas treaty looks like, it looks like the Montreal Protocol, and it doesn't look anything like the Kyoto Protocol.
So my view is that from today on, our Parliament has to step back and say, what do we do next? We have two options. One is to re-enter the Kyoto process, recognizing the serious implications of Kyoto as a trade agreement, as a trade treaty—as an unprecedented historical attempt to create a new global quota regime that fundamentally changes how national economies work. Or we can walk out of Kyoto and be the country that steps back on the international scene and tells the world what the Montreal Protocol for greenhouse gases looks like.
In previous hearings, I heard one member of Parliament ask at least twice why Canada thinks we could influence anybody in this regard, since we're so small. Read my lips: if we walk out of the fake Kyoto market, it crashes. It's in oversupply. There are only three buyers, if you take the European Union as a bloc. Everybody is in oversupply except Japan, New Zealand, and Canada. We walk; we call the shots. Don't lose this opportunity.
When you go through my speaking notes, you'll see that domestically, if we were going to walk, the first thing to do is to sit down to seriously develop and reach consensus on a greenhouse gas budget for Canada that applies to the years 2008 through 2050—not 2008 through 2012, not 2050, but 2008 through 2050, which I must admit I read as the intention in the recently tabled notice to regulate. I understand that others don't read this notice as having that intention.
In my document, you'll see that I'm trying to encourage you to think of our getting into a process in Canada where we agree to a budget. We don't think of that budget as 500 million tonnes or 700 million tonnes a year. It's 19 billion tonnes of Canadian right to discharge into the environment from 2008 to 2050, or 23 billion tonnes, or 26 billion tonnes. It's a budget for a long period.
You liberate yourself when you think that way, because when you step back for any budget over such a period, you can create a whole series of targets and timetables that don't exceed the budget. You can also put costs on, because 23 billion tonnes between 2008 and 2050 has the same impact on the upper atmosphere, whether you discharge a bunch of it in the first or the last part of the period, as long as you don't go over. Because every time you put CO2 up, it stays up there for 150 years. You're not making a significant difference in timing.
So the question is, what's our firm long-term budget? Then given our firm long-term budget, given our economy and the sectors, now taking exactly Pierre's advice, what is the most effective set of targets and timetables, starting with firm, binding targets in 2015 at the latest and ratcheting down every five years to 2050? How do we get to that budget?
I want to step back, and I'll stop here, but one person asked me to tell you what I thought keeping the Kyoto commitment would cost. My position is that we can comply with Kyoto, and to estimate what it would cost, let's assume Canada accepts a very stringent 2008 through 2050 emissions budget. Let's assume that budget we've accepted equates to a straight line from 2008--actual emission levels down to 80% below 1990 levels in 2050. That equates to a budget for Canada of 19-plus billion tonnes over those years. I modelled the least-cost Canadian path toward living with that budget and then I modelled what living with that budget and complying with the Kyoto target and timetable would cost.
So I am suggesting that the differential between those two costs is the cost of that one compliance obligation, the Kyoto Protocol. My estimate is that that cost is a minimum of $26 billion, and it can reach $38 billion. All you buy for that increment is perceived reputational gain.
Our reputation is in tatters because we didn't recognize that Kyoto is a trade agreement and not an environment agreement. We can recover our reputation by returning the world to a Montreal Protocol type of approach to greenhouse gases.