Environment Committee on May 16th, 2007

[The Chair, Conservative, Bob Mills]

Members of the committee, as was requested, we will have the Department of Environment here for one hour and then the Department of Natural Resources for the second hour.

We'll begin. I'd like to welcome our guests from Environment Canada.

I believe you have a presentation to do first. We'll start with you and then we'll go to members. Welcome.

[Cécile Cléroux, Assistant Deputy Minister, Environment Stewardship Branch, Department of the Environment]

Thank you, Mr. Chairman.

We are very pleased to have this opportunity to discuss with all of you, Turning the Corner, the government's action plan to reduce emissions of greenhouse gases and air pollutants.

We do have a presentation available in English and French. The speaking points won't follow exactly each of the slides but will cover exactly the same information as you have in each of the decks.

The action plan announced April 26 includes a regulatory framework for the short-term reduction of industrial emissions, actions for the transportation sector, actions to reduce the emissions of commercial and consumer products as well as a regulatory framework to improve indoor air quality. The first three transparencies describe the highlights of this regulatory framework.

In addition, the plan includes a number of non-regulatory measures that will reduce emissions of greenhouse gases and air pollutants through targeted incentives and programs for industry and consumers.

In the presentation we will focus on the regulatory framework for industrial emissions. The industrial regulations will impose mandatory greenhouse emissions targets that will make a significant contribution to the government's goal of achieving an absolute reduction in greenhouse gases of 20% below 2006 emission levels by 2020. In addition, industry will be required to reduce its emissions of air pollutants by roughly half by 2015.

Slide 7 of the deck covers the greenhouse gas reductions. The government will put in place short-term emission intensity reduction targets for industrial greenhouse gas emissions that will come into force in 2010. Firms will be required to reduce their emission intensity by 18% from 2006 levels by 2010. This represents a 6% annual reduction starting now. Every year thereafter a 2% continuous improvement in emission intensity will be required.

These targets are stringent enough that they will result in an absolute reduction in emissions of greenhouse gases as early as 2010 and no later than 2012, even if the economy grows as expected. New facilities will be required to meet a target base on clean fuel standards. Every year thereafter new facilities will be required to improve their emission intensity each year by 2%, as with existing facilities.

As part of this system to meet their targets, industry will have a number of ways to comply: reduce their own emissions through abatement actions; make contributions to a climate change technology fund; participate in emissions trading, including offsets; and a one-time recognition of early action.

The contribution made to the technology fund will be used to promote the development, deployment, and diffusion of technologies that reduce emissions of greenhouse gases across industry. Initially there will be a $15-per-tonne contribution rate. This contribution rate increases to $20 after three years and thereafter increases steadily every year. Contributions to the fund will be limited to 70% of the total regulatory obligation in 2010, and this limit declines over time and falls to zero after eight years.

In addition, there would be a smaller component of the fund that would help finance research and development projects that would support a creation of transformative technologies expected to achieve emission reductions in the medium to longer term.

Emissions trading will be an important component of the system, which can create an economic incentive for firms to do better than their regulated targets and bring innovations to bear on the challenge of climate change. Firms will have access to domestic trading, including a domestic offset credit from non-regulated sectors that reduce their emissions. The emissions trading system will also include certain types of credits certified by the Kyoto Protocol's clean development mechanism. As the global market develops and matures, there will be additional opportunities for Canadian firms to participate in the international carbon market.

Finally, the government recognizes that some firms have made efforts over the last decade to reduce their emissions of greenhouse gases. There would be a one-time allocation of 15 megatonnes of credits to those firms covered by the proposed regulation that took verified action to reduce their greenhouse gas emissions between 1992 and 2006.

I'm now on slide 8, air pollutant reductions.

I will now cover air pollutant targets. Regulations will be developed stipulating the yearly allowable pollution emissions in each sector. These regulations will come into effect as early as possible, somewhere between 2012 and 2015. That will give industry enough time to invest in its processes and to reduce air pollution.

Suggested national caps for nitrogen oxide, sulphur oxide, volatile organic compounds and particulate matters are as follows: 600 kilotons for nitrogen oxide, representing a reduction of approximately 40% compared to 2006 levels; 840 kilotons for sulphur oxide, representing a reduction of approximately 55% compared to 2006; 360 kilotons for volatile organic compounds, representing a reduction of approximately 45% compared to 2006; and for particulate matters, 160 kilotons, representing a reduction of approximately 20% compared with 2006.

The national caps were developed based on a comparative analysis, for each sector, of benchmarks and the strictest regulatory requirements, both abroad and in Canada. This analysis is currently being validated with the provinces and territories, industry and environmental groups. Once the sectoral targets are finalized, they will be allocated to each sector on the basis of regulations.

To provide flexibility, now firms can meet their caps. There will be two compliance options: reduce their own emissions and use emissions trading for sulphur dioxides and nitrogen dioxides.

There will be a limit on a firm's use of credits from emissions trading if the firm is in an area where the quality of the air does not meet national air quality objectives. These air quality objectives will be developed in parallel with the development of the regulations.

The feasibility of using offsets in the emissions trading systems for sulphur dioxides and nitrogen dioxides will be assessed.

The government will also continue to work actively with the U.S. government to address transboundary air pollutants.

The two governments have recently agreed to start negotiation for an annex to the Canada-U.S. Air Quality Agreement to reduce the transboundary flow of particulate matter. The government will also expedite discussions with the United States on a cross-border sulphur dioxide and nitrogen dioxide emissions trading system.

We're now on slide 11, cost and benefits of the regulation. The proposed industrial regulation presents Canadians with concrete action on two key environmental challenges: climate change and air pollution. These regulations will secure a cleaner and healthier environment for Canadians.

Strong environmental regulation to reduce greenhouse gas emissions and air pollutants will inevitably come at a cost, a cost that all Canadians will help bear. These costs are manageable, however, and will be largely offset by the health and environmental benefits from the regulation and related measures.

The total package, including regulations and ecoAction initiatives, has impacts that are below 0.5% of GDP for any given year throughout the forecast period. Compliance options provide the time and flexibility to meet targets through technology improvements rather than output changes.

The benefits are real but are not always as easy to quantify as the cost. There would be cleaner communities in natural spaces, healthier children, fewer premature deaths, more sustainable natural resources, and, for the first time since signing the Kyoto Protocol, a meaningful contribution by Canada to the global effort to control greenhouse gas emissions.

The health benefits alone are estimated to be in the order of $6 billion annually. Furthermore, the regulations provide Canadian businesses and citizens with the economic signals required to take into account the environmental consequences of their daily decisions.

In fact, we expect the plan will generate significant new business opportunities, whether it is through the development and implementation of carbon capture and storage technologies, renewable energy, or the significant gains to be had in the areas of agriculture and gas offset projects. In addition, the plan provides businesses with the long-term certainty and time needed to adjust the underlying environmental investment with capital turnover cycles.

Between now and June, Environment Canada officials will be meeting with provinces and territories, industry, and NGOs to validate the benchmark exercise that was taken on air pollutants. They will also meet with provinces and territories and with non-industry stakeholders.

There will also be a consultation on the compliance mechanism, including the design of emissions trading, the scope of the offset system for greenhouse gases, the governance and administration of the technology fund, and the eligibility criteria for the one-time credit for early action.

Officials have already met with provinces and territories, industry, and non-governmental organizations to provide more detail on the proposed regulatory framework. At the same time, officials will be developing their sector-specific regulations for greenhouse gases, as well as general provisions.

As part of the regulatory process, a notice will be issued by the end of June under section 71 of the Canadian Environmental Protection Act, 1999, to require industry sectors that will be covered by the proposed regulation to report to the government the 2006 data that will be used to finalize the emission reduction targets both for greenhouse gases and air pollutants.

At the end of the presentation, you will find detailed tables illustrating the targets per sector for greenhouse gases, as well as for air pollutants, for each of the sectors that are governed by the industrial regulations.

We would be pleased to respond to any of your questions on any of those elements.

Thank you. We are now prepared to answer your questions.

[The Chair, Conservative, Bob Mills]

Thank you very much.

We will go to our first round.

Mr. McGuinty, I believe you're first.

[David McGuinty, Liberal, Ottawa South, ON]

Thank you very much, Mr. Chair.

Thank you for being here.

You know we have a very limited amount of time together. I'm hoping we can proceed fairly quickly. I'll try to ask you short questions, and maybe you can help me with shorter answers, if it's okay with all three witnesses.

Thank you.

On April 26, 2007, the Canadian press reported that the minister stated the cost of implementing his emission reduction plan for industry will cost the Canadian public $8 billion annually.

First of all, can you tell us this? Was there or was there not a substantial amount of economic and environmental analysis done to support the decisions taken in this Turning the Corner plan and the claims it's made? A yes or no answer would be really helpful.

[Cécile Cléroux]

Yes.

[David McGuinty, Liberal, Ottawa South, ON]

Okay. Can you tell us who calculated the $8 billion amount?

[Cécile Cléroux]

The evaluation has been done by Environment Canada through a model wherein we have estimated the different costs. The model has been used to be able to inform the decision of government.

[David McGuinty, Liberal, Ottawa South, ON]

Is the model public?

[Cécile Cléroux]

As usual, these models are not public. It's to inform the decisions of cabinet, and it's information that is governed by the regular rules of cabinet.

[David McGuinty, Liberal, Ottawa South, ON]

Was Finance Canada involved in this prediction?

[Cécile Cléroux]

Finance Canada was consulted on the evaluation that has been made.

[David McGuinty, Liberal, Ottawa South, ON]

Does Finance Canada warrant the numbers?

[Cécile Cléroux]

Finance Canada will be testifying tomorrow, and they'll be able to answer that question.

[David McGuinty, Liberal, Ottawa South, ON]

But to your knowledge, they don't warrant the numbers.

[Cécile Cléroux]

It's not for me to answer; it's for Finance Canada to answer you. We know the different evaluations that have been made have been reviewed and discussed with our officials.

[David McGuinty, Liberal, Ottawa South, ON]

Did you receive any contradictory advice or any contradictory analysis on the $8 billion estimate?

[Cécile Cléroux]

No.

[David McGuinty, Liberal, Ottawa South, ON]

You had none at all.

[Cécile Cléroux]

No, none at all.

[David McGuinty, Liberal, Ottawa South, ON]

Okay. There's a brochure entitled “ecoACTION: Action on Climate Change and Air Pollution”. You should know there's a graph on page 6 that talks about Canada's GHG emissions. It shows that by 2010, if the projected business-as-usual scenario continues unregulated, large industrial emitters would produce a little over 350 megatonnes of greenhouse gases in 2010. Do you have that?

[Cécile Cléroux]

We have a similar graph for that.

[David McGuinty, Liberal, Ottawa South, ON]

Sure, and I think the same graph shows that under the Baird plan, these emissions would be reduced to approximately 300 megatonnes, a drop of 50 megatonnes.

Am I correct when I say that the regulations under the Baird plan call for an 18% emissions intensity reduction from 2006 levels, and it does not start until 2010?

[Mike Beale, Director General, Strategic Priorities, Environmental Stewardship Branch, Department of the Environment]

The 18% is the target for existing facilities. Effectively that's 6% a year between now and 2010. The regulation will require an 18% reduction as of 2010.

[David McGuinty, Liberal, Ottawa South, ON]

Intensity reduction.

[Mike Beale]

That's right.