Environment Committee on Feb. 11th, 2008

[The Chair, Conservative, Bob Mills]

Thank you, Mr. Bigras.

We'll go to Mr. Cullen, please.

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

Thank you, Mr. Chair.

Thank you to our witnesses.

Ms. Arroyo, I'm going to stay with you just for a moment. In terms of the importance of a national framework for this, there's been some agitation within the Canadian business community. As the various provinces come forward with their plans, as the various provinces make agreements with their state partners, there's some disquiet or uncertainty as to what the future looks like for doing business across these various boundaries. Many of these companies we're talking about, in terms of being the largest emitters, work across provincial and state boundaries.

This bill, just for your familiarity, seeks to strike a cap and trade regime in a national context. The bills before you in Congress--you've mentioned the Lieberman-Warner bill.... How critical is it for your industries, the ones engaging in your Climate Action Partnership, to have some uniformity across state and international boundaries? How critical is it for their planning and investment to make sure this is a reality for them?

[Vicki Arroyo]

It's certainly an issue that comes up in discussions among the members of the United States Climate Action Partnership. Unfortunately, it's an issue that gets more and more difficult to deal with as we have more delay at the federal level and as more states come online with their own programs.

At the beginning, you saw states and regions acting in a vacuum in a situation in which they did not want to be compelled to act. But they just saw the inaction over many years by the federal government and felt they had to step in to fill that void. Now we've moved to them actually implementing some legislation and regulation and taking a lot of time to do it.

So I think there will be more reticence among states and non-governmental organizations--environmental groups--to support abandoning the state policies or regional initiatives in favour of a federal program. And that's going to be true the further down the line we get without a federal program.

I do think that a tough federal program would make it less likely that we would need to see states doing, for example, cap and trade. We might have, as we have a tradition of having in this country, states setting tougher standards or complementary standards for efficiency, or for vehicles, in the case of California. But it would be really unfortunate, I think, if we had a number of cap and trade programs that couldn't work together.

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

Let me ask a question that might be relevant to the primaries that are going on and to the eventual election. As you have mentioned, all three of the remaining candidates on both the Republican and Democrat sides have maintained a position, in some cases a strong position, on the need to do something about climate change, while the U.S. is on the verge or in the midst of a recession.

Our government, similar to your federal government right now, has used the excuse of the economy versus the environment, saying that we have these tough choices to make. Have any of the leading presidential candidates abandoned their climate change plans or initiatives in the face of this oncoming recession? Have they used that excuse to say that clearly doing anything about the environment was for another day, when we were more prosperous, or have they maintained their initiatives?

[Vicki Arroyo]

We haven't seen that yet in this presidential election. However, certainly the last time a new president was elected, George Bush had made a campaign promise to deal with carbon dioxide emissions from utilities, from electric generators, and then abandoned that upon coming into office, citing the California energy crisis at the time. We're hopeful that won't happen. There's a lot more evidence on the scientific front. There are a lot more businesses calling for regulatory certainty, who want some kind of comprehensive climate policy. So I'm hoping that's not the case.

The truth is, if that was the Supreme Court position, a cap and trade bill is probably going to be the most effective way to address this. I don't think the companies are really going to want a piecemeal approach that now is clearly, according to the Supreme Court, the law of the land. It's certainly possible. So an EPA could regulate, facility by facility, in a traditional standards-setting approach now under the Supreme Court proclamation, and I think that would be much less cost-effective than the bills we're considering.

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

It's very interesting, because just prior to Christmas and going to the Bali negotiations, I met with some of the folks on the Hill who were dealing with these pieces of legislation. When I asked what the Canadian interaction had been with the various senators and Congress, there had been zero. There hadn't been any conversation between the Canadian government and the people proposing these cap and trade bills, which obviously have economic impacts.

I'm going to turn to Ms. Pollard for a moment. You used an expression: “learning-by-doing phase”. Why was that so critical? Why was it not important to get it completely right, before you moved at all, on climate change?

[Vicki Pollard]

We had the luxury that we got it in place by the beginning of 2005, which meant that we had three years before the Kyoto commitment period when it became absolutely vital to have the ETS to help us meet our commitments. So we were lucky. But it is a big endeavour, so it does take some careful thinking.

That said, we were the first to do such a big scheme for CO₂ emissions. We learned a lot from the U.S. from the NOx and SOx trading schemes. We're making real efforts now to make sure that other people can learn from us. So we're one of the partners in the ICAP, the International Carbon Action Partnership, which was mentioned by Vicki Arroyo, to help share knowledge and experience to get better-designed ETS schemes in the future.

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

Similar to the argument that has been used by this government and previous governments about the environment versus the economy question, there has also been, more recently, a hyped argument that until China, India, and the other developing countries move, it is not an intelligent or wise decision for Canada to make such considerations, to invoke laws like this bill proposed by Mr. Layton.

Why has that not inhibited you from moving forward? Why do you not see it as a competitive disadvantage to do things about climate change, as our government has proposed at even the most recent talks in Bali?

[Vicki Pollard]

The EU's position is that we want to see a comprehensive agreement with broad participation, that we're not asking for developing countries or emerging economies to take on the same sorts of commitments that we do, because we think they need room for development. We reflect the same thing in our effort-sharing within the European Union. We look at levels of GDP per capita in sharing out the efforts, but we're also clear that there has to be differentiation between developing countries.

We see it more as a question of, if we can show that we can do it, we can persuade them to take the action. By taking action, which also involves investment in their countries through mechanisms like the CDM, we help demonstrate clean technologies and engage them in innovative policy instruments to show them what can be done, to help them get experience of doing this, and we can help move them along that path towards taking the action or increasing the action they're already taking to the levels to which it needs to be taken.

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

As a final question, to Mr. Hughes, you mentioned in your testimony the need, the urgency, and the actions that are taking place by the U.K. You also mentioned that energy efficiency was one of the greatest levers you used. Does a cap and trade type of mechanism allow companies to find those most efficient means to get the job done and allow that urgency for targets to be met?

[James Hughes]

Thank you.

Certainly the cap and trade scheme, through the EU ETS, has helped with that, although I think, as you heard from my testimony, the U.K. has actually been a net purchaser of credits. But again, as I said in my testimony, the U.K. has introduced a lot of measures over the last 10 years or so and has targeted energy efficiency as a sort of win–win–win, in terms of energy security, in terms of reducing emissions, but also in terms of saving money.

Going back to a comment that Ms. Pollard made earlier on, she talked about the policy lag. I think the experience we've had in the U.K. has been that we came out with our climate change program originally in 2000, reviewed it in 2006, and found that the emissions reductions we had predicted in 2000 weren't actually being realized to the extent that we hoped they would be, and therefore introduced new measures in 2006, again to help us towards our 2010 targets.

But certainly in the area of energy efficiency we've seen some good progress, and the work on the emissions trading scheme has helped to complement that in terms of additional emissions reductions.

[The Chair, Conservative, Bob Mills]

Thank you, Mr. Cullen.

Mr. Vellacott.

[Maurice Vellacott, Conservative, Saskatoon—Wanuskewin, SK]

Thank you, Mr. Chair.

Just off the top, I need to correct the record from Mr. Cullen here because our party's position was alleged incorrectly there. We have in fact committed to absolute reductions of 20% by 2020, just so our witnesses are well aware of that. But we do need to get everybody involved if global emissions are to go down. It's just so that we have the record corrected there.

I'd like to ask the question first to Vicki and then to James as well with respect to their particular spheres in their countries.

If a bill came to your parliaments, the European and the British, a bill like C-377 that we have before us today, a bill like that which was not costed, had no economic analysis, what would you as an adviser be recommending your parliament do with that bill?

[Vicki Pollard]

From the European Commission perspective, all legislation that we adopt is associated with impact assessment. The extent of impact assessment depends on the nature of the provisions in that bill.

[Maurice Vellacott, Conservative, Saskatoon—Wanuskewin, SK]

So you would recommend that they go ahead and cost it and get an economic development--

[Vicki Pollard]

An impact assessment that looks at the net economic cost of costs and benefits but also social and environmental....

[Maurice Vellacott, Conservative, Saskatoon—Wanuskewin, SK]

Before it proceeds?

[Vicki Pollard]

It would have to before it goes ahead.

[Maurice Vellacott, Conservative, Saskatoon—Wanuskewin, SK]

Good.

James, perhaps you could give me a response on that question too in terms of what you'd do if you had a bill like this--no costing, no economic analysis. What would you recommend?

[James Hughes]

Here in the U.K. all new regulations in Europe have to go through, as Vicki has mentioned, an impact assessment, and the impact assessment that would be required here would include an assessment of the costs of that policy as well.

[Maurice Vellacott, Conservative, Saskatoon—Wanuskewin, SK]

Okay. I guess this is for the witnesses again. In the last years we've seen countries like China and India begin to acknowledge the fact that they too need to come on board and have responsibilities in fighting climate change. Canada has been there attempting to work as a bridge builder to demonstrate some leadership to bring others on board. And I think we've finally succeeded, at least to a great degree on that, in having all the large emitters signing on to those international agreements, from the city declaration to the recent agreement in Indonesia as well.

Back in probably November, I got a letter, as I think most of the MPs did here, from the British High Commission. In that letter they were indicating and stressing the importance of having the really big emitters involved, for this was the lead-up to the Bali meetings in Indonesia. So the British High Commission letter was pretty clear. It said, in effect, and specifically, that we needed those big emitters on side.

I guess this is my question to our witnesses. If countries like India and China remained as business as usual, were not drawn in to become a part of this, what effect would Canada's domestic action have on climate change?

[James Hughes]

Can I perhaps respond to that first? First of all, as far as the U.K. is concerned, we feel the stance tells us we need to take action now. The economics tell us we can't afford not to. So we have to lead starting at home and influencing abroad, recognizing that global environmental problems need an international approach.

We think there needs to be an international agreement that includes all countries, including all the major emitters as well. And we feel they need to be involved.

We think in terms of what this would mean for Canada.... Perhaps I won't comment on what it means for Canada. By looking at what it means for the U.K., we recognize that in terms of direct emissions, we represent about 2% of direct global emissions, and yet we feel it's important that we can show developing countries--

[Maurice Vellacott, Conservative, Saskatoon—Wanuskewin, SK]

I'm going to cut in there, James, and turn it over to my colleague here. I've robbed a bit of his time already. Maybe the other witnesses can wrap some responses to my question in something subsequent here.

[Jeff Watson, Conservative, Essex, ON]

Thank you, Mr. Chair.

Thank you to the witnesses for appearing.

At this committee we have heard from Canadian IPCC scientists, we've heard from economists, and now we've heard from environmental groups. Now, of course, we're dealing with what I thought were going to be jurisdictional issues with this particular panel. I'd like to get some of our questions down into that. Obviously, if Canada is going to take on emissions trading, we would have to look at examples from around the world and be sure that we're comparing apples to apples and not apples to oranges.

Maybe, Ms. Pollard and Mr. Hughes, I'll start with you. I'd like you to explore for us, in this process of getting the EU ETS up and going, some of the challenges you've had, some of the obstacles you've had to overcome with respect to the EU and its member states, some of the interjurisdictional things, legal challenges or anything like that. Help us to get a glimpse of that.

I think, Ms. Arroyo, I'm going to come to you afterwards and ask the same type of thing with respect to the U.S. federal government and individual states, or maybe some of the state-to-state relationships as well.

I'd like some thought focused around where Canada and the EU may be similar, where Canada and the U.S. may be similar, and where we may be dissimilar. If we're going to do this, there may be some things that might be easily transferrable to our situation and some that may not be. So I'd like it if we could explore that a bit.

Ms. Pollard, we'll start with you. I know it's big. I know it's a lot.

[Vicki Pollard]

I have to admit this is a very big subject, and I'm not an expert on Canada, so I'll talk from the European perspective--and also as somebody who wasn't there from the launch of the EU ETS, in the job sense.

The major lesson for us is simplicity. The EU ETS is a relatively simple scheme. You talked about apples versus apples compared to apples versus oranges. We have one common currency, which is a metric tonne of CO₂, and that's very important. Then what we have is an absolute emissions reduction commitment, which at the moment is made up of additions of the 27 member states caps, to have an overall EU cap.

One of the lessons, in terms of simplicity, and one of the lessons we're taking forward to post-2012--so from 2013 onwards--is to have the cap set as far as possible at the EU level, because one of the complications is allocation of allowances. Once you have a scheme up and running there's a lot of money at stake, and that leads to very difficult decisions for whoever is making the decisions, whether it be, in the EU context, the commission looking at national allocation plans or people developing national allocation plans and deciding on what to allocate to different installations within their countries.

The more that can be simplified and the more it's within the confines of what's being done elsewhere in the world, so that the competitive impact on the companies that are exposed to international competition.... The more those allowances can be sold--not allocated, but sold--say, through auction, the easier it will be. So that's an important lesson.

I'll hand it over to James. From a member state perspective, he may have other lessons he wants to raise.