Environment Committee on Feb. 11th, 2008

[The Chair, Conservative, Bob Mills]

If I could bring us to order, please, we do have a very tight schedule and lots to cover.

I would like to start off by just reminding members that the clerk and I worked on a list of the subjects you've put forward to us, and on Wednesday we'll take a look at that in terms of timelines and future business and what we can do from now until June. That's just a heads up for Wednesday; that's what we'll be doing.

I would also like to let you know that we have three witnesses for the first hour and five witnesses in the second hour, so we're going to have to keep it fairly tight. I do want to also mention that we will have some students from the University of Ottawa who will be here in the audience in the second hour. They have requested that if anyone can stay after we adjourn the meeting, they would like to ask us a few questions. I've agreed to stay. Any of you who do have the time to stay would be appreciated.

I would like to begin by welcoming Vicki Pollard, who has come here from Brussels--and has complimented our weather. I think that's probably good. I'd like to welcome you.

Of course, we have two other guests who are here via teleconference, and I welcome them as well.

I'll ask the witnesses to keep their testimony to somewhere around five minutes. I have a little grey box, so I know exactly how long you're taking. We'll do the cut-off if you go too long. That gives our members the maximum time to ask questions.

We'll begin with you, Ms. Pollard. Welcome from the Canadian Parliament.

[Vicki Pollard, Policy Officer, Environment Directorate, Climate Change Strategy and International Negotiation, European Commission]

That you very much, Mr. Chair.

Thank you to the committee for inviting the European Commission to present our experience with climate change policy.

I am very pleased to be here to speak to you today. As I was saying to the chair, it is really wonderful to have beautiful winter weather and lots of sunshine. It is a pleasure to be here in Ottawa. Thank you very much.

I will continue in English.

I want to start with the basis of the EU's climate policy. The EU's climate policy is driven by scientific evidence on man-made climate change. Its objective for some time has been to limit the average increase of global temperature to a maximum of two degrees Celsius--that's 3.6 degrees Fahrenheit--above pre-industrial levels. Within this threshold we'll still see some serious climate change impacts, but we'll have a reasonable chance of avoiding catastrophic consequences.

This requires swift and ambitious action to put the world on a path to avoiding dangerous climate change. From our perspective, staying within two degrees Celsius means that global greenhouse gas emissions need to peak around 2020 and then be reduced significantly to around 50% of 1990 levels by 2050. Developed countries like our own must take the lead and reduce emissions by 60% to 80% by 2050. This is where we start from, and the first step is meeting our Kyoto commitments.

The EU is on track to meet its commitment to reducing greenhouse gas emissions by 8% compared to 1990 levels by 2008 to 2012. The target is split among EU-15, the old member states, and there are targets for most of the new member states, except for two that don't have targets. We're on track to do this with policies already in place, policies that are now being discussed and being put in place, and with the use of the Kyoto flexible mechanisms of CDM and JI.

Over the past decade, the EU and its member states have put in place a comprehensive array of reduction measures, including: energy efficiency, renewable energy, taxes, and vehicle emission and fuel standards. Probably the most important is the mandatory cap and trade system, the EU emitters trading system, or EU ETS, which provides industry with the necessary political policy certainty, a continuous financial incentive, and the flexibility to take action and innovate in the most effective ways.

The EU ETS covers around 10,000 installations responsible for 40% of the EU's greenhouse gas emissions. We've just completed three years of a learning-by-doing phase, and the EU ETS is functioning well. We're now in the second trading period, which is the trading period that coincides with the Kyoto commitment period, and this is the real crunch time. This period will bring about reductions in emissions relative to 2005 verified emissions of 6.8% over the period 2008-2012, with allowances currently trading, and have been for some time, at more than $30 Canadian per tonne of CO₂.

The EU is also very keen to support the development of the global carbon market, which we see as essential for shifting finance and investment into clear solutions. Member states and the companies in the EU ETS can use credits from international emission reduction projects, such as under the clean development mechanism, to meet part of their reduction objectives.

For us, that is important, both for cost effectiveness to support clean development projects and to engage developing countries in climate action. To give you an idea of the scale, EU member states, at a national level, have set aside €2.9 billion, which is about $4.2 billion Canadian at current exchange rates, for more than 500 million tonnes of CO₂-equivalent reductions over the Kyoto commitment period.

In addition, the private sectors of those companies covered by the EU ETS can also purchase carbon credits from CDM or JI projects, up to 1,400 million tonnes, or 1.4 gigatonnes, up to 2012 as part of their compliance under the EU ETS. They can also buy credits in addition to that, but that's for the EU ETS compliance element.

Obviously, Kyoto is just a first small step. We need to make much greater global emission reductions as part of a comprehensive global agreement post-2012. With this in mind, the EU heads of state and government adopted a package in 2007 under which they called for developed countries together as a group to reduce their greenhouse gas emissions by 30% below 1990 levels by 2020 as part of a comprehensive international agreement.

This makes economic sense, and I think it's important to note. Our own analysis shows that investing in a low-carbon economy would reduce global GDP growth by just 0.19% per year up to 2030. That is just a fraction of the expected projected GDP annual growth rate, which is 2.8%. It is 0.19% related to 2.8%, and this is without taking into account the associated health benefits, greater energy efficiency and security, and reduced damage from avoided climate change.

The EU believes that developed countries must take the lead, and we are serious about leading by example. To show our determination to tackle climate change and our conviction that it's fully compatible with economic growth, the EU has taken a firm, independent commitment to achieve at least a 20% reduction in greenhouse gas emissions by 2020 in the absence of an international agreement.

Last month the European Commission published its detailed proposals on how the EU will meet its greenhouse gas emissions targets for 2020 with the measures needed to reduce emissions by at least 20% of 1990 levels by 2020, regardless of what other countries do--

[The Chair, Conservative, Bob Mills]

If you could conclude, then we'll get to the questions, if you don't mind.

[Vicki Pollard]

Basically, we've put in place a package of measures to get to the 20% target by 2020, but also to extend that to 30% in the case, as we expect, of an international agreement. It covers both climate change action and renewable action, and it's a comprehensive package that allows us to share the effort out between member states. I can come back to how we do that in a minute.

The use of flexible instruments is very important. We're proposing a revision of the legislation underlying the EU ETS. Again, we have looked at the economic analysis.

While it's true that our proposals would have a cost, the benefits by far outweigh the costs. The way we've presented the package, the way we've put it together, is to focus on cost-effectiveness and fair distribution so as to minimize the transition costs. We expect that the impact of our package, cutting emissions by 20% by 2020, will be as low as 0.04% to 0.06% of GDP per year.

In addition to that, we expect very large benefits in terms of fuel efficiency, energy security, and substantial health benefits from reduced air pollution: about €11 billion worth of health benefits—$16 billion Canadian—from taking the measures needed to reduce our emissions by 20% by 2020.

More than that, the package is expected to deliver the kind of structural changes Europe needs to remain competitive. By taking the lead, Europe will be kick-starting the development of a low-carbon economy, a global economy vital to prevent climate change from reaching dangerous levels.

The EU is seriously seeking first-move advantage in a new industrial revolution that will unleash a wave of innovation, job creation, clean energy, and high-efficiency technologies.

Thank you.

[The Chair, Conservative, Bob Mills]

Thank you.

I'd like to go right to Ms. Arroyo from the PEW institute. I ask you, if you could, to try to keep it to about five to seven minutes, just so the members get a chance to ask questions. Thank you.

Welcome.

[Vicki Arroyo, Director, Policy Analysis, Pew Center on Global Climate Change]

Sure.

Thank you for inviting me to speak to your panel today. My name is Vicki Arroyo, and I'm director of policy analysis for the Pew Center on Global Climate Change. The Pew Center on Global Climate Change is a non-profit, non-partisan, and independent organization working to provide analysis and solutions in the effort to address climate change. Some 44 major companies participate in our business environmental leadership council, making ours the largest U.S.-based association of corporations focused on addressing the challenges of climate change.

I direct the Pew Center's analytical program, including work on science, impacts, economics, and policy. We've published more than 100 peer-reviewed reports and analyses over the last 10 years.

I want to congratulate the committee for taking up this initiative. I'm happy to report that there's also tremendous momentum in the U.S. in recent months on climate change, galvanized by a variety of factors: more compelling science, increasing public awareness and concern, barriers to construction of new conventional coal plants, state and regional leadership, and a Supreme Court finding that carbon dioxide is indeed an air pollutant under the Clean Air Act, which EPA has the authority to regulate. Also, we've seen the Democratic Party take over Congress and promise to move climate legislation.

In 2007, there were over 110 climate-related hearings in our Congress, and roughly 150 bills mentioned climate change. We also saw the passage of an energy bill that for the first time in decades strengthened fuel economy standards for vehicles. In addition, we saw a spending bill that directed and funded a new greenhouse gas emissions registry.

We also have calls for action from more and more business leaders. Last year, an historic coalition was announced, the United States Climate Action Partnership. The Pew Center is part of this effort, along with leading companies and nine governmental organizations. It calls for mandatory U.S. climate policy and for cooperation on the policy's design. Many of our presidential candidates are making this an issue. In fact, all the major remaining candidates support a cap and trade program.

The most significant development, perhaps, is the passage through the Senate Committee on Environment and Public Works of Senate Bill 2191, the Lieberman-Warner Climate Security Act. This ground-breaking proposal would create an economy-wide cap and trade system covering all six greenhouse gases. It contains short-, medium-, and long-term reduction targets covering about 87% of U.S. emissions—4% below 2005 levels in 2012, 19% below 2005 levels by 2020, and 71% below 2005 levels by 2050. This refers to the covered sources, and it would mean that by 2050 all U.S. emissions would be reduced to roughly 66% of 1990 levels.

The proposal would permit companies to offset their required submission of domestic allowances by up to 15%. Offsets are seen as a key cost control mechanism. In addition, a company can submit emission allowances, from approved international trading systems, of up to 15%.

The Lieberman-Warner proposal contains specific requirements for allocation of allowances. At first, roughly 74% of allowances are provided to help regulated entities and those affected by the new policy, including consumers, to make the transition. However, the free allowance allocation to affected firms will be phased out by 2031.

The auction revenues are distributed for technology development, since we cannot solve this problem without significant investment in technology. Also, the revenues go to low-income energy consumers through, for example, weatherization programs, worker training, and adaptation.

I should note that separate bills devoted to climate change adaptation are also moving through Congress.

The leadership of both the Senate and the committee are working with the bill's sponsors, and others promoting related bills, to bring forward a bill for a floor vote this spring. In addition, the House Committee on Energy and Commerce has produced white papers on key design elements regarding a cap and trade program and is working to produce a bill. Speaker Pelosi put a climate bill on the short list of her legislative priorities for this year.

While it's unclear if the current president will sign a cap and trade bill, it's worth noting that he might be reluctant, just before an election, to exercise his veto power on something that would have bipartisan support if it passed. As I mentioned, the remaining top candidates from both parties support climate action in the form of cap and trade.

In addition, pressure from industry is increasing through the U.S. Climate Action Partnership. State involvement on this issue is also growing. In fact, state and regional governments are taking the lead in this bipartisan issue. In 2005, California Governor Schwarzenegger called for ambitious long-term reductions of greenhouse gases. In 2006, he signed a law that sets California on the path to meeting those reductions—the state is required to reach 1990 levels of emissions by 2020. Florida Governor Charlie Crist, also a Republican, has put in place ambitious executive orders calling for greenhouse gas emissions to fall to 80% of 1990 levels by 2050.

The northeastern and mid-Atlantic states will be implementing their regional greenhouse gas initiative in 2009. It aims to cap carbon dioxide emissions from utilities starting next year and to reduce them by 10% by 2019. Other regions are following suit. There are regional initiatives to reduce greenhouse gases in both the western and mid-western U.S. in partnership with some Canadian provinces. In addition, 10 U.S. states have joined an International Carbon Action Partnership to develop compatible trading with the EU, New Zealand, Norway, and two Canadian provinces.

The action of all these states is indeed very important and laudable. But in and of itself it is not enough to curb the overall national emissions growth we're seeing. For that reason, and also because it's creating a patchwork of regulations, we would like the regulatory certainty and the comprehensiveness of a federal policy program, such as the Lieberman-Warner bill or other cap and trade bills that Congress would consider.

Thank you, and I look forward to taking your questions.

[The Chair, Conservative, Bob Mills]

Thank you very much.

We'll go on now to the United Kingdom's representative, Mr. James Hughes.

[James Hughes, Deputy Director, Climate Change and Energy, Strategy and Public Sector Division, United Kingdom Department for Environment, Food and Rural Affairs]

Thank you very much, Mr. Chairman.

I just want, first of all, to thank you for inviting me to set out the action being taken by the U.K. to tackle greenhouse gas emissions.

I'd like to start by briefly outlining the U.K.'s goals for emission reductions and its current progress, and then I'll briefly outline how it has made those reductions and mention some of the policies and measures in place.

The key message I want to convey in my presentation is that the U.K. is on track to surpass and perhaps nearly double our Kyoto commitment. We have set ourselves more challenging domestic goals, notably our 2010 goal, and we recognize the need to go further still, which is why the climate change bill will ensure that future governments are legally bound to meet our domestic budgets.

I'll begin just by clarifying the U.K.'s performance against its goals, which can be a source of confusion. The U.K.'s Kyoto Protocol target is to reduce its greenhouse emissions by 12.5% below the 1990 level over the period 2008-2012. Our self-imposed domestic goals are more demanding: to reduce the emissions of carbon dioxide by 20% below 1990 levels by 2010, then by 26% to 32% by 2020, and by at least 60% by 2050. The U.K. climate change bill that is currently being debated by our Parliament would make the carbon dioxide emission goals for 2020 and 2050 legally binding. The bill would require the government to set five-year carbon budgets for three periods ahead, and it would create a committee on climate change to advise on what the level of the budget should be. The committee has also been asked to review the U.K.'s long-term target to see whether it should be increased up to 80% by 2050.

On January 31, 2007, the U.K. published its final figures for greenhouse gas emissions in 2006. These confirm that greenhouse gas emissions have fallen by 20.7% compared with the base year, including trading, and by 16.4% if we exclude trading. In other words, our firms were net purchasers of emissions credits from their EU counterparts.

We forecast that greenhouse gas emissions will fall by over 23% by 2010, but we have not been as successful in cutting carbon dioxide emissions. In 2006 they were 12.1% lower than the base year and 6.4% lower, excluding trading. They're forecast to fall by at least 16% by 2010.

To recount, the U.K. is already below its Kyoto target and it's set to almost double it, but meeting its self-imposed domestic goal for CO₂ is likely to be challenging.

How have we managed to reduce our emissions while growing our economy? There is an element of truth in the “dash for gas” explanation in the nineties, but our economic analysis shows this accounts for a small percentage of the overall reduction. In fact, the reductions in greenhouse gas emissions are, in large part, the result of energy efficiency.

Energy efficiency has been driven by a wide range of policies, including the climate change levy, which is an energy tax to encourage greater energy efficiency in business and the public sector; climate change agreements, which are voluntary agreements where the operators pay a reduced rate of climate change levy in return for meeting challenging energy efficiency targets over a 10-year period; and the carbon trust, which is an organization that gives guidance and support to companies trying to reduce emissions.

In the domestic sector the energy efficiency commitment, which is the requirement on electricity and gas suppliers to achieve targets for the promotion of energy efficiency improvements, has been very successful in delivering energy efficiency in the household sector. The introduction of competitive markets in production and supply in the electricity supply sector such that commercial pressures ensure companies strive at all times to improve their efficiency have driven a large reduction in the U.K.'s greenhouse gas emissions since the early 1990s.

But this is not the only factor in the U.K. seeing a reduction in the emission of CO₂ per unit of energy produced. The U.K. renewables obligation has delivered savings, as has the higher diesel penetration in the transport fleet, the increasing use of biofuels in transport, and the EU emissions trading scheme. These savings are expected to continue to increase.

The other area where we've seen a difference is in our emissions of methane and nitrous oxide, which have reduced by 53% and 40%, respectively. Reductions from industry have come via regulation, enforced emission controls, and reductions from waste have come from reducing the amount of waste going into landfill and from incentives to collect and burn landfill gas. The modern landfill site in the U.K. collects and utilizes at least 90% of the methane produced as waste decomposes.

Overall, our analysis suggests that in round terms in 2006, emission reductions since 1990 due to energy efficiency, lower carbon fuels, and reductions in emissions of greenhouse gases other than CO₂ amounted to some 265 million tonnes of carbon dioxide per year, of which improvements in energy efficiency contributed about 40%, lower carbon fuels about 30%--made up of 20% from the so-called dust-free gas and about 10% from renewables and other low carbon fuels--and 30% due to lower emissions of greenhouse gases other than CO₂.

Along with having various other policies and measures, the U.K. aims to reduce its emissions further in order to meet the targets it's setting itself in the climate change bill. Its current policies and measures are set out in the 2006 climate change program and the 2007 energy white paper.

I hope that's a helpful summary, and I'd be happy to take questions.

Thank you.

[The Chair, Conservative, Bob Mills]

Thank you very much.

I would ask members to take about eight minutes, and that way we'll keep on schedule. Please be crisp and sharp. I know our witnesses would like to answer.

We'll begin with Mr. McGuinty, please.

[David McGuinty, Liberal, Ottawa South, ON]

Thank you, Mr. Chair, and thank you to those who are here by teleconference and by telephone.

I'd like to ask a question first, if I could, to Ms. Arroyo. Perhaps you could help us crystal-ball gaze a little bit. We're a little less than nine months away from the presidential election results in the United States. You mentioned that over 150 bills have mentioned climate change, and there have been 110 climate change hearings on Capitol Hill. I take it the Lieberman-Warner bill is perhaps the most promising bill for bipartisan support in the United States.

Can you help us understand something? One of the comments made by our guest Vicki Pollard from the European Union was that the European Union was seeking what she described as a first-move advantage. In other words, the European Union is not waiting and is simply going at it. Can you give us a sense of where you think a potential Democratic presidency will go? To what extent will a first- or even second-move advantage in the United States kick in? Also, can you help us understand how this issue is going to be seen economically in the United States? Is this going to become a major competitive advantage going forward?

I think this is going to help us understand the implications of the targets being called for here in this particular bill we're examining.

[Vicki Arroyo]

Thank you very much. I'll try my best.

First of all, I'd like to say that I think regardless of whether we see a Democratic or a Republican president, given that the two major candidates of each party--Obama and Hillary Clinton in the Democratic Party, and McCain and Huckabee, since he's still in the running--have embraced cap and trade as a way to deal with this problem, they've acknowledged that climate change is happening. As you probably know, Senator McCain has been a leader and has proposed in fact the very first cap and trade bill, and re-proposed it last year.

You're correct in that the vehicle to watch here is really the Lieberman-Warner bill. That's the first one to make it through a Senate committee with the support of Warner, who was the sole Republican. He is committed to reaching out to others in his party. Indeed, others in his party will be needed to get it through the Senate.

Should that happen in the next few months, and should the House do what they are working hard to do, which is to draft a comparable vehicle and put it on the President's desk--as I said, it's hard to predict right now whether or not this President will sign it--I do think it's very hopeful that in the next year or two we will see climate legislation here, if not in 2008 then certainly by 2010, we think.

The economic advantage story is something that some of the people running for office are telling. Certainly Barack Obama and Hillary Clinton, at least, and I think to some extent John McCain, are talking about the green jobs that can come from taking this issue head-on, and the energy security benefits that also coincide with much of what you do for climate change. I also think, in the face of a potential recession, there's some wariness right now as well about whether or not a cap and trade bill would have some detrimental effect in the near term. The bill that is being discussed, the Lieberman-Warner bill, does have some cost control provisions in the form of things like offsets or borrowing from a future allocation but with payback, which are being considered. The Bingaman-Specter bill--and those folks are working very closely with the Lieberman and Warner team--has more of a traditional safety valve approach. Unfortunately, it limits the environmental integrity of the program, but that's also something that might be on the table.

[David McGuinty, Liberal, Ottawa South, ON]

Thank you for that.

I would like to move to Ms. Pollard and our guest from the U.K., Mr. Hughes.

Can you help us understand how the three-year trading experience has moved to perfect the trading system in the European Union? To what extent have the challenges and the designed features been ironed out? I thought it was over 11,000 installations, but you say it's 10,000. Fine. That's a lot of installations.

Mr. Hughes, you're the deputy director of the Department of the Environment in the U.K. I take it you would have been following the IPCC's latest reports. One of the things that we hear repeatedly from the IPCC is that we have to make policy now based on science, not on voodoo. Numbers like 2% to 4% keep popping up and were prominent in Bali.

To what extent--in Mr. Hughes' case and perhaps Ms. Pollard's--has science informed the approach of the European Union and the U.K. to this issue?

[The Chair, Conservative, Bob Mills]

Ms. Pollard.

[Vicki Pollard]

Thank you.

First of all, the creation of the EU ETS was a huge undertaking. Basically, in three years we created a new commodity market, so it's a major step forward. It's a commodity market where we have increasing volumes of trade over time. In the first three years there have been a number of criticisms that are well founded, and we've been addressing them.

The first problem we faced was a price crash that happened around May 2006. That was simply an issue of scarcity. When the EU ETS was set up we didn't have verified emissions data for the installations covered, so we used the best available data, which turned out to not be good enough.

In May 2006 we had the first release of verified emissions data because that data was required under the EU ETS legislation. So the first time that data became available was when the legislation made it an obligation to report it. At that stage, it became clear that there were too many allowances in the market, therefore the price crashed. It was simply economics.

We've addressed that in phase two. Now we have verified emissions data. The allocation for phase two has been based on making cuts from the verified emissions data for 2005, and we now have data for 2006. So it's clear that the market is now short, and that's why the price for the second trading period is now well above 20 euros per tonne and has been for some time.

But there are other areas where we've learned simple things like how to release data so as not to give the same data to the market at the same time, which is not always obvious for an environmental regulator. Another important factor is simplification of the legislation. The drop from 11,000 to 10,000 is simply because some of the smaller operators who find it too much of a burden have been dropped to focus on the bigger operators.

Another important change will come in 2012 under our proposals that were published in January. We're looking for an EU-wide cap, rather than individual member states, to simplify the system, but also far more auctioning to deal with the issue of windfall profits. Sectors that can pass on costs to customers shouldn't get the free allocations they've been getting so far.

[The Chair, Conservative, Bob Mills]

Mr. Hughes, could you give us a quick answer on the science question of Mr. McGuinty, please?

[James Hughes]

Sure.

The IPCC report has provided us with evidence that clarifies that urgent action needs to be taken. Even if all greenhouse gas emissions stop tomorrow, we're already locked into about a further 0.6% Celsius warming over the next few decades. If we don't soon review stated current emissions projections, the level of greenhouse gases in the atmosphere are likely to reach 550 ppm CO₂ equivalent by around 2035. That would commit the world to at least a two-degree Celsius warming. As Ms. Pollard said, we need to see emissions peaking in 2020 and reductions between 60% and 80% by 2050.

[The Chair, Conservative, Bob Mills]

Thank you.

Mr. Bigras, please.

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

Thank you, Mr. Chairman.

Welcome to our witnesses.

My question is for Ms. Pollard. I was in Kyoto in 1997 and I was rather surprised at the European Union's level of preparation for this international conference. I believe that the reason the Europeans have been successful is that as partners, they were able to agree among themselves before turning to the international scene. This enabled you to adopt a triptych approach, that reconciles both sectorial and territorial approaches.

In essence, you made commitments on the world stage concerning an objective, but right from 1997, you allocated differentiated targets between the 15 members of the European Union, taking into account possible energy efficiency, economic structure, demographics and climate.

Has this shared and differentiated approach, suitable to the international commitments and integrated with the European Union been a gauge of success in reaching your greenhouse gas emission targets?

[Vicki Pollard]

Thank you.

I'm going to answer in English because I'm more fluent in English.

I think it is important for us--and we're doing it again in the lead-up to 2012--to be clear about our objectives going into negotiations and who's going to do what within that overall target. So part of the package adopted in January was about sharing the effort between member states.

It helps, because there's a policy lag; it takes time to get the policies in place to lead to emissions reductions. It may be a decade or so between when we start discussing how we're going to go about it--doing all the impact assessment and economic, environmental, and social work, deciding on the right piece of legislation, and getting it through the European process and adopted in member states legislation--to the point where it actually starts having an impact in terms of emission reductions.

Given what the science tells us about the need to peak in 2020 and then decrease, we don't have that much time. So we need to start early to be ready for the agreement, which is only about 18 months away. The end of 2009 is not so far away. It's very important.

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

The bill we are studying, C-377, contains a commitment in terms of reductions for two dates, that is 2020 and 2050, and the reference year set out is 1990. Over the last few weeks, the opposition was in Bali and we saw how the international negotiation was unfolding. The Canadian government was attempting to push the reference year as far away from 1990 as possible. The result of that is to thwart the efforts being made by sovereign states as well as by businesses in various states that are affected.

Does the 1990 reference year allow for past efforts made to be taken into consideration both by the member states of the European Union as well as by the businesses that decided, from 1990 on, to table plans to fight against climate change?

I see that you are also responsible for the environment directorate, climate change strategy and international negotiation unit. Is the reference year a fundamental component of international negotiations?

[Vicki Pollard]

In fact, I work for that unit; I am not entirely responsible for it. For us,

the baseline of 1990 is important, and that's what we stick to in all our projections. Although in our new programs we look at verified emission status for 2005 for the installation by installation for ETS, that's why we have data. In the international negotiation context we will always go back to 1990. That's important for us.

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

My next question is for Ms. Vicki Arroyo.

You said earlier on that despite the stubbornness — that is the word I personally use — of the American administration in distancing themselves from the fight against climate change, the fact remains that there are roughly a dozen states that have decided to be proactive. I must remind you that Quebec, in particular, signed agreements with these states in order to fight against climate change. This is not only the case for the province of Quebec, but also for Quebec financial markets. I am thinking here of the agreement signed by the Montreal Stock Exchange. The Montreal climate exchange signed an agreement with the Chicago stock exchange with a view to a future market for carbon derivatives.

Is there a future for this agreement between the Montreal Stock Exchange and the Chicago exchange for carbon derivative products, and will it be called upon to expand in the future?

[Vicki Arroyo]

I'm not really familiar with that agreement. Was it the agreement with the New England states and the Canadian provinces as part of the discussions on RGGI?

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

Agreements have been signed from government to government, from state to state, but in fact there is a climate exchange that exists in which Montreal has positioned itself over the last few years in order to attract the carbon market. An agreement was signed with the Chicago Stock Exchange, which currently has a voluntary market that is not binding but which nevertheless exists.

Are these links that exist between certain American states and certain Canadian provinces — I am thinking of Quebec and of Ontario — viable, if both federal administrations are deciding to keep their distance as far as the fight against climate change is concerned?

[Vicki Arroyo]

I think there's a possibility of a bottom-up approach, whereby you have many of the states and regions, not just in the northeast but also, as I said in my testimony, in the west and in the mid-west, including Canada, that could talk to each other and link trading programs. And then through the ICAP initiative, which I also mentioned, they could link with the EU, Norway, New Zealand, and other places that have trading programs. But that would be at the subnational level. Our preference would be to see a federal policy that is consistent and comprehensive at the federal level.

The Chicago Climate Exchange has been a very good pilot for the private sector, which wants to get its feet wet, so to speak, wants to get a little bit of experience with emissions trading. But it's based on voluntary targets they have taken on that may or may not be deep enough to actually deal with the problem of climate change. Rather than extending those kinds of voluntary targets, we really think you need more ambitious national targets.

Possibly some of the infrastructure that has been set up is something we should take a hard look at when we create an emissions trading program at the federal level here.