I'd like to thank the chair and the committee for the opportunity to appear before you and participate in the review of this bill and of climate change generally.
Before I get into my remarks, I'll first note the four points I would like to leave with you.
First of all, CCPA and our members take climate change very seriously. Our members have gone well beyond Kyoto in their reductions. To keep improving and keep that track record, we need to stay globally competitive. Here government policies are critically important for us.
Most important in terms of government policy, we need the Canadian government to proceed in pace with the U.S. in managing greenhouse gases. Canada's system must be comparable to that of the U.S. for competitiveness reasons, to avoid U.S. border measures, and to recognize the overall integration between our two economies. This doesn't mean being identical to the Americans. There are differences in the Canadian situation that need to be recognized. Where we can, we should try to do things smarter than the Americans are doing, but moving with the U.S. is a far better approach than is developing a plan on our own.
In terms of this specific bill, we don't think Canada should lock into the targets that the bill requires. We don't know if Canada can meet those targets. Buying credits and not reducing emissions would be the result. That approach could cost billions of dollars. The recent Suzuki-Pembina study estimated it could be $6 billion by 2020, and we think those costs could be even higher.
We don't believe this bill is the right framework to manage climate change. I will outline a framework that we think could work, one in which the government is doing the right thing in moving in pace with the Americans, and one in which the government is on the right track but needs to move further along the road in improving the capital cost allowance and in using a technology fund.
First, I'd like to talk about the performance of CCPA members. What CCPA has achieved in climate change is shown in the first attachment. It's the one you got in the brief previously. Kyoto called for a 6% reduction. Our members have achieved a 65% reduction. We achieved these results under Responsible Care. I think many of you are familiar with Responsible Care. It's something we've recently improved. We've been trying to integrate it more with sustainability and to maintain Canada's leadership internationally among the chemical associations in Responsible Care.
Under Responsible Care, our members took climate change seriously right from the start. Back in 1992, after the UN framework convention started, we started to track and publicly report on our emissions. We've been improving our performance ever since.
Now that's what we've done. What would we like from the government?
Since we started tracking our emissions, we've been looking for a supportive government policy framework for climate change. The closest we've had so far is the understanding by the current government that domestically Canada needs to keep in pace with the Americans, and internationally Canada needs to insist that there be binding obligations on some of the developing countries that are major emitters and some of our major competitors. The government policy is sound in that area, but the government policy needs to go further in supporting technology development and new capital investment.
Much of what influences investment in Canada is, frankly, outside of government control, like international trade flows and developments in markets like China, Brazil, India, and the Middle East. Other important factors like the value of the dollar are things the government can try to do something about, but they really can't do much.
There are three broad policy tools that we think would be very powerful and that the government should be using. First--and here the government has it right--is proceeding in pace with the Americans on alignment. Second is improving the accelerated capital cost allowance. Third is using a technology fund as part of the compliance measures for climate change. On these last two points, we believe the government is moving in the right direction but needs to go further.
Before I talk about where we'd like the government to go further on those two points, I'd like to say a few more words about alignment with the U.S.
Alignment of Canadian climate change policy with the U.S. should be based on taking generally consistent approaches but not on being identical. This is critical for sectors like chemicals that are energy intensive and trade exposed, what have become known as the so-called EITE sectors. That's not a very good acronym; you can't even pronounce it.
The Canadian products sold into the U.S. represent about 57% of Canadian chemical production, so the U.S. is overwhelmingly important for us.
Earlier this year, CCPA saw that the U.S. was moving towards a cap-and-trade approach. We recommended that the Canadian government do likewise. We also recommend that Canada not propose a specific cap for the EITE sector at this time. Instead, we believe we should be informed by the cap the U.S. legislates for its EITE sector. Our cap should then be comparable to or possibly slightly lower than the one the Americans set for sectors like chemicals.
A lower Canadian cap is in fact justified. Canada's trade exposure is far greater than that of the U.S. Canada exports and imports roughly four times as much as the U.S. does. Also, as attachment 2 to our brief shows, it costs a lot more to reduce emissions in Canada than the U.S.
These factors would justify a less onerous cap in Canada, but that is not the only consideration. If the cap is less in Canada, there is a threat, which is very real for us, of border adjustments being added to our products at the border. If the Canadian cap is higher, our manufacturing costs will increase and imported products will be more attractive in Canada. This is a very difficult balancing act. It's a question of striking the right balance, and once we know where the US will land, that is the balance Canada will need to strike.
For alignment with the U.S., Canada seems to have the right climate change policy. For accelerated capital cost allowance and the technology fund, we think the government plan is in the right direction, but needs to move further and be improved.
Turning to capital cost allowance, Canada's environmental performance in chemicals has been driven by responsible care and new investment. Investment also drives improving climate change performance in the manufacturing sector generally. The chart in our submission as attachment 3 is a bit outdated. It is something we took from the Canadian Manufacturers & Exporters, but it is the most recent illustration we have of this point. I believe this committee has seen this chart before in presentations by others. It shows capital investment is the key to reducing emissions intensity in manufacturing. This fact is a critical foundation to build on for climate change policy.
A very important contribution this committee could make to climate change policy would be to recognize the link between new capital investment and improved environmental performance. Improving the capital cost allowance would have a significant impact in attracting new investment and returning to the levels of environmental performance that the chemical sector and others in the manufacturing sector had during the booming 1990s. CCPA has discussed our recommendations to improve the accelerated capital cost allowance with the finance and industry committees. They've understood the competitiveness and productivity arguments, but the environmental dimension of this issue is an important additional aspect that this committee can and should contribute to.
A solution the government could implement now, which all parties supported in an industry committee report in 2009, is extending the accelerated capital cost allowance for new machinery and equipment. While the measure has appeared as a line item in the past few budgets for a two-year timeframe, the timeframe we really need is a five-year period. This is an important policy from both a competitiveness and an environmental perspective. It is a climate change plan that can work, and we hope it would have this committee's support.
Finally, turning to the technology fund, designing a sound technology fund would be a very powerful tool to support greenhouse gas reductions. The fund should encourage investment both in transformative technologies and also in improved current technologies. It also should provide a compliance mechanism and some price stability.
Clearly, investment in technology will be the key to getting the climate change dilemma solved. There is broad agreement by just about everybody on that. We were encouraged that a technology fund was one of the compliance options in the government’s Turning the Corner proposals, but we saw that proposal as having some fairly serious flaws. What we are promoting is a technology fund that is more in line with what Alberta is using, but with several important distinctions.
First, we think the price associated with contributions to the fund should not be fixed but should be adjusted over time with the price of carbon in the market. Second, we think there should be a limit on how much of your climate change compliance you can meet by contributions to the fund.
Certainly, a technology fund should be a permanent part of a climate change plan. We will have to be reducing greenhouse gases for the long term, 2050 and beyond.
In conclusion, CCPA members will have reduced their greenhouse gases by 65%; that is, actual reductions. This was mainly from technology investment and major plant investments. These came on stream in the 1990s when the manufacturing economy was booming.
As we move out of the current recession, investment should return. We need that in Canada. The better we have our policies aligned, the more it will return. Aligning our climate change policies with our major trading partner, the U.S., improving capital cost allowance, providing a sound technology fund—all of these will help.
We don't think spending $6 billion and sending it abroad, as we see this bill requiring, will help at all. The $6 billion estimate comes from the recent report that the Suzuki and Pembina groups produced. Their report assumes that international credits can be bought at $75, when they're actually selling in Canada, according to their assumptions, for $200. If the international price was closer to the Canadian price, the $6 billion cost would be much higher.
In the international effort to reduce greenhouse gas emissions, the cost differences between various countries is something that deserves more attention. It is important and needs to be kept in mind. Attachment 2 to our brief shows various cost curves for Canada and different countries. The Canadian carbon costs will be very high, much higher than the U.S. estimates. The national round table report that came out in the spring says the same thing, and so does the Suzuki-Pembina report.
The public shouldn't be misled into thinking it will be cheap and easy to deal with climate change in Canada. The costs will be high. The best way to minimize those costs, in our view, is through the policies we've suggested, not through meeting mandatory targets, as the bill requires.
To sum up, we're serious within CCPA and our membership about reducing greenhouse gas emissions. Our track record shows that. We don't think the bill is serious about it. It's a recipe for sending money out of the country. We recommend an alternative framework for a government policy that could work, one in which the government is doing the right thing—keeping pace with the Americans, moving further in improving accelerated capital cost allowance, and using a technology fund.
Thank you, and I look forward to participating in the discussion.