As the Kyoto Protocol becomes international law this week, the federal government is finalizing its revised plan for meeting Canada's obligation to cut greenhouse gas emissions. The plan will need to ensure all Canadians do their part, but it will not be credible or effective if the government lets heavy industry off the hook.
Meeting our Kyoto obligation is a major challenge. This is not because Canada agreed to too stringent an emissions target, but because our government dithered in taking tough decisions to effectively reduce emissions.
Kyoto negotiations began in 1995, with the Protocol being adopted in 1997. As with most major international agreements, it took time to finalize implementation details and for enough countries to ratify and bring it into force. European countries spent those years laying the groundwork for meeting their targets. And so Europe was ready this month to launch its most important Kyoto-related policy: an emissions targets-and-trading system for over 12,000 industrial facilities.
While Europe has moved forward on implementing Kyoto, Canada continued to debate whether joining this global effort was worth the trouble. That debate is over. There is a scientific consensus on climate change, and Canada agreed to implement the treaty nearly two years ago. Now, as Kyoto enters into force, the focus should be exclusively on how to fully meet our obligation.
Canada's stalling has made reaching our Kyoto target difficult, but by no means impossible. The government says everyone will have to do their part, but there is one sector from which the government seems unwilling to require an appropriate share of emission reductions. Unfortunately, it is the sector responsible for most emissions.
Heavy industry, including oil and gas operations and coal-fired electricity generation, is responsible for nearly 50 per cent of Canada's greenhouse gas emissions. And so, as in Europe, a targets-and-trading system for large industrial emitters is an essential component of the much-delayed revised Kyoto plan that our government is pulling together.
Although industry is split on this issue, the negative voices in industry have lobbied the government to to water the system down to the point that it now imperils Canada's ability to meet our target. Despite industry's 50 per cent share of emissions, the government is now proposing that industry be required to make less than one-fifth of the emission reductions that Canada must achieve under Kyoto.
Troubling enough as this is, loopholes threaten to diminish industry's contribution to Canada's Kyoto effort even further. For instance, the government has been considering allowing industry to meet its targets by making payments into a fund to develop emission-reducing technology. The resulting emission reductions will mostly occur long after 2012, the year when Canada must meet its national Kyoto target.
Watered-down targets and loopholes might be justified if the costs to industry would otherwise be unmanageable. But key industry sectors are profitable enough to take on tougher targets than those currently proposed — especially as the amount of low-cost emission reduction opportunities in industry is likely far greater than is usually claimed.
Getting the targets right for the oil and gas sector is especially important. Sixteen per cent of Canada's greenhouse gas emissions currently come from oil and gas production and distribution alone, and the government's official projection shows these emissions doubling between 1990 and 2010, largely as a result of development of Alberta's oilsands.
Yet the government admits (and industry has confirmed) that the targets currently proposed for the oil and gas sector represent a worst-case cost of no more than 25 cents per barrel. With oil prices hovering at US$45 (CAN$55) per barrel for the foreseeable future, this is an economically insignificant contribution to Canada's Kyoto effort.
Furthermore, some oil and gas companies have provided a glimpse of the emission reductions the sector is capable of while still making solid profits. BP p.l.c. voluntarily reduced its emissions by 10 percent while adding US$650 million of value. According to John Browne, the company's CEO, "we found that efficiency and emission reduction was good business." And Shell Canada Ltd. has agreed voluntarily to a 50% reduction in the projected emissions of its new oilsands facility.
Evidence like this shows that the government should set mandatory targets for the oil and gas sector that are considerably tougher than those currently proposed, while eliminating loopholes. Tough targets without loopholes would drive considerable reductions — many of them profitable — in actual emissions, while the industry could purchase the remaining mandatory reductions through emissions trading at a cost representing a tiny fraction of the sector's revenues.
The alternative to requiring more emission reductions from industry is either to squeeze even bigger emissions cuts from other sectors, or for taxpayers to be on the hook for buying unnecessarily large amounts of "credits" either domestically or on international markets.
These options would, in effect, be a major disguised subsidy to industry — all the more difficult to justify when sectors like oil and gas already enjoy generous tax and royalty breaks, as the Pembina Institute has documented in recent studies. And neither option is a cost-effective means of meeting Kyoto. Addressing the global climate change threat will require everyone, including heavy industry, to do their fair share.
