Doing Their Bit:Ensuring Large Industrial Emitters Contribute Adequately to Canada’s

Implementation of the Kyoto Protocol

Matthew Bramley / Robert HornungPembina Institute, Ottawa

May 2, 2003

(total Kyoto gap is 240 Mt)

Covenants/ET system• Targets (mostly emissions intensity)

• Four ways to meet targets:– Internal reductions– Buy domestic credits (“offsets”)– Buy international units– Buy domestic permits

• Price cap $15/tonne CO2e

• Backstop = default covenant w. default target

• Emissions reporting system

Is industry being asked to do enough? • Plan allocates 99 Mt out of 180 Mt to industry –

consistent with 53% of Canada’s GHG emissions accounted for by industry

• Industry must pay for the 55 Mt from covenants, cost sharing OK for the rest

• If Kyoto gap increases, 55 Mt must increase• Backstop must add up to more than 55 Mt• Need tough compliance penalties• There should be at least a small percentage of permits

auctioned

Emissions intensity targets

• Environmental performance at risk

• Government should pursue absolute emissions targets

• Compromise: make intensity targets adjustable within some limits

Offsets

• Double counting risk

• Offsets only for activities going clearly beyond what is in the Plan

• Offsets don’t provide strong incentives: $10/tonne = < 1 cent/kWh

• Need strict rules, especially for additionality

Other measures for large industry

• At least 42 Mt

• Must be additional to the 55 Mt:– Adjust BAU downwards to include the 42 Mt– The 15% target for oil and gas must be relative

to a BAU defined in this way

• If the programs supposed to deliver the42 Mt aren’t up to it… upgrade them!

Electricity• 45 Mt CO2e available at a marginal cost of less

than $10 per tonne (Jaccard)

• Emission reductions from output reductions (renewables, DSM) must be fully additional to emission intensity reductions from covenants

• Plan lacks any industrial DSM (need to work with provinces)

• Covenants need to be tweaked to ensure no disincentive to industrial cogen

Allocation• Define sectors broadly: maximize incentives to fuel switch,

restructure– Same logic: treat old facilities same as new to encourage capital stock

turnover

• Allocation among sectors must consider:– Sectoral emissions intensity– Rate of emissions growth since 1990– Financial effort to reduce emissions– Sector’s competitive position (risk of leakage)– Availability of low-cost reductions

• 15% intensity reduction for O&Gdoesn’t meet these criteria

“Small” industry

• Includes some pretty big facilities! (automakers etc.)

• Plan only seeks 3 Mt – should be upgraded

• Fugitives – Plan seeks 4 Mt – need regulation or a threat of it (provinces)

Purchases of international units

• Long-standing ENGO concerns:– Co-benefits– Hot air / bogus CDM credits– Emissions per capita inequity

• Need to hold feds to the commitment to close half the Kyoto gap domestically

• Need to hold companies to account for the quality of their purchases

Timing (1)

• Advantages of starting in 2005 (less demanding targets initially):– Deadline for covenant negotiations– Companies forced to prepare– Likely to result in more domestic reductions– Iron out the bugs

• It’s what the EU’s doing

Timing (2)

• Covenants extending post-2012:– Why should taxpayers accept the liability? –

Emissions trading market provides enough timing flexibility for companies

– Why allocate 2nd CP emission rights now when we don’t know how many Canada will have?

– NO WAY!

Process

• Report to be completed, reviewed and approved by CANet

• Soon ready for:– Public release– Lobbying– Education