Response of the National Round Table on the Environment and the Economy to its Obligations Under the Kyoto Protocol Implementation Act

1. Background

On June 22, 2007, the Kyoto Protocol Implementation Act (henceforth KPIA, or C-288), received Royal Assent.

The KPIA stipulates that the Government of Canada is obligated to prepare -- on an annual basis -- a Climate Change Plan describing measures and policies enacted by the government to “ensure that Canada meets its obligations under Article 3, paragraph 1, of the Kyoto Protocol” [Subsection 5(1)]. The first annual plan is to be prepared within 60 days of the KPIA coming into force. The KPIA further provides that “Within 120 days after this Act comes into force, the Minister of the Environment shall prepare a statement setting out the greenhouse gas emission reductions that are reasonably expected to result for each year up to and including 2012…” as a result of the Climate Change Plan. The government’s Climate Change Plan and Statement were released simultaneously on August 21, 2007, and entitled “A Climate Change Plan for the Purposes of the Kyoto Protocol Implementation Act 2007.”

Subsection 10(1) of the Act requires the National Round Table on the Environment and the Economy (NRTEE or Round Table) to, within 60 days of publication of the Climate Change Plan stipulated in Subsection 5(1), and within 30 days of the publication of the Statement stipulated in Subsection 9(2), perform the following with respect to the Plan or Statement:

1. undertake research and gather information and analyses on the Plan or statement in the context of sustainable development; and
2. advise the Minister on issues that are within its purpose, as set out in section 4 of the National Round Table on the Environment and the Economy Act, including the following, to the extent that they are within that purpose:
   1. the likelihood that each of the proposed measures or regulations will achieve the emission reductions projected in the Plan or statement;
   2. the likelihood that the proposed measures or regulations will enable Canada to meet its obligations under Article 3, paragraph 1, of the Kyoto Protocol, and
   3. any other matters that the Round Table considers relevant.

This report represents the response of the National Round Table on the Environment and the Economy to the requirements created by the Kyoto Protocol Implementation Act with respect to the government’s Climate Change Plan and Statement. In carrying out its statutory obligations, the NRTEE has undertaken research and gathered information. This activity has focused on addressing Subsections 10(1)(b)(i) and 10(1)(b)(ii). As allowed for under Subsection 10(1)(b)(iii), the NRTEE has also reviewed and commented upon broader aspects of the KPIA as it relates to the government’s Plan and Statement.

In accordance with the stipulations of the Act, the report has been provided to the Minister of the Environment. This fulfils the NRTEE’s current obligations under the KPIA.

2. Introduction

The issue of climate change, and Canada’s response to it, has been at the heart of the National Round Table on the Environment and the Economy’s work for many years.

The NRTEE has, for example, been examining questions related to the use of fiscal policy to promote long-term greenhouse gas (GHG) emissions reductions, climate change adaptation in the Canadian context, and a long-term technology scenario for how Canada might substantially reduce its GHG emissions while meeting the energy needs of a growing economy.

The provisions of the KPIA are quite specific in allowing the NRTEE to carry out its obligations in light of the purpose that has been defined for the organization under the National Round Table on the Environment and the Economy Act. And so the NRTEE has chosen to combine in this document some specific analysis of the government’s Climate Change Plan and Statement with commentary on salient policy and analytical issues related to Canada’s climate change response, based in part on the Round Table’s previous work and understanding. In doing so, it is fulfilling its obligations with respect to an assessment of the government’s Plan and Statement, while providing a broader information base and perspective on the issue of climate change within the context of Canada’s long-term sustainability.

The NRTEE finds it necessary to respectfully place on the record its view that its role is not to hold the government specifically to account for any actions or non-actions with respect to sustainable development issues. This specific oversight role is mentioned nowhere in the NRTEE Act that sets out its fundamental purpose. The NRTEE’s purpose -- as defined in Section 4 of the National Round Table on the Environment and the Economy Act -- is to provide a broad policy advisory role to the federal government. That purpose has, over the Round Table’s history, been further defined by the decisions and choices made by the membership of the NRTEE, which is an authority accorded to them by the Act. The specific intent of the Act, and effective result of our approach, has been to establish the NRTEE as an independent source of policy advice to government flowing from its unique perspective on environment and economy issues.

The necessary starting point for this report is some definition and commentary of what it is the Round Table has been asked to do under the KPIA. Using the formulation found in the KPIA, the NRTEE was asked to assess the “likelihood” that the government Plan and Statement would achieve their stated objectives -- objectives that the KPIA sets outs as “reasonably expected,” implying a degree of uncertainty and qualification -- including the objectives agreed to by Canada under the Kyoto Protocol. The Round Table was obligated to “advise the Minister” within a designated and relatively short time frame.

It is also important at this juncture to be clear about what the NRTEE’s report does not do. Because the government combined the Plan and the Statement in its own document, the Round Table has focused its analysis and assessment on how the Plan translates action into results, as expressed in the Statement. As a result, the NRTEE has not focused any analytical attention on the policies and measures per se. Consistent with its principal objectives under the KPIA, the NRTEE conducted a qualitative analysis of the assumptions underlying each of the specific measures and policies with a view to establishing the likelihood that such measures and policies would achieve their stated reduction objectives. It is not in the Round Table’s mandate to comment on the merits of the measures and policies themselves. It is only concerned with the question of whether the measures and policies might reasonably be expected to achieve the emission reductions expressed in the Statement. Furthermore, because the government’s Statement expresses the reductions achieved only in the Kyoto time period (2008–2012), the NRTEE is not in a position to comment on emission reductions that would likely be achieved as a result of the Plan beyond 2012.

The NRTEE further notes that since it is obligated to carry out this analytical function for 2007 through to 2012, its assessment must necessarily be considered an iterative one. It expects that further information and understanding about the actual versus expected outcomes set out in the government’s Plan and Statement will emerge and evolve. As judgements about whether signatories to the Kyoto Protocol have met their obligations are withheld until the conclusion of the protocol’s time period, so too must the NRTEE’s final judgment and conclusion be cumulative. In short, this is the first word on the subject, not the last. Although the NRTEE believes that the analytical approach it has taken is pragmatic and appropriate, it should not therefore be seen in any way as comprehensive or definitive.

The specific methodology is described in more detail in the section that follows.

3. Methodology

In response to its responsibilities under the KPIA, the NRTEE developed an analytical framework by which to evaluate the “likelihood” that the proposed measures or regulations will achieve the projected emission reductions in the Plan, and the likelihood that the proposed measures will allow Canada to meet its requirements under the Kyoto Protocol. Once NRTEE members approved the approach, the NRTEE evaluated the measures presented in the Plan. NRTEE members reviewed significant stages of the research and analysis and provided final approval of this report.

An initial assessment of the necessary (and available) analytical tools and methodologies led the NRTEE to conclude that the best approach to assessing “likelihood” was to determine whether the estimates themselves were accurate descriptions of the outcomes that could reasonably be expected from the policies and program initiatives described in the government’s Plan and Statement. This amounts to an analysis of the policy effectiveness of the various measures. Given the nature of the mandate and the timelines involved, the presentation of a qualitative sense of predictive accuracy as opposed to a complete modelling of policy outcomes was chosen as the most appropriate. As a result, the NRTEE has derived, where possible, a qualitative conclusion for each policy or measure. The statistical evidence and underlying assumptions suggest one of the following:

• an overestimate of eventual emissions reductions
• a reliable estimate of eventual emissions reductions
• an under-estimate of eventual emissions reductions

Where insufficient information is available to make such a determination, that fact is noted.

To be clear, the NRTEE is not in a position to provide a definitive statement on the emissions reduction level attributable to each policy and measure. Rather, it is providing an assessment -- on the basis of what it knows about the underlying assumptions -- of whether the measures and policies described in the Plan are likely to result in the suggested emissions reduction levels.

In considering the necessary elements of its analysis, the NRTEE was able to determine that four issues typically arise in the development and establishment of policy approaches to climate change (or any other complex economic policy). As a result, it formed the expectation that the government’s Plan and Statement and underlying analysis would provide due consideration of these issues. And so its analysis required in part an assessment of the effects of the following: additionality, free ridership, rebound effects, and policy-interaction effects.

Problems of additionality arise when the stated emissions reductions do not reflect the difference in emissions between equivalent scenarios with and without the initiative in question. This will be the case if stated emissions reductions from an initiative have already been included in the business-as-usual Reference Case: emissions reductions will effectively be double-counted.

A related problem, that of free ridership, arises when stated reductions include the results of behaviour that are rewarded but not influenced by the policies. This can occur when subsidies are paid to all purchasers of an item, regardless of whether they purchased the item because of the subsidy. Those who would have purchased the product regardless are termed free riders, and their behaviour has already been accounted for in the Reference Case. Not correcting for this implies that induced emissions reductions will be over-estimated by the proportion of free-riders.

The rebound effect describes the increased use of a more efficient product resulting from the implied decrease in the price of use: for example, a more efficient car is cheaper to drive and so people may drive more. Emissions reductions will generally be overestimated by between 5% and 20% if estimates do not account for increased consumption due to the rebound effect.

Finally, emissions-reduction policies such as the ones defined in the Plan interact with each other, with a resulting impact on their overall effectiveness. A policy package containing more than one specific measure or policy would ideally take into account this impact to understand the true contribution the policy package is making (in this case to emission reductions.) This impact is described through what is known as policy interaction effects.

The remainder of this report examines the effectiveness of the specific policies proposed within the Plan and then discusses the projected emissions reductions in the context of Canada’s Kyoto Protocol commitments.

4. Analysis and Assessment

The Plan details expected emissions reductions resulting from policy initiatives relative to a business-as-usual Reference Case, as defined in Canada (2006c). The stated emissions reductions in the Plan are derived from initiative-level evaluations performed by Environment Canada, Natural Resources Canada (NRCan), and Transport Canada.

Establishing accurate forecasts of emissions reductions for one to six years from the present is a difficult task for anybody, and an attempt has been made to recognize this throughout the report. Evaluating others’ projections is more difficult, given that individual projections may use different assumptions and different techniques. This difficulty is further compounded by the short time frame allowed for under the NRTEE’s reporting requirements in the KPIA. In response to a request from the NRTEE, Environment Canada provided explanatory information on the assumptions and methodologies used to determine the expected emissions reductions resulting from the measures in the Statement. However, even with this information, there are cases where the NRTEE has had to make further assumptions about the methodological approaches used, or cases where assumptions have been used to calculate contrasting emissions scenarios. These are identified as much as possible without delving into unnecessary detail. In several instances in the Plan, differing accounting standards are used to describe the emissions reductions accruing from a particular initiative. While these inconsistencies do not necessarily constitute unreliable estimates of program impacts, they can lead to problems interpreting the eventual emissions profile.

In general, the impact of policies appears to be stated in terms of the induced reduction in emissions realized in a given year that can be attributed to the policy, relative to the Reference Case from Canada (2006c) (i.e., a 1-Mt reduction in 2008 implies that emissions will be 1 Mt more than those declared in the Reference Case as a result of the policy). This contention is supported by Table 1, created by the NRTEE, which shows clearly that when the total emissions reductions for the Plan are subtracted from the emissions trajectory for the Reference Case, the derived emissions sequence is within a 1% margin of error of the emissions profile stated in the Plan (Canada 2007a, page 19).

Table 1: Interpretation of Reductions as Relative to the Reference Case

Year	2008	2009	2010	2011	2012
Reference Case Emissions 1	792 MT	809 MT	828 MT	835 MT	842 MT
Changes to Regulatory Standards	4.9	6.2	58.5	62.6	74.5
Fiscal Incentives or Direct Investment	3.7	6	8.4	9.8	9.9
Information-provision programs	1.7	2.7	3.9	4.2	4.5
Climate Change and Clean Air Trust	16	16	16	16	16
Total Projected Emissions Reductions	26.5	30.9	86.8	92.6	104.8
Implied Emissions Trajectory	766	779	741	742	747.1
Stated Emissions Trajectory (page 19 of Plan)	766	786	742	746	739
Difference (%)	<1% in all cases

While the above analysis implies that a particular definition for “reductions” has been adopted, elsewhere in the Plan, some policy impacts are stated in different terms (for example, in terms of their cumulative impact). Such inconsistency eliminates the ability to compute expected realized emissions as the difference between stated reductions and Reference Case emissions.² In the analysis that follows, stated emissions reductions are intended to be interpreted as shown in the table above: The sum of stated reductions for a given year should correspond to the expected difference between the Reference Case and forecasts of realized emissions.

For the analysis that follows, the policies and programs set out in the government’s Plan and Statement are subdivided into three broad types:

1. Changes to regulatory standards
2. Policies that provide fiscal incentives and direct investment for GHG reduction
3. Information-based initiatives

The division of policies and the accompanying stated emissions reductions from the Plan are shown in Tables 2, 3, and 4.

Within each of these broad groupings, each of the initiatives was analyzed as follows: First, each initiative was detailed and the emissions reductions attributed to it in the Plan were recapped. Second, the key assumptions and issues to be considered for each policy were highlighted, where sufficient information was available.³ Where sufficient information was not available, the analysis sought to identify sources of potential estimate imprecision and/or estimates likely to be highly sensitive to modelling assumptions. Where applicable, relevant evidence from the scientific literature was discussed and related to the stated emissions reductions. Third, where possible, a conclusion on the likely accuracy of the stated emissions reductions was reached. Some of the individual policies detailed in the Plan either are too new, provide too few details, or claim emissions reduction effects that are too small for proper analysis. This is particularly the case for the public information programs, where the analysis relies on the scientific literature to provide general conclusions on the outcomes of such programs.

4.1 Analysis of the Plan and Statement in Meeting Stated Objectives

This section sets out the NRTEE’s analysis and assessment of the likelihood that each of the proposed measures or regulations contained in the government’s Plan and Statement will achieve projected emissions reductions. The measures are discussed broadly in three groupings: changes to regulatory standards, policies that provide fiscal incentives and direct investment for GHG reduction, and information-based initiatives. Detailed evaluations of individual measures can be found in Appendix A.

4.1.1 Regulated emissions limits and performance standards

The majority of the projected emissions reductions stated in the Plan accrue as a result of the Regulatory Framework for Air Emissions and other emissions limits and performance standards. Table 1 summarizes the timing of projected emissions reductions, potential key determinants of results, and evaluation of each of the programs that fall under this broad definition. The four programs projecting specific emissions reductions in Table 1 are as follows:

1. The Regulatory Framework for Air Emissions from large final emitters (LFE)
2. Energy efficiency standards for home appliances
3. Vehicle fuel efficiency standards
4. Renewable fuel content standards

Table 2: Summary of emissions limits and performance standards

Program	Projected Emissions Reductions in Mt					Key Determinants of Results	Predictive Accuracy
	2008	2009	2010	2011	2012
Regulatory Framework for GHG Emissions	0	0	49	53	58	relative contribution of internal emissions reductions and technology fund contributions accounting for technology fund contributions	Likely overestimate
Regulatory Energy Efficiency	.61	.96	1.3	1.4	7.1	rebound effect policies are compared to the lowest efficiency case pace of benefits from light bulb ban	Likely overestimate
Vehicle Fuel Efficiency Standards	3.0	3.9	5.3	5.3	5.3	additionality of reductions	Reliable, but should not be included
Regulating Renewable Fuels Content Standards	1.3	1.3	2.9	2.9	4.1	full cost accounting of renewable fuels' induced emissions additionality uncertainty and potential emissions increases	Likely overestimate
Total	4.9	6.2	58.5	62.6	74.5

General Findings:

The NRTEE reached the following conclusions:

• Significant emissions reductions and contributions to future emissions reductions will result from the Regulatory Framework for GHG Emissions. An immediate accounting of expected emissions reductions accruing as a result of contributions to the Technology Fund leads to likely overestimated realized emissions reductions for the 2008–2012 period. Estimates in the Plan treat contributions to the Technology Fund as being equivalent to emissions reductions realized in the time period in which the contributions are made. However, these contributions will be used to finance emissions reductions programs that will result in an undetermined number of future emissions reductions; conceivably, these reductions could be more, or less, than 1 tonne of realized reductions per $15 invested. This represents an important inconsistency in accounting for emissions reductions. Regardless of the eventual emissions reductions attributable to the Fund, it would be preferable not to treat investment in potential future emissions reductions as being equivalent to present-day emissions reductions that have been realized.
  
• Given that the estimates provided for Energy Efficiency Standards do not explicitly account for the rebound effect of increased intensity of use or increased total appliance stock, and given that the estimates have assumed the best-case scenario (i.e., that everyone would have chosen the least energy efficient model for a replacement in the absence of the policy), it may be concluded that the gains from improved standards are likely overestimated. However, since the exact standards are not defined, it is not possible to compare the Plan’s projections to estimates that correct the above assumptions in order to assess the magnitude of any over-estimation. This lack of specific detail also makes it difficult to evaluate the degree to which stated emissions reductions should be understood to be additional to those attributed to more stringent efficiency standards already accounted for in the Reference Case.
  
• Because the Motor Vehicle Memorandum of Understanding (MOU) was signed before the development of the Reference Case, and is explicitly included in the emissions projections contained therein (see Canada 2006c, Annex II), counting these emissions as part of reductions relative to the Reference Case implies counting the same reductions twice. As a result, given these concerns of additionality, the estimation of the reductions is not relevant for the present study.
  
• The analysis suggests that two factors contributed to the likely over-estimation of the emissions reductions resulting from the Renewable Fuel Content Standard. First, current scientific literature points to a greater range of uncertainty on the emissions displacement factors than those used in the Plan. Second, emissions reductions already included in the Reference Case are counted a second time.

4.1.2 Direct spending, fiscal measures, or incentives

Fiscal measures and direct government spending can be very powerful tools for emissions reduction, but it is important to examine carefully the specific incentives provided.

Each program provides incentives for increased emissions efficiency or energy efficiency, which may not directly translate into net emissions reductions. These programs are particularly subject to problems of additionality and free ridership.

Table 3: Summary of direct spending, fiscal measures, and incentives

Program	Projected Emissions Reductions in Mt					Key Determinants of Results	Predictive Accuracy
	2008	2009	2010	2011	2012
ecoENERGY for Renewable Power	2.2	3.7	5.5	6.7	6.7	actual displacement of existing capacity nature of displaced alternative additionality free ridership	Likely overestimate
ecoENERGY for Renewable Heat Initiative	Less than 0.1 Mt total					insufficient detail	Insufficient information to reach a conclusion
ecoAUTO Rebate Program	0.1	0.2	0.2	0.2	0.3	accounting for cumulative rather than year-over-year reductions	Likely overestimate
ecoENERGY Retrofit	0.4	0.7	0.9	1	1	rebound effect conversion of predicted energy savings to realized emissions reductions realized treatment of free ridership	Likely overestimate
ecoMOBILITY Program, Transit Pass Tax Credit	0.2	0.2	0.2	0.2	0.2	elasticity of transit use with respect to price of vehicle trips	Likely overestimate
Renewable Fuels Strategy	No specific commitment					fuel demand/ price projections renewable fuel GHG footprint	Insufficient information to reach a conclusion
ecoENERGY for Biofuels Initiative Capital Initiative	No specific commitment					biofuels' GHG footprint	Insufficient information to reach a conclusion
ecoAGRICULTURE Bioproducts Innovation Program	No specific commitment					Insufficient information	Insufficient information to reach a conclusion
ecoTRUST, funding for Carbon capture and storage	No specific commitment					Insufficient information	Insufficient information to reach a conclusion
Total	3.7	6	8.4	9.8	9.9

General Findings:

The NRTEE reached the following conclusions:

• As with all subsidy programs, it is difficult to establish the incremental impact of the ecoENERGY for Renewable Power initiative. Statements in the Plan suggest that all new renewable energy production eligible for financing under the Renewable Power Production Incentive (RPPI) would be considered contributions to emissions reductions, thereby ignoring the potential for free riders who benefit from receiving the subsidy for projects that would have been built irrespective. The analysis (provided in Appendix A) suggests that the figures in the Plan do not represent incremental reductions in GHG emissions that will occur relative to those already accounted for in the Reference Case. The projections are a reflection of the aggregate displacement of GHG emissions associated with projects financed under the existing Wind Power Production Incentive (WPPI) and the enhanced RPPI, and so represent a double accounting of some reductions. The forecasts suggest some incremental production as a result of the RPPI that is not accounted for in the Reference Case, and emissions reduction numbers should be based on this incremental production only.
  
• The estimates for the ecoAUTO rebate program are reliable in terms of the lifetime impact of sales of vehicles in the years 2008–2012; however, they do not accurately reflect actual emissions reductions over that period. Given the way in which reductions are defined in the Plan, results for this policy should state the year-by-year emissions reductions realized from the subsidy program.
  
• As with other programs in the Plan, the ecoENERGY Retrofit Initiatives targets energy efficiency rather than energy consumption, and the results of the program are presented in terms of emissions reductions. Almost systematically, utility and government retrofit programs overestimate the impact of their investments on realized energy demand, largely as a result of directly translating potential gains in efficiency to estimated reductions in energy use, ignoring rebound effects, and/or as a result of treating all energy use reductions realized as incremental results of the subsidy programs, ignoring the free rider effect. Historical rates of return would suggest achieved emissions reductions of 30–40 kt per-cumulative-program-year, or less than one-sixth of the Plan’s estimates. Therefore, the stated emissions reductions are likely overestimates of the eventual realized reductions.
  
• Because of the Plan’s assumption that all new transit trips result in emissions reductions, the Plan slightly overestimates the projected emissions reductions for the Transit Pass Tax Credit.

4.1.3 Information Programs

Information-based programs described in the Plan account for 3.4 Mt per year of emissions reductions. Some research⁴ shows that these types of programs can appear to be powerful tools. Likely the best-known labelling program is EnergyStar, and the US Environmental Protection Agency credits EnergyStar with savings of up to 80 TW-h of electricity in 2001. Studies have pointed out that, in some cases, lack of knowledge may present a significant barrier to technology adoption, so programs that collect and disseminate information on the costs and benefits of particular energy efficiency investments can be more successful than financial incentives. However, with few exceptions, little evidence exists through which one can evaluate the incremental effect of information-provision programs for emissions control or energy conservation. While it is possible to observe individuals’ actions after receiving information, researchers generally do not know what information they had before, what they would have acquired through other channels, and what their decisions would have been without the programs.

Table 4: Summary of information programs

Program	Projected Emissions Reductions in Mt					Key Determinants of Results	Predictive Accuracy
	2008	2009	2010	2011	2012
ecoENERGY for Personal Vehicles	0	0.1	0.1	0.1	0.1	consumers are not fully aware of the consequences of their driving behaviour	Insufficient information to reach a conclusion
ecoENERGY for Buildings and Houses	0.6	0.9	1.2	1.3	1.3	lack of regulatory backstop in building codes unclear whether existing practices would be adopted	Insufficient information to reach a conclusion
ecoENERGY for Commercial and Industrial Buildings	0.2	0.3	0.4	0.4	0.4	percentage of free ridership	Insufficient information to reach a conclusion
EcoTECHNOLOGY for Vehicles	0.2	0.4	0.5	0.7	0.9	lack of information versus lack of fiscal incentives explains some of current driving behaviour	Insufficient information to reach a conclusion
ecoENERGY for Fleets	0.2	0.3	0.5	0.5	0.5	managers are now aware of the cost of energy and the ways to incite cost-reducing behaviour among employees	Insufficient information to reach a conclusion
EcoFREIGHT	0.4	0.7	1.2	1.2	1.3	separation of program-induced benefits from natural improvements in energy efficiency	Insufficient information to reach a conclusion
EcoMOBILITY	0.9	1.2	1.6	1.7	1.7	current barriers exist and can be reduced through information rather than fiscal or regulatory incentives	Insufficient information to reach a conclusion
Marine Shore Power Program	Less than 0.1 Mt total					infrastructure costs will be paid back in savings at market energy prices potential cost savings exist but there is a lack of information about these savings	Insufficient information to reach a conclusion
Eco-AGRICULTURE	No Specific Commitment						Insufficient information to reach a conclusion
Total	1.7	2.7	3.9	4.2	4.5

General Findings:

The NRTEE finds that the majority of information-dissemination programs discussed in the Plan provide few details and the stated emissions reductions are small relative to margins of error that would exist for estimates from past or similar programs. As such, the discussion of the various measures proposed in Appendix A suggests means by which their emissions reductions might be validated ex post.

4.1.4 Clean Air and Climate Change Trust Fund

Summary of Initiative and Emissions Projections

Under the $1.5 billion Clean Air and Climate Change Trust Fund, a series of third-party trusts have been established to directly support provincial and territorial efforts to reduce emissions. Annual emissions reductions of 16 Mt were attributed to the Fund. Although information provided by Environment Canada suggested that these were estimated on the basis of stated emissions reductions from the Province of Quebec, specific details were not provided. However, the NRTEE notes that details of all provincial activities to be undertaken as a result of the Fund have yet to be determined.

General Findings:

The NRTEE finds that the nature of some of the provincial programs suggests that issues of additionality exist. For example, the Quebec plan (as communicated to the NRTEE by Environment Canada) includes reductions in GHG emissions due to projects funded under the WPPI and due to the 5% ethanol content standard. It also sets targets for Quebec industries that will already be affected under the Regulatory Framework for Air Emissions. Without a fully integrated model that includes these transfers to the provinces, the federal policies, and the provincial policies, it is difficult (if not impossible) to attribute incremental emissions reductions to each separately. The NRTEE therefore believes that this area -- the scope of federal climate change policy and specifically that of federal-provincial coordination in relation to the Trust -- could benefit from further elaboration.

Another potential difficulty in evaluating the Trust is the likelihood that for future government plans, more information about provincial programs and measures will be included in the annual plan, adding an extra level of burden on the NRTEE to evaluate the effectiveness of not only the federal government’s measures, but a significant number of provincial policies as well.

4.2 Analysis of the Plan and Statement in Meeting Canada’s Kyoto Obligations

This section sets out the NRTEE’s analysis and assessment of the likelihood that the proposed measures or regulations in the Plan and Statement will enable Canada to meet its obligations under Article 3, paragraph 1, of the Kyoto Protocol.

Table 5: Summary of Clean Air and Climate Change Trust Fund

Program	Projected Emissions Reductions in Mt					Key Determinants of Results	Predictive Accuracy
	2008	2009	2010	2011	2012
Clean Air and Climate Change Trust Fund	16	16	16	16	16	additionality of provincial reductions	Insufficient information to reach a conclusion

4.2.1 Canada’s Obligations under the Kyoto Protocol

The Kyoto Protocol to the United Nations Framework Convention on Climate Change (UNFCCC) commits developed signatories to emissions reductions based on individual commitments. Canada’s commitment under Article 3 of the Kyoto Protocol is to reduce emissions to an average of 6% below 1990 levels over the years 2008–2012. Canada’s Assigned Amount for the period 2008–2012 is equal to 94% of its aggregate anthropogenic carbon dioxide equivalent (CO₂-eq.) emissions multiplied by five, calculated in Canada’s filing of its “Initial Report Under the Kyoto Protocol” (Canada, 2006a) to be equal to 0.94 x 598 Mt of carbon dioxide equivalent (Mt CO₂-eq ) x 5, or approximately 2815 Mt.⁵

In order to be considered in compliance with the Kyoto Protocol in terms of total emissions, Canada’s emissions must not exceed this amount, except where they are offset through the use of approved flexibility mechanisms. Three principal flexibility mechanisms are permitted under the Kyoto Protocol: emissions trading, Joint Implementation (JI), and the Clean Development Mechanism (CDM). Emissions trading allows countries to purchase the rights to emissions reductions made by other Annex B parties to the Protocol, assuming that the selling country has a level of emissions below its Assigned Amount. JI provides emissions credits for the implementation of a project that leads to emissions reductions in another developed (Annex A) country, while CDM offers credits for projects that reduce emissions in developing (non-Annex A) countries.

Penalties for non-compliance under the Kyoto Protocol lead to more stringent and more expensive compliance requirements in future commitment periods (i.e., after 2012). A common term used to describe non-compliance is the expected “Kyoto gap”: the amount by which Canada’s net emissions for 2008–2012 (total emissions, net of credits from emissions trading, and certified reductions from CDM and JI projects) exceed 2815 Mt. Under Decision 27/CMP.1, annex, part XV, paragraphs 5 and 6, a positive Kyoto gap would lead to a situation where Canada would be required to meet a more stringent cap in the second commitment period. In particular, Canada’s allowable units (total emissions) in the second commitment period would be reduced by 130% of the first commitment period Kyoto gap. Further, Canada would lose access to emissions trading through the Kyoto Protocol, which would likely render future compliance with the protocol more expensive. It is not possible to provide details on the exact penalty, since the assigned amounts have yet to be negotiated for the second commitment period.

Table 6: Annual Allowable Units, Projected Emissions, and Implied Excess Emissions over the First Commitment Period (2008-2012) under the Kyoto Protocol ⁶

Year	2008	2009	2010	2011	2012
Kyoto Target (2008-2012 avg) (Mt)	563	563	563	563	563
Commitment Period Total Allowable Emissions (Mt)	2815
Emissions Projections (Mt)	766	786	742	746	736
Kyoto gap (Mt)	203	223	179	183	173
Commitment Period Projected Excess Emissions (Mt)	961

4.2.2 Effectiveness of Measures and Regulations in Meeting Canada’s Kyoto Protocol Obligations

Statements and information contained in the government’s Plan indicate that it is not pursuing a policy objective of meeting the Kyoto Protocol emissions reductions targets. The Plan explicitly states that the government will not participate directly in the purchase of Certified Emissions Reductions (CERs), also known as international credits. Therefore, the stated emissions reductions set out in the Plan would not be sufficient for Canada to comply with the Kyoto Protocol as domestic emissions reductions alone are insufficient to achieve its Kyoto obligations. While statements in the Plan are correct -- that non-compliance with the Kyoto Protocol can only be judged after the end of the commitment period in 2012 -- it is unlikely that the measures and regulations in the Plan will be sufficient to meet Canada’s Kyoto obligations.

As shown in Table 6, the projected emissions profile described in the Plan would leave Canada in non-compliance with the Kyoto Protocol. Canadian emissions would exceed their allowable units by 34%, with average excess emissions of 192.2 Mt/year.

5. Conclusions

In addition to the specific findings described above, the NRTEE would like to offer the following conclusions from this exercise:

• The policies and measures contained in the government’s Climate Change Plan and Statement will result in carbon emission reductions during the 2008–2012 period. There is a likelihood that the Statement overestimates the extent of emission reductions in the 2008–2012 period but we cannot definitively conclude at this time by how much. This stems from how some emission reductions are counted and estimated. With respect to the realization of Canada’s Kyoto commitments, we conclude that the Plan and Statement will likely not allow Canada to meet those commitments. As stated earlier, we are not in a position to comment on the impact of policies and measures beyond 2012 because of the way the government’s Statement is expressed and what the KPIA requires us to do.
  
  
• The NRTEE found that establishing “likelihood” of emission reductions in a definitive way from specific policy measures is extremely challenging and subject to the sensitivity of projections and assumptions that are themselves very difficult to clearly establish. This is exacerbated by the specific challenges we faced in understanding and assessing the underlying assumptions of the government’s Plan and Statement within the short time frame the KPIA gives us. We believe that going forward, certain methodological improvements can be made in both the development and presentation of reasonably expected emission reductions. This includes the following:
  
  
  • Transparency and clarity, where key assumptions and methods are presented clearly and important sensitivities and uncertainties are made available and explained;
    
  • Consistency, where common practices among departments is followed in areas such as accounting for emission reductions over the relevant time period; and
    
  • Integration, where all programs are assessed in an integrated manner and the overall contribution accounts for positive and negative interactions between measures and regulations.
    
    Throughout this report, suggestions for improved methodological and information-gathering practices are made for future Plans and Statements. We suggest that the government consider undertaking an analysis of international best practices in this area and applying relevant lessons to the Canadian context.
    
  
  
• Focusing on “likelihood” to determine emission reductions may not be the most useful framework through which to assess policies and measures to address climate change. Using this as the sole criterion affects the ability of policy makers to make informed choices about the most appropriate and effective climate change policies because it does not consider other important factors, such as the costs of a given policy. As a result, it tends to favour a regulatory approach to policy making in order to equate a stated emission reduction outcome with a specific measure in a shorter-term time frame. In doing so, it ignores the positive contribution that market-based instruments and fiscal policy can make in sending effective, long-term carbon emission price signals throughout all aspects of the economy at a deeper level.
  
  A related concern stems from the fact that an assessment of “likelihood” may not be sufficient to provide the information that Canadians need to properly evaluate the measures their elected representatives are either advocating for or implementing. This has an impact on the overall accountability of such measures and government action on this important issue.
  
  
• The necessity of addressing climate change as a long-term transformational issue cannot be overlooked. Focusing exclusively on the short-term Kyoto Protocol period alone -- as we have had to do for this response -- reinforces the NRTEE’s established view that a longer-term national climate change policy framework is a more effective and necessary approach for the country. The nature and structure of Canada’s energy system can only really be transformed through the sustained, consistent, and long-term application of appropriate policy. Accelerating the rate of infrastructure and capital investment decisions in the short term would lead to some emissions reductions, but also would come with considerable opportunity costs in terms of diverting limited economic and intellectual resources to a short-term target, instead of to the long view. This would affect Canada’s collective ability to sustain the necessary transformation of the economy over the medium and longer term and reap the substantial and sustained emissions reductions that would result and are needed. While there is a cost to addressing climate change, there are also opportunities -- technological, economic, social, and environmental -- that must be pursued and can only be achieved by establishing a long-term framework that includes clear medium- and long-term objectives and policy mechanisms that impose a price on carbon emissions. Focusing our national attention and energy on the achievement of these opportunities will benefit Canadians where they live, and ensure we all contribute positively to resolving this global problem.

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Footnotes

¹ Reference Case emissions are smoothed between years by assuming constant emissions growth rates between 2006 and 2010, and again between 2010 and 2015.

² For example, if the Reference Case called for 800 Mt of emissions in 2010, and a policy was introduced that would save 1 Mt per year for 10 years (cumulative impact of 10 Mt), we should expect realized emissions in 2010 to be 799 Mt. If the cumulative impact of the policy were to be counted in 2010, and subtracted from the Reference Case to yield 790 Mt, this would not be an accurate expectation of realized emissions.

³ In response to a request from the NRTEE, Environment Canada officials provided some of the assumptions and analysis underlying the emissions reductions projected in the Government’s Statement; this information was used by the NRTEE in its evaluation of the Plan and Statement wherever possible. Third party analyses were used for comparison with Government assumptions and also for the evaluation of measures which the NRTEE did not have sufficient information.

⁴ Please see Appendix A for further information on studies on the effectiveness of information programs.

⁵ To avoid cumbersome notation, Mt is used in place of Mt CO₂-eq.

⁶ This table was constructed by the NRTEE using the government’s numbers presented in the Plan.

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