Made in Canada

Backgrounder on Kyoto

General Description

In December 1997, more than 160 nations met in Kyoto, Japan, to negotiate binding limitations on greenhouse gases for the developed nations, in line with the objectives of the United Nations' Framework Convention on Climate Change of 1992. The outcome of the meeting was the Kyoto Protocol, under which 39 developed nations agreed to reduce their greenhouse gas emissions relative to the levels emitted in 1990.

At Kyoto, Canada agreed in principle to reduce its greenhouse gas emissions six per cent from 1990 levels by the period 2008-2012. In real terms, this would require at least a 25 per cent reduction from current projected emission levels for the period. It would also involve significant reductions in energy use by Canadians, with direct effects on living standards, lifestyle and job-sensitive economic activity, as well as our ability to compete internationally.

The Prime Minister has said he will ask Parliament to vote on the ratification of the Protocol by the end of 2002.

International Disparity

Not all countries in the Protocol have made the same commitments Canada has. The European Union wants internal flexibility to recognize the special circumstances of some of its members. Australia will actually increase its emissions over 1990 levels because of its concerns about its economic future. Australia has yet to ratify the Protocol and has indicated that it is unlikely it will do so.

Of greatest concern, in a highly competitive global trading environment, is that developing countries such as China, India, Mexico, South Korea and Brazil, and 130 others, do not have any reduction commitments under the First Commitment Period (to 2012) of the Protocol. While many of these countries have ratified the Protocol and may take on targets after 2012, these countries also contribute to the immediate climate change problem. Mexico is the only Organization for Economic Co-operation and Development country that does not have any stated emissions reduction commitments and is also part of the North American Free Trade Agreement.

The United States has announced that it will not ratify the Protocol and has decided to follow its own strategy to climate change. The U.S. emits approximately 25 per cent of the world's greenhouse gases.

If Canada ratifies the Kyoto Protocol, any greenhouse gas emissions created by residents or businesses in this country that exceed Kyoto's aggressive target will have to be paid for by purchasing "emissions credits" from other countries. These credits are essentially transfers of money out of Canada to other jurisdictions - many of whom will have excess emissions capacity to sell since they have no targets to meet. This transfer of wealth could instead by spent in Canada, developing technologies that fight greenhouse gases and that can be sold around the world.

Economic Impact

Canada faces an overall reduction task of between 25 -30 per cent of current emissions in order to meet its target of reduced emissions by 2012. The price of energy (especially for coal and oil) may rise to induce conservation, energy efficiency, fuel switching, and the development and deployment of new technologies and energy forms. The price of manufactured goods may also increase due to higher production costs - a combination of higher energy prices and the cost of making production more environmentally friendly.

Under a Kyoto policy environment, there is expected to be growth in small sectors of the economy, such as environmental technologies. However, very few experts expect this growth to offset the losses to larger parts of the economy for many years into the future.

Jobs
Documents prepared by government officials in September 2002 for the federal cabinet show losses of up to 200,000 jobs if the Kyoto Protocol is implemented. The same documents show these job losses will come as a direct result of $16.5 billion in lost economic growth for the Canadian economy.

Canadian Households
Canada is a large and cold country. All Canadians will be affected since residential energy use (heating, electricity) and transportation are major sources of emissions. For example, transportation produces 30 per cent of Canadian greenhouse gas emissions. Consumers will need to reduce energy (buy energy efficient appliances, turn down the heat), and alter their transportation use (making fewer trips, shorter trips, and using more public transportation).

Rising Price of Energy
To achieve its Kyoto emissions targets, Canada is expected to have to reduce the use of fossil fuels. This reduction in supply will result in an increase in price of fossil fuel-based energy: gasoline, natural gas, heating oil and electricity. Some estimates indicate a 30-cent per litre increase in gasoline prices is possible. Due to increasing integration of electricity grids across provincial boundaries, even regions of the country that receive the majority of their electricity from hydro-electric sources will likely face increases in costs as demand for reduced-emission electricity rises across the country.

Trade
Although classified as developing nations, many of the countries exempted from targets in the First Commitment Period of the Kyoto Protocol have advanced industrial capabilities and compete directly with Canada in the manufacturing, resource, energy and other sectors. Countries such as Brazil, Mexico, China and India have a sophisticated infrastructure capable of producing many of the goods and raw materials Canada now successfully exports. That these nations have no stated emissions targets places them at an obvious advantage - in terms of industrial output, use of energy, and freedom from regulation - relative to Canada.

In addition, the United States, Canada's largest trading partner, will not ratify the Protocol. The implications for Canada of an economically powerful neighbour with far fewer costly regulations and expensive restrictions on industrial activity are potentially disastrous. Since Mexico also does not have any emissions targets, Canada is at a distinct disadvantage compared to its NAFTA partners.

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Wider Costs
Many sectors of the economy could be disrupted by the Protocol. Companies will have to introduce new technologies and abide by increased environmental regulations. The most recent government estimates (revised in September 2002) are for 1.9 per cent GDP loss per year, equalling close to $30 billion dollars lost to the Canadian economy by 2010. Governments will also have to increase spending to develop and enforce environmental codes, upgrade infrastructure, and provide aid to businesses and the unemployed.

Reported estimated costs of $500 million dollars annually are said by government officials to be far below the real costs to the government in Kyoto-related spending. By 2010-2012, the total of close to $40 billion in losses to the economy and government spending will result in a shrinking economy, smaller workforce, higher taxes and/or rising government deficits.

Scientific Issues

The burning of fossil fuels creates carbon dioxide, or CO2, which is considered by the Protocol to be the leading greenhouse gas. However, fossil fuels also currently provide about 85 per cent of the world's energy needs. While the climate change initiative would mean gradually moving away from higher carbon fuels in favour of other sources of energy, humans are likely to continue to use the most plentiful energy sources currently available. In fact, the world's use of coal is expected to increase significantly in coming decades.

Those expecting ratification of the Kyoto Protocol to produce cleaner air will be disappointed. The environment will not significantly improve if the Protocol is implemented, since Canada's contribution to the global amount of man-made greenhouse gases is only about 2 per cent. It is also important to remember that reducing CO2 will not improve smog in Canadian cities. CO2 is not a component of smog and is also not considered a pollutant or a toxic. It is an essential component of sustaining life on Earth.

There is also concern that flight of capital from Canada as a result of economic and trade disadvantage will result in corporate operations relocating to other parts of the world, including areas with lower environmental standards. This will not change the emissions status quo, and perhaps even lead to increases in emissions of greenhouse gases and other, more harmful pollutants.

With developing countries such as China, India, Mexico, Venezuela and the 130 others that are exempted from commitments in the First Commitment Period expected to account for more than half of all global emissions by 2015 (up from about 40 per cent in 1990) global emissions will continue to rise even if Canada signs the Protocol. Without stronger participation by developing countries in the effort to reduce greenhouse gases, the Protocol cannot be an effective instrument.

Canadian Progress to Date

Canada is among the most efficient users of energy and our economical production and supply of reserves to the world community should be supported. Manufacturing has led other sectors of the Canadian economy in emissions reduction. According to Natural Resources Canada, Canadian manufacturers cut energy-related greenhouse gas emissions by 1.9 per cent between 1990 and 1999 as a result of voluntary actions aimed at both improving energy efficiency and switching to cleaner fuels. Industry has already voluntarily reduced greenhouse gas emissions over the past 10 years while boosting output by 30 per cent. Clearly, economic growth can and should be compatible with environmental sustainability.

A feasible and predictable policy framework at the national and international level is required for industry to play a full role in Canada's national action plan on global warming. The private sector's record of reducing greenhouse gas emissions through innovation, technological improvement, sophisticated management systems, continuous improvement and capital spending will underpin industry's role.

Any measures taken to reduce emissions must:

• Lead to genuine reductions in greenhouse gas emissions that are measurable, verifiable, practical, and economically feasible; and,

• Make a real and meaningful contribution in controlling greenhouse gas emissions over a long period of time.

Alternative Plans

An effective and responsible plan to reduce greenhouse gas emissions will affect all Canadians and require us to make tough choices. Citizens across the country must be kept fully informed of the risks, uncertainties, results and opportunities of any national program with an impact as great as this.

The Kyoto Protocol, while representing a commitment by many countries, produces a lot of pain with very little gain. We can do better.

Canada's national climate change plan must identify how targets will be met and how the burden will be shared among the country's various sectors and regions. It should also identify the costs and impacts to the Canadian economy so Canadians can make informed decisions.

While the coming decades will provide consumers with more diverse energy choices, the alternatives will be limited by the economics of price and quantities available for some time. Even if consumers were willing to pay higher prices for renewable energy, there is an insufficient amount available, as many of the complexities and technical problems of new energy sources are some time away from being solved.

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The key will be to introduce cleaner use of fuels, particularly in the developing world where the greatest increase will occur.

As we explore the potential avenues leading to reduction of greenhouse gases and travel up the learning curve, more ideas will emerge that point toward a pragmatic course of action. This should involve:

    • Better understanding the scientific basis for climate change, including the magnitude of emissions impact and the earth's ability to handle it;

    • Better understanding of the benefits and costs to Canadians of various strategies to reduce greenhouse gas emissions;

    • Taking a multi-pollutant approach that not only addresses climate change, but also acid rain, smog and clean water;

    • All stakeholders - industry, government, citizens, other nations - taking measures to reduce their energy intake.

Given appropriate, longer-term time frames, the private sector in Canada, working alongside governments and other groups, has the ability to create innovative new technologies that will allow us to produce energy, resources and manufactured goods to meet the needs of the world's people at a lower environmental burden while maintaining a high standard of living for all Canadians.