Reflections on the National Stakeholders Meeting
Bow Valley Delta, Calgary, Alberta, Friday, June 14, 2002
Duane Pendergast, Integrative Group
Canadian Nuclear Association, June 25, 2002
(Some Links to references updated December, 2005)
As a member of the former National Climate Change Process, I welcome this opportunity to supplement and expand on my comments at the meeting. My comments come from the perspective of membership in the former Technology Issue Table following its formation in early 1998 and the Expanded Integrative Group following the closure of the Issue Tables in 2000.
Focus Questions on the Analysis
1) Questions of Clarification
I noted at the meeting that economic comparisons were made on the basis of net present value in the work of the Analysis and Modeling Group. This assumption is documented in the early background work, but neglected in the recent information available in the presentations and posted information. An explanation of the fundamental meaning of this approach, and the discount rate used in the modeling, is needed for the public consultations that are to take place later. I'm uncomfortable that the analysis uses methodology that discounts the cost of future activities. On the other hand it may place the value of action now to protect future generations in perspective? The issue warrants discussion.
2) Findings/Learning of the Analytical Work
The information on the Stakeholder website tends to emphasize that the cost of meeting the Kyoto Commitment will be so small that it is hardly worth worrying about. That analytic result and position is largely determined by estimates of the cost of emission permits that tend to emphasize the low end of the price spectrum chosen for analysis. Industry stakeholders have raised cogent arguments that the analysis does not factor in important decisions such as those made by investors to support - or not - new and existing projects and enterprise in the face of lower costs in the USA and the developing world. Additionally, the analytic focus on Kyoto Protocol first period timeline of 2012 precludes the benefits of much existing and new technology that promises much greater GHG emission reductions in the longer term.
Many stakeholders raised concerns that the modeling does not account for possible decisions by investors to avoid investments in projects in Canada. Perusal of the "Provincial Drivers" papers prepared for the AMG reinforces this concern. For example the Alberta paper does not mention the importance of the oil sands and the listing of projects includes no oil sands projects. Conversely, the listing of projects in Ontario makes no mention of two major projects, the restarting of the Pickering and Bruce nuclear plants, which are important to the avoidance of greenhouse gases in Ontario. I understand the contribution of 6 of the units of the Bruce and Pickering nuclear plants are included in the AMG analysis and are an important component of holding down the "gap".
Focus Questions on the Federal Discussion Paper
1) View on the Overall Approach
The National Climate Change Process provides an exemplary example of a cooperative approach by the federal and provincial governments and stakeholders seeking the resolution of a problem. The work undertaken to date has been impressive and is well and publicly documented. In spite of this, it seems the Canadian public is still not very well informed on the nature of the climate change issue and the actions that will be needed should the Kyoto Protocol be ratified and implemented. To date, education of the public seems to focus on emphasis of the problems related to climate change and not on actions needed to significantly reduce greenhouse gas emissions. The timeline envisaged by the plan for public feedback and involvement prior to the ratification decision (i.e. - early 2003) is extremely short, suggesting it should be lengthened.
2) Instruments and Design Features
2a) DET System
The DET system presented as Option 1 focuses on capped emission permit allocation and trading of permits domestically and internationally. The permits are auctioned annually and the proceeds of the sale are available to help implement other measures. Option 2 is based on all targeted measures, requiring some source of funding to incent. Option 3 issues permits gratis to large final domestic emitters on the basis of a formula intended to protect competitiveness while invoking greenhouse gas reductions. Option 3 also includes a scheme (not described in the federal discussion paper but covered in a background document) allowing for permits to new non-ghg emitting electricity generating plants as well as fossil fuel plants. Option 4 includes DET in a way not yet fully described and also includes a small component of "offsets" seemingly focused on biological sinks.
The concept of capped permit allocation and trading, has been the DET option most extensively studied to date. It seems to be the preferred means of implementing DET as documented in the Options Report of the Domestic Emissions Trading Issue Table. This preference is based on it's relative simplicity, the fact that an explicit cap is established and that it allows market forces to determine the cheapest means of compliance. The Option 1 analysis, which most heavily relies on capped permit allocation and trading confirms this as the lowest cost option although this result may be dominated by the purchase of a large number of credits from outside Canada. However, it seems that most stakeholders are very leery of Option 1. The primary objection from industry seems to be that Canadian companies would be exposed to excessive costs relative to competitors in the USA and developing countries.
The four Options come close to ignoring the possibility of creating an emission reduction credit scheme. Stakeholders at workshops established by the NCCP showed significant interest in such a possibility. In addition the Canadian Electricity Association has published recommendations which include the granting of emission credits to new electricity generation capacity which reduces emissions below a specified standard of performance. No doubt the establishment of a workable system would be quite complex as issues of "additionality" would need to be addressed and baselines would need to be established. Nevertheless, the plan to be developed in the coming months could consider broader application of emission reduction credit creation as another incentive to deploy low emission technology? Perhaps a shift in this direction could be considered a transition toward a more tightly controlled capped permit allocation and trading in the very long term extending to the second period of the Kyoto and beyond.
The options assume that the "point of imposition" of permits is on the big entities. This approach is deemed to be most cost effective, as fewer entities need to be dealt with. It does have some disadvantages though. Additional operating costs are imposed on entities that must be passed on to consumers - possibly including exports. I noted at the stakeholder meeting that Eric Reguly, a writer for the Globe and Mail, had defined, as an example, a capped permit allowance and trading system imposed on personal automobiles. This would be based on providing permits for a capped level of emissions. I suggested, somewhat tongue in cheek, that such a system would allow Canadians to put their money directly into fighting climate change. They would have the option of buying more permits to operate highly emitting vehicles - or investing in lower emitting vehicles and perhaps selling their permits to others. The Panel noted that such a scheme had been considered and was rejected as being too complex to administer with so many participants.
Perusal of the Transportation Issue Table background reports reveals that a study of such a scheme was undertaken. It does not seem to have been considered very seriously in the Transportation Table Options Report. Perhaps a personal transport permit allocation and trading scheme should be reconsidered in view of the apparent disinterest in a broader scheme imposed on large firms? Such a scheme would focus public attention on a most important economic sector that is responsible for substantial emissions. It seems it would avoid most of the regional inequities as all regions depend on a substantial component of personal transportation. Personal vehicles have a relatively short life compared with other capital stock making the transition to lower emission technology in transport more fitting to the Kyoto first period timeline. Low emission vehicles are now available. Governments and the public will need experience with capping emissions in the long run and application to the personal transport sector would provide a learning and experience base for broader applications. Finally, such a scheme could possibly raise some funding for other measures depending on whether consumers choose to reduce their emissions or just pay for more permits.
2b) Targeted Measures
Many stakeholders expressed their belief that new technology will ultimately lead to significant reductions in greenhouse gas emissions even though the four options seem to downplay this possibility. The emphasis on the first Kyoto compliance period that ends in 2012 is seen as the obstacle to considering deployment of new technology. I pointed out that one of the early goals of the NCCP was "the development of technology to help the world respond to the need to reduce emissions, while establishing economic opportunities for Canadians through the establishment of new business based on technology". I believe the targeted measures should keep that goal in mind and also prepare for the long-term need to reduce emissions even more than the goal of the first commitment period.
2c) Purchase of International Emission Permits
The Kyoto Protocol anticipates the need to involve developing countries in emissions reductions. These countries provide great opportunities for the use of low emission technology, as their energy infrastructure is not highly developed. Canada is already involved in projects in those countries which will help them significantly reduce their emissions (i.e. nuclear power plants in China) as they generate the energy needed to improve their standard of living. The Kyoto Protocol provides the Clean Development Mechanism, as a so far limited way forward, to encourage the ultimate goal of imposed limits on emissions from developing countries. Substantial expenditures on international permits that relate to the deployment of low greenhouse gas emission energy technology are desirable. Hopefully this initiative will become self sustaining within the developing countries and Canada will be able to benefit economically from the development and export of technology.
3) Preferred Option or Mix of Policy Instruments
3a) Preferred Option or Mix of Policy Instruments
The role of technology development seems to be under emphasized in the four Options of the federal discussion paper. A new plan is to be developed this summer. A workable plan for the long run will recognize that Canada needs substantial energy to maintain a high standard of living and productivity. Energy efficiency is desirable but does not necessarily lower overall greenhouse gas emissions in an economy capable of population growth based on a great reserve of natural resources per capita. A realistic mix of policy instruments will thus focus on developing and deploying energy technology which reduces emissions well beyond the first Kyoto period into this century which is just beginning. All energy sources are important and balanced development is needed to ensure sufficient energy supply. The policy should also focus on the possibility fossil fuel resources may be declining over this time period and the best use of them should be considered for future generations.
3b) What are Risks and How Should They be Managed?
There is considerable risk that the measures proposed and implemented will not work as expected. Many stakeholders have pointed out that expectations for the Targeted Measures in particular seem to be optimistic. Fortunately the Kyoto Protocol might have built in flexibility. This potential flexibility is embedded in the penalty clause which allows for transfer of part of the first period commitment to the second period with a 30% increase.
This penalty does not seem very onerous compared with many other uncertainties. In fact it may be prudent to plan to take deliberate advantage of it to shift first period commitments to the second period. This would allow for the possibility that major cost effective emission reducing technology (i.e. - zero emission coal, nuclear energy, geological sequestration, new transportation technology and agricultural sink capability) could be developed and deployed over a longer time span extending into the second commitment period and beyond.
4) The Alberta Plan
The Alberta Plan sets a very ambitious goal of a 50% reduction in GHG emissions per unit domestic product by 2020. It asserts that meeting the Kyoto commitment by the 2012 deadline is next to impossible as technology development is the key and development timelines need to be extended to deploy significant technology.
The NCCP AMG economic analyses indicate Alberta would be particularly hard hit should it be required to meet the Kyoto commitment on its own. However it seems the Alberta plan has great merit with respect to low greenhouse gas technology development in energy supply and transportation. It could be integrated into the federal plan which is to be developed this summer as other provinces could be expected to take on a greater share of the initial burden so that Canada meets its overall commitment with respect to the first period Kyoto commitment. Technology development as envisaged by the Alberta plan would help place Canada in an advantageous competitive position as more stringent GHG reduction requirements are imposed in future decades.
We have come a long way with the analysis of the implications of the Kyoto agreement on the Canadian economy. It seems we still have considerable work to do. There is a need to establish a plan accommodating all Canadians. Canadians need to understand the consequences to them of complying with Kyoto. The time available to establish even basic understanding is extremely short even if stretched to the limit within the Kyoto timeframe. More information on the potential role of nuclear energy is available at the Canadian Nuclear Association website at http://www.cna.ca/english/index.asp. (Link revised 05/12/10 - DRP)