Canada's Climate Change Plan

Canada’s Climate Change Plan

Background: Canada is the world’s eighth largest greenhouse gas (GHG) emitter. Canada ratified the United Nations Framework Convention on Climate Change in 1992 and its subsequent Kyoto Protocol in 2002, committing to reduce its GHG emissions by 6 percent below 1990 levels in 2008-2012. The government projects that the “emissions gap” between this target and business-as-usual emissions in 2008-20012 at an estimated 270 megatonnes (Mt).

The Canadian and U.S. economies are closely linked, and Canadian industries, particularly in the energy sector, are deeply concerned that the United States’ withdrawal from Kyoto puts them at a competitive disadvantage. A 2002 national climate change plan developed by the government of former Prime Minister Jean Chrétien was sharply opposed by many in industry and by some Canadian provinces. Prime Minister Paul Martin pledged during the 2004 national election campaign to develop a new plan to meet Canada’s Kyoto target.

The Plan: On April 13, 2005, the government released a new national climate change plan entitled, “Moving Forward on Climate Change: A Plan for Honouring our Kyoto Commitment.” The plan combines regulatory, negotiated, and incentive-based approaches. It anticipates mandatory emission intensity caps for major GHG-producing sectors but also relies heavily on government-funded purchases of emission reductions, both domestically and through the Kyoto Protocol’s market-based mechanisms. Key elements of the plan include:

  • The Large Final Emitters System is a mandatory market-based program aiming to reduce emissions 45 Mt below business-as-usual in mining, manufacturing, oil, gas and thermal electricity sectors, which account for roughly half of national emissions. The cost of compliance is capped at $15 Canadian dollars (CAD) per tonne of CO2 equivalent. Specifics, including emissions allocation among sectors and companies, are still to be determined. Companies investing in technological research and development through a new GHG Technology Investment Fund will be eligible for emission credits (up to 9 Mt total), which can be used to meet their targets.
  • In a Memorandum of Understanding with the Auto Sector, auto manufacturers agreed to reduce CO2, methane, nitrous oxide, and hydroflourocarbon emissions from light duty passenger cars and trucks by 5.3 Mt or 6 percent below business-as-usual by 2010 (in line with a previous government pledge to achieve a 25% efficiency improvement).
  • Through a new Climate Fund, the government intends to purchase 75-115 Mt of reduction credits a year, up to 40 percent of the total reduction needed in 2008-2012. Priority will be given to domestic reductions from farmers, forestry companies, municipalities, and other sources (including Large Final Emitters that do better than their targets). Purchases will be made on a competitive basis. Reductions also will be purchased through the Kyoto mechanisms, with safeguards against the purchase of so-called “hot air.” The government agreed to allocate CAD$1 billion per year over the next 5 years and projects funding of $4 billion-$5 billion 2008-2012.
  • A new Partnership Fund will support government-to-government agreements at the federal, provincial, and territorial levels to jointly pursue emission reduction projects, including short and long-term climate change technology investments and infrastructure development. The government has agreed to allocate CAD$50 million per year over the next five years and anticipates that funding of CAD$2 billion-$3 billion could result in 55-85 Mt annual reductions in 2008-2012.
  • A quadrupling of the Wind Power Production Incentive will provide CAD$200 million over the next five to achieve a projected 4,000 MW increase in wind generating capacity. The Renewable Power Production Incentive will provide CAD$97 million over the next five years to increase capacity from small hydroelectric, biomass, tidal, and other renewable sources by a projected 1,000 MW. Other incentives include increasing the capital cost allowance to 50 percent for highly efficient cogeneration equipment and other renewable technologies. Incentives, tax measures, and related provincial measures are expected to result in a 15 Mt annual reduction in 2008-2012.