Canada: Emissions Trading and Climate Change Bulletin: Canada´s Kyoto Future Uncertain

As the new Conservative government takes its place in the House of Commons, Canadian industry is paying close attention to today's Throne Speech for an indication as to Canada's future under the Kyoto Protocol. Although they opposed the Accord while in Opposition, the new government's position remains unclear.

The Kyoto Protocol was ratified by the previous Liberal government in 2005, committing Canada to reducing its overall greenhouse gas emissions ("GHG"s) to 6% below 1990 levels by 2012. With the steady growth of the national economy, particularly in the emissions-intensive resource sector, that commitment now translates into a reduction in GHG emissions of 270 megatonnes.

After ratifying the accord, the Liberals published Moving forward on Climate Change: A Plan for Honouring our Kyoto Commitment (the "Plan"), which included budget measures such as the Climate Fund (used by the Government to purchase emission reductions) and set a reduction target of 36 megatonnes of GHGs for Large Final Emitters (including the oil and gas, thermal electricity, mining and manufacturing sectors). The Plan also provided for a $10 billion government investment between 2005 and 2012 to fully realize the required 270 megatonnes reduction.

Despite such promises, emissions rose by 24% since 1990, largely under the Liberals. Last November, Canada hosted the First Meeting of the Parties to the Kyoto Protocol (MOP 1) jointly with the Eleventh Session of the Conference of Parties (COP 11) in Montreal, at which time Canada assumed the Presidency of the Conference of Parties to the United Nations Framework Convention on Climate Change (UNFCC) for a oneyear term. Stephane Dion, then Minister of Environment, held the position for just two months before the Liberal government was defeated at the polls.

On the one-year anniversary of the ratification of Kyoto, the new Conservative government announced that they would honour Canada's commitment made during the Montreal Climate Change Conference and designated new Minister of Environment Rona Ambrose as the President of the Conference of Parties to the UNFCC.

Despite this designation, the Conservatives' Kyoto position remains unclear. Their election platform promised a Clean Air Act to legislate the reduction of smog-causing pollutants such as nitrogen oxides (NOx), sulphur dioxide (SO₂), and particulate matter. The Act would promote renewable fuels and a mass-transit tax incentive. The Conservatives also promised to address GHGs, such as carbon dioxide (CO₂), with a "made-in-Canada" plan, emphasising new technologies and developed in concert with the provinces and other major industrial countries.

The reference to a made-in-Canada plan and the absence of any mention of Kyoto had led some to speculate that the Conservatives might abandon the Protocol. In contrast to her previous statement that "the Kyoto Accord is seriously flawed and that the emissions targets it imposes on Canada are unrealistic and unattainable," Minister Ambrose clarified as recently as March 15, 2006, that Canada would not be opting out. It is clear however, that the Conservatives do not intend to pursue the Liberals' Plan. The Conservatives are said to be evaluating close to 100 climate change programs set up by the previous government to determine whether funding should continue. The first such program to be cancelled was the One Tonne Challenge Program, a publicity campaign that encouraged Canadians to reduce their GHG emissions at an individual level. As of April 1st, 2006 groups implementing the One Tonne Challenge Program were informed that they would no longer receive federal funding for their efforts.

Apart from the Kyoto Protocol, the government has indicated its intention to work within the Asia-Pacific Partnership, which includes Australia, China, India, Japan, and South Korea and the United States, most of whom have not ratified the Kyoto Protocol (other than China and Japan). The Partnership will instead focus on voluntary practical measures to create new investment opportunities, build local capacity, and remove barriers to the introduction of clean, more efficient technologies.

Canada's Kyoto compliance submission to the United Nations, originally due March 15, 2006, will now be submitted by Minister Ambrose in May, prior to the member countries' meeting in Nairobi, where negotiations aimed at deeper cuts in emissions, beyond those in the current protocol and extending past 2012, are to take place. The Conservatives' "made-in-Canada" plan will most likely be a part of that compliance report.

The Conservatives' minority status means that one of the Liberal, New Democratic or Bloc Québecois parties will hold the balance of power. Each of them supports the Kyoto Accord. Therefore, whatever position the Conservatives take, they will likely have to make compromises. Until the much-anticipated Clean Air Act is tabled or Canada's compliance report is submitted to the UN, the cost to Canadian industry of complying with the new government's position remains in a fog.

© Copyright 2006 McMillan Binch Mendelsohn LLP