Josephine V. Yam

Is Canada Ready for the 2015 Paris Climate Change Conference?

At the 2015 Canadian Association of Environmental Law Societies Conference held at the University of Calgary last week, I presented a brief overview of global, Canadian and provincial developments in carbon pricing and greenhouse gas reduction policies.  One of the questions I sought to address was whether Canada can be expected to have a strong, ambitious national carbon pricing policy in time for the Paris climate change conference in December 2015.

Indeed, the Paris climate conference has been touted as the "world’s last best chance to reach an agreement on cutting carbon emissions."  As successor to the Kyoto Protocol, the international climate change treaty that emerges from Paris will consolidate all the Intended Nationally Determined Contributions (INDCs) of more than 190 developed and developing countries.  The INDCs are countries’ plans that articulate their greenhouse gas (GHGs) reduction targets and how these will be achieved, including the possible use of market-based mechanisms such as emissions trading and carbon taxes.

“Ambitious but achievable” are adjectives that the 
Guardian used to describe the upcoming Paris international climate treaty. Why? Last November 2014 in China, U.S. President. Barack Obama & China President Xi Jinping forged a historic deal that their countries, the two largest emitters in the world, would commit to significantly reduce their GHGs. For the U.S., Obama committed to cutting its GHGs between 26% and 28% by 2025 over the 2005 baseline period. For China, Xi Jinping committed to peaking its GHG emissions by 2030. China is also poised to officially launch a national emissions trading market in 2016. Not to be outdone, the European Union, which has the largest emissions trading scheme in the world with 30 countries participating, also committed to cutting its GHGs by 40% by the year 2030 using a 1990 baseline. Interestingly, even Pope Francis is scheduled to issue an encyclical this year to encourage his 1.2 billion Catholic followers to take action on climate change because it is a moral responsibility.

With bold, significant steps by the U.S., China and the European Union, the question arises: Will Canada follow suit and forge ahead with a strong, ambitious national climate policy in time for the Paris climate conference?  To address this question, it may be helpful to recall Canada’s historical record on the climate file.

In 1997, Canada made a binding commitment under the Kyoto Protocol to reduce its GHGs by 6% below 1990 levels by 2012. In 2011, Canada withdrew from the Kyoto Protocol because it had already emitted 30% more above its Kyoto obligation.  If Canada fulfilled its Kyoto obligation, the government claimed that it would cost Canada $14 billion or about $1,600 for every Canadian family.

Because the federal government knew that Canada would fail in its 2012 Kyoto obligation, as early as 2009, it committed the country to a non-binding commitment to reduce its GHGs by 17% below 2005 levels under the Copenhagen Accord.  As of 2014, however, Canada has already missed its Copenhagen target by 122 megatonnes of CO2e.

Given Canada’s dismal record of keeping its climate reduction obligations, it appears that Canada is not poised to emerge with a strong, ambitious national carbon pricing policy at the Paris climate conference. This conclusion is buttressed by Prime Minister Stephen Harper who 
avowed: “It’s not that we don’t seek to deal with climate change, but we seek to deal with it in a way that will protect and enhance our ability to create jobs and growth, not destroy jobs and growth.”

To fill in this void on federal climate policy, several provinces have gone ahead and established their own carbon pricing schemes. Alberta has its emissions intensity trading scheme, being the first jurisdiction to legislate on reducing GHGs in North America. British Columbia has a revenue-neutral carbon tax scheme, which has won praise from the OECD and the World Bank. Quebec has a cap-and-trade scheme which is linked with California’s scheme through the Western Climate Initiative. Ontario has cut its emissions by 6% below 1990 levels and will soon be implementing either a cap-and-trade scheme or a carbon tax this year.

But there is still time for Canada to act. It should seize this rare opportunity to repair its poor climate change reputation by joining the 
74 national governments that the World Bank has reported as supporting a strong carbon price. In doing so, Canada can manifest its climate leadership in time for the Paris climate conference. However, this can only happen if the Canadian government can muster within itself the strong political will and courage to do so.

Sustainable Development: Intersection of Economy & Environment

It is crucial that you get the attention of the "people who hold the purse strings", namely Finance Ministers, if you want countries to strategically move towards sustainable development, said Rachel Kyte, World Bank VP for Sustainable Development, In her blog "Why Finance Ministers Care About Climate Change & Sustainable Development",

She said that climate change was front and centre of discussions among the world's Finance Ministers at their annual World Bank/IMF Spring Meeting in Washington this weekend. Climate change "isn’t just an environmental challenge, it’s a fundamental threat to economic development and the fight against poverty... If the world does not take bold action now, a disastrously warming planet threatens to put prosperity out of reach for millions and roll back decades of development."

Fortunately, there has been great progress around the world in the fight against climate change. For example, an increasing number of countries have or are in the process of establishing their carbon markets to link with each other and put a price on carbon. This market-based approach will effectively help drive greenhouse gas emissions (GHGs) down and spur clean energy investments. Through the Partnership for Market Readiness (PMR) established by the World Bank, countries around the world explore innovative and cost-efficient ways to drive down GHGs while building financial flows.

Indeed, it is crucial to have had that discussion among the Finance Ministers, to discuss with them that the fight against climate change is a win-win proposition for both their countries' valuable environments and value-based economies.

US is Global Leader in Cutting Greenhouse Gas Emissions

In his New York Times article, "A Model for Reducing Emissions", Eduardo Porter reports that the US has cut its CO2 emissions by almost 13 percent since 2007. The Americans have reduced their total energy use in the past 5 years by 5 percent. Surprisingly, this reduction is likely the most substantial GHG cut among developed countries and even more than what Europe has achieved.

The most compelling driver for the incredible decline in CO2 spewing is neither regulation nor increased citizenry initiatives to combat climate change. It is simply the interplay of market forces: low energy prices and technological innovation. In other words, the reasons are economic, not political.

Undeniably, the depressed economy has caused the lower production of goods and services, which in turn has decreased the Americans' use of energy. But a breakthrough in hydraulic fracturing of shale rocks has also produced massive amounts of cheap natural gas, which is significantly cleaner than coal. This in turn has caused electric utilities to switch from coal to natural gas, increasing the latter's overall proportion from 21 percent to 30 percent of total electricity produced from power plants.

Will these market forces continue to bring into fulfillment President Obama's goal of cutting CO2 emissions by 17 percent by 2020? Maybe. But until there is a carbon price that internalizes the escalating environmental damage and climate threat that carbon imposes on humanity, only then will there be a genuine driver that effectively dampens massive CO2 spewing.

New Sustainability Metric: Total Return on Resources

The Boston Consulting Group (BCG)'s recent report stated that, in order to succeed in this new world of sustainability, companies will need to treat "resource management" as essential to their business. To do this, companies must focus on their “total return on resources” in order to optimize their inputs and outputs to maximize profits.

For inputs, companies will need to monitor the payback from natural resources in order to minimize the consumption of scarce supplies. Thus, power companies, for example, put a lot of money in improving the efficiency of their generating plants to reduce how much coal or natural gas they need in order to produce each megawatt of electricity.

For outputs, companies will also need to manage the "putback", which is the effect of their actions on the future supply of natural resources and on the climate so as to limit damage to the larger ecosystem. In such cases, for example, power companies put a lot of money in scrubbers and other processes to reduce the harmful emissions they release into the air.

The BCG report cites many stellar examples of companies focusing on their “total return on resources”. One of them is the Florida Ice & Farm, a Costa Rica-based beverage company. Its highly visionary CEO, Ramón de Mendiola Sánchez proclaimed that 40 percent of the variable portion of executive pay would be dependent on the company’s performance on environmental and social measures. He established a framework of strict measurements and strong managerial focus on environmental metrics, such as solid waste, water use and carbon dioxide emissions. The company set very lofty goals of achieving zero net solid waste by 2011, becoming water neutral by 2012 and carbon neutral by 2017. Thus, it comes as so no surprise that one of its bottling plants has become the most efficient in the world in terms of water usage. At the same time, the company’s revenues and market share have continued to grow through a tough economy. Mendiola firmly believes that this commitment to sustainability is the only way to achieve continued growth and to sustain Florida’s position as one of the most influential and admired companies in Costa Rica.

Indeed, the BCG report notes that, as resource supplies fail to keep up with burgeoning demand, companies will start treating sustainability as a central part of management rather than thrust it to the amorphous office unit of corporate social responsibility. The world as a whole is on the verge of a new wave of innovation in resource management, the report observes. And, as with all innovation, this will create opportunities for companies to teach others how to thrive in a carbon-constrained, resource-constrained world.

EU Inclusion of Airline Emissions triggers International Law Dispute

The brewing international controversy of airline emissions being included in the EU ETS highlights one of the risks of the EU unilaterally imposing a carbon market on its member countries while China, US and other major economies do not have their own carbon markets, as reported in the New York Times.

The Law

The European initiative, which was effective on January 1, 2012, involves folding aviation into the six-year-old emissions trading system, in which polluters can buy and sell a limited quantity of permits, each representing a ton of carbon dioxide. The law requires airlines to account for their emissions for the entirety of any flight that takes off from — or lands at — any airport in the EU bloc. While airlines landing or taking off in Europe are included in the EU ETS beginning January 1, 2012, they do not have to start paying anything until April 2013.

The goal of this European initiative is to speed up the adoption of greener technologies at a time when air traffic, which represents about 3 percent of global carbon dioxide emissions, is growing much faster than gains in efficiency.

Consequences of the Law

Airlines will have to buy 15 percent of their emissions certificates at auction. Carbon emissions from planes will initially be capped at 97 percent of the 2004-2006 levels. The emissions rules apply from the moment an aircraft begins to taxi from the gate, either en route to or from a European airport, and they cover emissions for the flight from start to finish — not just the portion that occurs in European airspace.

Why the EU went ahead with the Law

Governments and airlines have been in negotiations for more than a decade over the creation of a global cap-and-trade system under the auspices of the International Civil Aviation Organization (ICAO), a U.N. agency that handles global aviation matters. The organization’s 190 member countries passed a resolution in 2010 committing the group to devising a market-based solution, though without a fixed timetable. Impatient with the pace of those talks, the European Commission moved ahead with its own plan, which was passed two years ago with the support of national governments and the European Parliament.

Airline Industry Raise Vehement Objections

Some 26 countries, including China, Russia and the United Countries, formally showed their dissatisfaction with the European system — a move that heralds a possible commencement of a formal dispute procedure at the ICAO. They have questioned whether this EU directive is invalid. Their arguments include the following:

1) Why the requirements apply to emissions from the entire flight, not just the portion that occurs within EU airspace?

2) In applying its environmental legislation to aviation activities in third countries' airspace and over the high seas, the E.U. has violated fundamental and well-established principles of customary international law.

3) The EU's actions infringe on the notion that each nation has sovereignty over its territory, a universally recognized principle of international law

4) By acting unilaterally, the European Union also breached international obligations that require such matters to be resolved by consensus under the auspices of the International Civil Aviation Organization (ICAO), a U.N. agency that handles global aviation matters.

China's Reaction

China announced that its carriers would be forbidden to pay any charges under the European emissions system without Beijing’s permission. It also threatened retaliation, such as impounding European aircraft, if the EU punishes Chinese airlines for not complying with its emissions trading scheme. In fact, this dispute halted China's purchase of Airbus planes worth up to $14 billion. However, during Chancellor Angela Merkel’s visit to Beijing last August, China signed an agreement with Germany for 50 Airbus planes worth over $4 billion.

U.S. Reaction

The U.S. Senate recently passed a bill that would protect U.S. airlines from paying for their carbon emissions on European flights. Democratic Senator Claire McCaskill said that “Americans shouldn’t be forced to pay a European tax when flying in U.S. airspace.” The U.S. bill increases pressure on the ICAO to formulate a global alternative to the EU law.

EU Response to China and the other countries

The EU posits that the ETS is not a charge or a tax but a cap-and-trade system. Its defense includes the following claims:

1) The purpose of our legislation is to reduce emissions, not make money.

2) Including aviation in the ETS is "fully consistent with international law" because the EU is not seeking to extend its authority outside of its airspace.

3) However, given the complaints of China and other countries, the EU could suspend parts of a new law requiring airlines to account for their greenhouse gas emissions if countries were to make clear progress this year toward establishing a global emissions control system

The EU Commission said that the EU would only repeal or amend the law if there was an international deal to tackle emissions from planes, which account for less than 3 percent of global greenhouse gas emissions.

World's Largest Carbon Market: Linking Australian & EU Emissions Trading Systems

Last week, the Australian Minister for Climate Change and Energy Efficiency, Greg Combet, and the European Commissioner for Climate Action, Connie Hedegaard announced that Australia and the European Union (EU) will be linking their emissions trading systems.

Commissioner Hedegaard said: "We now look forward to the first full international linking of emission trading systems. This would be a significant achievement for both Europe and Australia. It is further evidence of strong international cooperation on climate change and will build further momentum towards establishing a robust international carbon market."

Minister Combet said: "Linking the Australian and European Union systems reaffirms that carbon markets are the prime vehicle for tackling climate change and the most efficient means of achieving emissions reductions."

A link between emissions trading systems allows companies in one system to use units from another system for compliance purposes. The advantages of linking include:

  • reducing the cost of cutting carbon pollution because enterprises will have access to more and lower cost emissions abatement units;
  • increasing market liquidity, which in turn offers a more stable carbon price signal;
  • increasing business opportunities to trade because companies with excess units will have access to more buyers and companies that need more units can purchase them from a wider range of sellers; and
  • supporting global cooperation on climate change.

A full two-way link between the EU and Australian cap-and-trade systems will start by July 1, 2018. Under this arrangement, private industry will be able to use carbon units from the Australian emissions trading scheme or the EU Emissions Trading System for compliance under either system.

An interim link between the two systems will be established allowing Australian businesses to use EU allowances to help meet liabilities under the Australian emissions trading scheme from July 1, 2015 until the full link is operational in 2018.

According to the EU website, this linking arrangement “represents the first step towards linking the established carbon market in Europe with developing carbon markets in the Asia Pacific. Together, the linked Australian and European emissions trading systems will be the world’s largest carbon market and a major driver of the global transition to a low carbon economy.”