July 2, 2007

Ottawa needs to shift clean air policy focus to longer term, says NRTEE interim report

An interim report by the National Round Table on the Environment and the Economy (NRTEE) reaffirms the need for the federal government to implement immediately a clear, consistent and long-term policy for reducing greenhouse gas (GHG) and other air pollutant emissions. It is also critical, says the report, that a price on emitted carbon be set; this could be implemented through devices such as an emissions cap and permit trading system and/or an emissions tax.

NRTEE chair Glen Murray noted that the interim report is based on the government's request for advice from the Round Table on its Clean Air Regulatory Agenda, released this spring (EcoWeek April 30, 2007).

"This Interim Report--and the final report we will be releasing in the fall--builds on the NRTEE's ongoing role of providing advice on climate change policies for Canada," said Alexander Wood, the Round Table's acting president and CEO. "Its findings reinforce the NRTEE's view that - while short term action is necessary to minimize long-term economic and environmental costs - the policy focus should shift to the medium- and long-term given the lead times associated with transforming our energy system and the technology research and deployment that it implies," he added.

The interim report, released June 27, contains the NRTEE's preliminary research findings and analysis relating to the Clean Air Regulatory Agenda. Based on a selection of scenarios, the report focuses on potential air emission reduction targets in Canada for the medium-term (to 2020) and long-term (to 2050). The scope of analysis is limited to energy-related GHG and air pollutant emissions, i.e. those resulting from the production and consumption of fossil fuels (this captures over 80% of Canada's GHG emissions). It also analyzes the economic costs associated with various emission reduction targets for greenhouse gases and air pollutants.

For GHG emissions, the NRTEE study evaluated four scenarios, incorporating reduction targets of 45% and 65% below 2005 levels by 2050 and two different GHG price paths, one "fast" and one "slow." A fast start would entail relatively higher emissions prices in the near term and lower prices in the longer term, while the slow start scenario imples lower near-term prices, rising in the longer term.

Based on GHG emission reductions of 45% and 65% below 2003 levels by 2050, the report estimates that it would cost between $160 and $200 per tonne of carbon dioxide equivalent (t/CO2e) to achieve the 45% reduction by 2050, and between $270 and $350 per t/CO2e to reach the 65% target. The higher prices are associated with the "slow start" scenario.

For emissions of air pollutants such as sulfur dioxide particulate matter, nitrogen oxides and volatile organic compounds, the study analyzed reductions of 50% and 80% by 2050. A key assumption of the analysis was that no international trading of offsets or emission reduction credits would be permitted.

The importance of setting (and achieving) medium-term targets, as well as a GHG emissions price, cannot be overstated. The former is a critical prerequisite to reaching the long-term reduction targets, while any delay in implementing a GHG price may put the long-term GHG targets beyond reach, leading to a significant rise in future emission prices, says the report. Medium- and long-term targets should be set in combination to account for reductions in cumulative emissions between now and 2050, it adds.

The NRTEE concludes that SOX, NOX and VOC emissions can be reduced by up to 50% at a relatively modest emissions price; reductions beyond that level would be considerably more costly, however. The emissions price associated with a 50% reduction in PM emissions is prohibitively high, says the report, due to high process emissions in several industries.

Finally, the report points out that while policies aimed at reducing GHG emissions can yield substantial co-benefits in terms of reduced emissions of other air pollutants, these benefits can be even greater when policies for GHG and air pollutant reductions are designed and implemented concurrently.

The NRTEE will present its final analysis and recommendations regarding specific targets and policies to the federal Environment Minister this fall.

The full Interim Report and its findings, as well as an overview, may be viewed on the NRTEE Web site, www.nrtee-trnee.ca/interim-report.

Meanwhile, another analysis in the same subject area, released earlier in June by the CD Howe Institute, says the federal government has more work to do in designing more effective GHG reduction policies to meet its targets for 2020 and 2050.

In "Estimating the Effect of the Canadian Government's 2006-2007 Greenhouse Gas Policies," authors Mark Jaccard and Nic Rivers, a professor and graduate student, respectively, at Simon Fraser University's School of Resource and Environmental Management, say Ottawa's current policy proposals will fall short of its reduction target for 2020 by almost 200 megatonnes (Mt). Further, because of this gap, it is unlikely that a future government would be able to meet the ambitious 2050 target. Their analysis and conclusions were derived in part from the same energy-economy simulation model, known as CIMS, used by the NRTEE for its study.

The paper points out that five major policy initiatives introduced by the federal government since 1988 have failed to stem the steady growth of Canadian GHG emissions. In fact, emissions actually rose faster during the period of policy initiatives, from 1990 to 2006, than during the previous decade (1980-1990), when no GHG reduction policies were in place.

Through its latest regulatory framework for air emissions policy, now under consultative review, the federal government maintains that Canada will reduce its GHG emissions to 20% below today's levels by 2020, or about 150 Mt below the current annual level of 750 Mt, and would put the nation on track to reach its 2050 target of 65% reduction from current levels.

Jaccard and Rivers conclude that the effect of the current GHG policy framework will be to reduce future emissions substantially, compared to a business-as-usual (BAU) scenario. By 2020, they estimate that emissions would be 116.5 Mt below projected BAU levels and almost 388 Mt below the BAU projection by 2050.

That said, however, they further conclude that overall emissions in Canada are unlikely to fall below current levels: the government will miss its 2020 target by almost 200 Mt and a future government will not likely achieve the 2050 target. The 116.5 Mt reduction in 2002 is far less than the 300 Mt reduction in CO2 equivalent required for the government to reach its 20% reduction target.

The authors also single out the absence of an emission price as the principal reason for this policy failure. Setting a value on the atmosphere is essential, they state, since fossil fuels-the dominant source of human GHG emissions-will remain competitive with other energy sources for decades, possibly even centuries, to come.

Only if a cost is attached to emitting GHGs (either directly through a tax or indirectly through regulating emissions or technologies) will there be significant technological change over the coming decades through the four major GHG-reducing actions: greater energy efficiency; switching to low- or zero-emission fuels; carbon capture and storage; and changes in forestry and agricultural land use practices, adds the paper.

The study's findings are summarized in an E-brief as well as a full Working Paper. Both may be viewed on the CD Howe Institute Web site, www.cdhowe.org/pdf/ebrief_46.pdf or www.cdhowe.org/pdf/workingpaper_5.pdf.

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