Spokespersons for associations representing virtually all of Canada’s largest industries, including the mining, forestry, oil and gas and chemical sectors, say the devil is in the details in the federal government’s new greenhouse gas (GHG) and air pollution plan, which they say is flawed and potentially very costly to industries that employ millions of people.
“The air pollution component of the plan came mostly out of left field,” says Gordon Lloyd, vice-president of technical affairs with the Ottawa-based Canadian Chemical Producers’ Association (CCPA), which represents over 70 companies with annual sales of $24 billion. “The provincial governments were as surprised as we were.”
The Ottawa-based Canadian Manufacturers & Exporters (CME), which represents 75 per cent of Canadian manufacturers, responsible for 90 per cent of the country’s exports — with annual sales of $1 trillion and three million employees — said the plan could seriously harm growth and erode Canada’s competitiveness.
“It’s clear that there was a back-of-the-envelope analysis of the costs,” says Jayson Myers, CME’s senior vice-president and chief economist. “Nobody has taken into account the costs involved in measuring, monitoring, inspecting, reporting and auditing emissions. And in some cases, like air pollutants, there is no agreed method for measurement — how can you improve something you can’t adequately measure?”
Pierre Alvarez, president of the Calgary-based Canadian Association of Petroleum Producers (CAPP), which represents oil and gas companies employing 365,000 people, also expressed concern about the air pollution component of the plan.
“I don’t think sufficient time has been spent addressing it,” he told Energy Evolution. “One concern is, are you taking an urban smog solution and imposing it on large industries, far from urban areas?”
Mark Madras, head of the real estate, environment and urban development department of Toronto-based law firm Gowling Lafleur Henderson LLP, told Energy Evolution the mainstream media has paid too little attention to the air pollution control component of the Tories’ plan, which he thinks could seriously impact Canadian industry.
“A lot of attention has been given to the GHG part of the plan, but it’s the plan for control over SOx, NOx [sulphur dioxide, nitrogen oxides] and particulates that is more wide-ranging,” he notes. “They aren’t emissions-intensity targets [as the GHG targets are], but are fixed targets.”
The government proposes requiring industry, by 2015, to reduce NOx by 40 per cent, SOx by 55 per cent, volatile organic compounds (VOCs) by 45 per cent and particulate matter by 20 per cent.
“Those are very significant targets and it seems that has been lost.”
Madras says the refinery sector, the metals smelting sector, the iron and steel production industries, the natural gas production sector and the coal-based electricity sectors will all be hit hard by this.
He says this should not have come as a complete surprise, since the Tory government has consistently said, since being elected early last year, that it considers air pollution to be as serious an issue as greenhouse gas emissions and climate change.
“Another important aspect is the attention paid to indoor air quality, such as VOCs from the manufacture of finished goods,” he says.
This section will impact virtually every consumer good, including off-gases from the manufacturer of carpets, plastics and finished wood products.
Madras says he has been surprised there has been so little reaction from industry to this aspect of the plan.
That seems to be occurring now, after the release of the government’s plan on April 30, which it calls “Turning the Corner: An Action Plan to Reduce Greenhouse Gases and Air Pollution.”
Environment Minister John Baird said the plan would aim at an absolute reduction of 150 megatonnes in overall GHG emissions by 2020. That’s less than the former Liberal government’s Kyoto plan, which aimed to cut GHG emissions by 270 megatonnes.
However, he went on to say the government would impose targets on industry that would force it to reduce air pollution from its operations by half by 2015.
The government also pointed out large industry in Canada produces about half of the country’s GHGs and air pollution.
The government said it will allow large industries to find the most cost-effective way to meet targets, including in-house reductions, contributions to a capped technology fund, domestic emissions trading and offsets (there is no organized system yet in Canada), and access to the Kyoto Protocol’s Clean Development Mechanism.
It said companies that have already reduced their GHG emissions prior to 2006 will be rewarded with a one-time credit for early action.
That promise has not reassured industry organizations, which expressed concerns about the air pollution standards and the government proposal to have industry reduce its GHG emissions intensity by six per cent a year for the next three years, with annual reductions of two per cent a year thereafter.
“These are tough new targets, much tougher than we expected,” says Richard Paton, CEO and president of the Canadian Chemical Producers’ Association. “Canada’s chemical producers will have to invest millions more to meet the greenhouse gas and pollutants targets over the long term.
“In the short term, to 2010, we have to improve GHG emissions [intensity] by 18 per cent, or six per cent a year. That’s impossible.”
He says that would mean chemical producers would have to buy credits or pay into the technology fund “despite our members already having met Kyoto [targets].” He says this would amount to a “significant tax.”
Paton says members of the CCPA have been tracking, reducing and reporting their GHG emissions since 1992.
The Ottawa-based Forest Products Association of Canada (FPAC), which represents members with $80 billion in annual revenues and which employ 900,000 people directly and indirectly, also was outraged by the plan, with president and CEO Avrim Lazar saying it was “unrealistic” to expect its members to meet the GHG and air emissions targets, while calling the proposed credits for past actions “inadequate.”
“Since 1990 our industry has reduced emissions by 54 per cent on an intensity basis,” he told Energy Evolution. “Asking for another 18 per cent [per unit of production] by 2010 on top of that without proper recognition of what has already been done is simply unrealistic. It also sends a message to good corporate citizens that environmental responsibility is not recognized and is indeed making it more advantageous to wait for regulation.”
He says during the past decade FPAC members have reduced their GHG emissions by 44 per cent (seven times the Kyoto baseline targets without the use of offsets) and done so while increasing production by 20 per cent, improving intensity per tonne of output by 54 per cent, improving air quality by 60 per cent, reducing consumption of fossil fuels by 45 per cent, and reducing what is sent to landfills by 40 per cent.
Pierre Gratton, a spokesman for the Mining Association of Canada, which represents companies generating annual revenue of $42 billion and employing 388,000 people, says his members are also concerned about the plan, although they are still reviewing it. He says those members with smelting and refining operations — including those involved in the oilsands — would be most affected.
He says the most worrisome part of the plan is how it will affect the economics of mining operations, since it will probably lead to higher electricity and other energy costs.
“On average, 25 per cent of our members’ operating costs come from energy,” he notes. “For instance, a one cent per kilowatt-hour increase in power rates in the Sudbury area [where mines mostly produce nickel]
adds $20 million to their costs. It doesn’t take many power cost increases to make those mines uneconomic.”
He says there
would be other hidden costs as well that would make it difficult for the industry, which competes against miners in countries with little or no regulations, to remain viable.
Myers, the chief economist for Canadian Manufacturers & Exporters, says the government’s plan to begin “piecing together a regulatory system of this magnitude in two months” [for GHGs and air emissions] is not only unworkable, but will add unneeded costs onto industry.”
He adds the new regulations “may divert money into paperwork that could otherwise be used to reduce emissions.”
Myers says the CME is also concerned about a possible “patchwork” of federal and provincial regulations that will emerge from the plan and from plans by the provinces to also implement climate and air emissions regulations.
“The government needs to understand you can’t invest in new technology if you are wrapped up in red tape.”
He called for “meaningful discussions” with the manufacturing sector to make progress on the environment “without doing serious damage to the economy.”
Lloyd, of the Canadian Chemical Producers’ Association, who was in meetings with federal government officials for much of last week, says he had been assured by federal Minister of Health Tony Clement that the air pollution regulations would be more flexible than regulations over GHG emissions.
“We need to carry on discussions with them to find out what that means because we don’t know what they want us to do on air [pollution],” he says.
He says the GHG intensity reduction target of six per cent a year for the next three years is “basically a tax” on its members.
Lloyd says he had detected “tremendous will” by the federal government to co-operate with the provinces and industry to avoid too much bureaucratic red tape.
But there are many unanswered questions. For example, the Alberta government’s new climate change plan targets facilities producing 100,000 tonnes of carbon dioxide and up “but we don’t know what the federal threshold is.”
He says the 18 per cent GHG reduction target within the next three years is virtually impossible to reach. However, he says if his group’s members get significant credits for past actions that could lessen the impact.
“We don’t know the details,” Lloyd says.
“A two per cent annual improvement [after the next three years] is doable,” he suggests.
One serious concern he has is with the government’s design of the proposed technology fund, which companies would contribute to if they fail to meet their targets.
The costs of not meeting the targets appear to have been set at $15 a tonne for the next three years, rising to $20 a tonne by the fourth year, then associated with the growth in GDP.
“But they’ve said the technology fund will disappear by 2018,” Lloyd says. “That doesn’t make any sense, especially since everyone says the targets will get tougher.”
He says it should be structured like a similar fund established in Alberta, which will be ongoing.
Lloyd says the idea of opening up access to emissions trading throughout North America and beyond that to the European-based trading system does make sense.
Ultimately, he says the biggest problem his members will have is that they will be competing with chemical producers in the Middle East and the U.S., where no such regulations are in place.
Madras, the environmental law expert, says the emissions trading and offset credit element of the plan should be embraced by Canadian business.
“It will be a whole new financial market,” he notes, alluding to recently announced plans by the Montreal Exchange to develop a robust trading system in Canada, in consort with the Chicago Climate Exchange.
However, although he says the government has said it wants this to be a private sector run system, it can’t avoid some involvement.
“The Tories are hoping the private sector will come in, but there will have to be a standard for how to create a credit and to process compliance,” he says. “The government will have to play a role.”
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