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Countdown to Copenhagen: Danish draft calls for 50% reductions by 2050

Reuters reports that Denmark, host country for the climate change talks that begin next week, has released a draft proposal for Copenhagen. The draft calls for 50% emissions reductions from 1990 levels by 2050. The draft would require rich nations to make 80% of the required reductions.

Reaction to the draft has been, and likely will continue to be, poor. India has sounded off on behalf of developing nations, saying that the negotiations in Copenhagen would quickly reach a "dead end" if the Danish proposal was the basis for discussion. As we reported this morning, India, China, Brazil, South Africa and others have prepared their own negotiating draft for Copenhagen. "That draft meets our expectations and concerns," said India's Environment Minister Jairam Ramesh, emphasizing however that the developing countries' proposal contains "many non-negotiables that the Danish draft does not consider." These "non-negotiables" likely include finance and technology transfer from rich countries to help developing countries combat climate change.

Developed nations are also likely to oppose the Danish draft. The United States, for example, has already announced a target of 17% reductions from 2005 levels by 2020, but has not set a goal for 2050. Similarly Canada's Prime Minister wants to focus on short term goals, having set a target of 20% reductions from 2006 by 2020. However, the Danish draft does not set any numerical targets for 2020, other than to have global emissions peak in that year. Nothing suggests that the U.S. and others would be prepared to set a target for 2050, particularly if rich nations are to be responsible for 80% of reductions by that date.

Countdown to Copenhagen: targets announced, coalitions formed and sabres rattled

Only a week remains before the opening of the much anticipated climate change negotiations in Copenhagen. While hope for a binding agreement has waned in recent weeks, a series of announcements in the past week suggest that countries are positioning themselves for an intense round of negotiations in the coming weeks.

Top emitters announce targets

Last week, the world's two largest emitters announced the emissions reductions targets they will adopt. The U.S. intends to propose absolute reductions of 17% from 2005 levels by 2020. For reference, Canada's target is 20% from 2006 levels by 2020. Prime Minister Harper describes Canada's target as "virtually identical" to the U.S. target, but may be subject to "some minor adjustments." The Prime Minister is adamant that Canada will not adopt "blue sky" targets (an unfortunate analogy), but will instead focus on "modest, achievable targets - particularly in the short term."

China, on the other hand, has committed to reduce the intensity of carbon dioxide emissions per unit of gross domestic product in 2020 by 40 to 45 per cent from 2005 levels. While the announcement was a major step forward for China, which had previously refused to commit to targets, it comes as somewhat of a disappointment for many environmentalists. China's target is based not on absolute emissions, but on emissions intensity. Under such targets, if a country's economy grows, its total emissions may also grow, even if the intensity target is achieved. Canada's Turning the Corner plan has long been criticized for relying on intenisty based targets, particularly in light of the projected grow in the oil sands.

The setting of final targets will obviously remain a very contentious issue in Copenhagen. However, that the Chinese and Americans are willing to entertain any type of binding target is encouraging.

Emerging economies form negotiating coalition

China, India, Brazil and South Africa have reportedly negotiated a collective negotiating strategy for Copenhagen. Leaders from the emerging economies met for two days in Beijing last week to discuss their shared interests. According to a prepared statement, "the purpose of the meeting was to prepare for and contribute to a positive, ambitious and equitable outcome in Copenhagen."

The countries have allegedly agreed on several key issues, including the need for developed countries to provide financing and technology to help developing countries combat climate change. It is also expected that they will take the position that the post-Kyoto regime should either be an extension of the Kyoto Protocol, or something substantially similar. Many developed nations, including Canada, want to scrap the Kyoto Protocol and start from scratch.

China's participation in the strategy session was perhaps most significant. Observers hoped that China and the U.S. would have reached a common position when President Obama visited Beijing the other week. While the two countries released a joint statement, it fell short of a clear and common vision for the post-Kyoto regime. As Copenhagen is shaping up to be a clash of interests between developed and developing nations, Chinese Premier Wen Jiabao's participation in the strategy session suggests that the U.S. may still face some hard bargaining with China in Copenhagen.

France pushes for E.U. carbon tariff

The French government has recently advocated for a carbon tax on imports from countries that have "low environmental standards." The tax, more properly called a carbon tariff, would be intended to level the playing field between industry in the E.U., wish incurs significant costs in complying with the E.U.'s cap and trade system, and industry in nations that do not face similar regulatory burdens. There are some reports of an emerging consensus in the E.U. for France's proposal.

India, France's largest trading partner, reacted particularly harshly to the suggestion, calling it a protectionist measure. That carbon tariffs may be on the negotiating table highlights again how Copenhagen is a much a trade negotiation as it is an environmental one.

Harper to attend Copenhagen

As recently as this morning, the Toronto Star reported that Prime Minister Stephen Harper would not attend the global climate change negotiations in Copenhagen next month. Later in the day, Dimitri Soudas, a spokesman for Harper, told reporters in Ottawa that Harper will be travelling to Copenhagen in December. The Prime Minister's change of heart was no doubt prompted significantly by the White House's announcement yesterday that President Obama would be attending the talks.

That the Prime Minister decided to attend after learning that the President would be there is consistent with Ottawa's strategy of sticking close to the US in the negotiations. In a comment posted this morning by the National Post, federal Environment Minister Jim Prentice again emphasized that "we will do exactly what we have consistently said we would do: We will match U.S. efforts." In Minister Prentice's assessment, the President's recently announced intention to pledge to reduce his country's carbon emissions to 17 per cent below 2005 levels by 2020 is essentially the same as Canada's Turning the Corner commitment to reduce emissions to 20% below 2006 levels by 2020.

Notwithstanding any alignment with US goals, some people still feel that Canada should be committing to deeper cuts at Copenhagen. Such was the message of protesters that staged a sit-in at Minister Prentice's Calgary constituency office earlier this week. Some provincial leaders would agree: BC, Ontario and Quebec have recently set more ambitous reduction targets.

While prospects for finalizing a comprehensive post-Kyoto agreement this year remain virtually non-existent, it is very encouraging that national leaders like Prime Minister Harper and President Obama will make appearances in Copenhagen. Hopefully, their presence will help negotiators forge what Minister Prentice describes as "a political agreement that can generate the momentum required to forge a broader, more specific and comprehensive document over the course of 2010."

Government of Canada Funds Alberta Carbon Trunk Line Carbon Capture and Storage Project

Today, the Canadian government announced $63 million of project funding support for the Alberta Carbon Trunk Line (ACTL) Project, a fully integrated, large-scale carbon capture and storage (CCS) project in Alberta.

The Honourable Lisa Raitt, Federal Minister of Natural Resources declared that "This innovative project further demonstrates Canada's international leadership in carbon capture and storage technology."

The ACTL Project, led by Enhance Energy in partnership with North West Upgrading, will be capable of gathering CO2 from several sources in the Alberta's Industrial Heartland and transporting the CO2 to existing mature oil fields throughout South-Central Alberta. These oilfields will see significant increases in production as CO2 is permanently stored in the reservoir. The capture and permanent storage of CO2 will result in significant reductions in emissions of greenhouse gases in Alberta. The initial supply of CO2 will come from North West Upgrading Inc. and Agrium Inc. The ACTL Project has the potential to facilitate permanent storage of up to two billion tonnes of CO2 when operating at full capacity. The impact potential is equivalent to taking 2.6 million cars off the road annually.

"As industry looks for a way to effectively deal with their CO2 emissions by keeping them out of the atmosphere, we are offering a much needed solution - a safe and secure storage destination for CO2," said Susan Cole, President and CEO, Enhance Energy.

$30 million of the project is funded through the $1-billion Federal Clean Energy Fund, with the remaining $33 million coming from the ecoENERGY Technology Initiative. The Clean Energy Fund is advancing Canada's leadership on clean energy technologies and the reduction of greenhouse gas emissions from energy production. According to the Canada-Alberta ecoENERGY CCS Task Force report, CCS technology could allow Canada to cut its greenhouse gas emissions by almost three-quarters of Canada's current annual emissions.

World's First Osmotic Power Prototype Opens Today in Norway

Today Statkraft, one of Europe's leading renewable energy companies, opened the world's first osmotic power prototype just outside Oslo, Norway. The prototype generates power by exploiting the energy available when fresh water and seawater are mixed. Osmotic power is a renewable and emissions-free energy source that Statkraft has been researching since 1997 and that will be capable of making a substantial global contribution to eco-friendly power production.

The company's President and CEO, Bård Mikkelsen stated: "This new technology generates electricity simply by mixing water. New solutions to meet the climate challenges might be closer than we expect [...] we are proud to be presenting a renewable energy source which has never been harnessed until now."

The prototype, which was developed in cooperation with R&D organisations from many countries, will have a limited production capacity and is intended primarily for testing and development purposes. The aim is to be capable of constructing a commercial osmotic power plant within a few years' time.

The global potential of osmotic power is enormous, being estimated at between 1,600-1,700 TWh per annum, which is equivalent to 50 percent of the European Union's total power production. Osmotic power plants can, in principle, be located wherever fresh water runs into the sea; they produce no noise or polluting emissions and they can be integrated into existing industrial zones, for example, in the basements of industrial buildings.

The project has attracted a lot of international interest, and several foreign guests attended the opening, which was conducted by Her Royal Highness Crown Princess Mette-Marit of Norway.

CCEMC Announces Project Funding for 30 Clean and Green Projects

The Climate Change and Emissions Management (CCEMC) Corporation ("CCEMC") issued a press release this week that of the 223 projects submitted in its EOI process, thirty clean and green projects were being asked to submit Full Project Proposals under the CCEMC's 2009 Call for Proposals: Initial Full Project Proposal Stage.

The CCEMC has up to $120 million available for clean, green projects which address energy conservation and efficiency, greening energy production and carbon capture and sequestration. The CCEMC's Chair, Eric Newell, commented that "clean technologies will reduce emissions and enhance the economic and environmental value of energy resources - by supporting ideas and initiatives at the leading edge of the green economy, we will reduce emissions, and in the process, support green jobs".

The CCEMC's announcement demonstrates its commitment to technology, conservation and greening the energy mix. The projects and investments the CCEMC will be making, which are demonstrated in the projects being selected to move to the Full Project Proposal Stage, undoubtedly have collateral benefits associated with the establishment of green jobs and the development of the green economy.

Stay tuned - we'll keep you up to date on the CCEMC's process and the projects being selected to move forward.

A question of sequencing and strategy

What came first, the chicken or the egg? Observers on the various fronts of climate change policy development may have been pondering a similar conundrum in the run-up to Copenhagen. What should come first, domestic legislation or international agreement? For better or worse, a consensus appears to have been reached.

Earlier in the year, many expected that countries that were serious about reaching an international climate change agreement in Copenhagen would pass meaningful domestic climate change legislation before December. The theory was that demonstrating a commitment to addressing climate change at home would translate into negotiating leverage abroad. Many hoped that the Obama administration in particular would provide leadership in this regard.

That hope has been largely dashed, the US clearly signalled this week that the U.S. would not pass the climate change bill that is currently mired in the Senate. PointCarbon reported that Senate Majority Leader Harry Reid said the full Senate may vote on climate legislation "some time in the spring." President Obama has been widely quoted as saying that he now expects Copenhagen to produce an agreement that "covers all of the issues in the negotiations, and one that has immediate operational effect" , but that falls short of a binding climate change treaty. What was supposed to produce a successor to the Kyoto Protocol may now produce little more than a successor to the Bali Roadmap.

Instead of seeking international leverage through domestic action, countries now appear to be taking the position that domestic action is too risky before an international framework has been established. Particularly in the wake of the financial crisis, protectionist and nationalist sentiments are running high. Leaders are therefore unwilling to move first domestically, worrying that an unequal carbon playing field abroad will give foreigners an unfair competitive advantage over domestic industries.

In Canada, the federal government's current position appears to be that the chicken and the egg must both come first before Canada will act domestically. Environment Minister Jim Prentice told the CBC that "it is in our interest as Canadians to ensure that we know what the international framework is going to look like. Our continental framework needs to be consistent with that. And our domestic policies need to be consistent with that." In other words, the world must act first, then the US, and only then will Canada enact domestic regulations. Canada's strategy is clearly echoed in the Prime Minister's response to the UN Secretary General's request for world leaders to attend Copenhagen. The Vancouver Sun reports that Stephen Harper's aides say he will attend a key climate change summit in Copenhagen next month - but only if it appears that other world leaders plan to show up.

OPA announces revisions to FIT days before end of launch phase

The Ontario Power Authority ("OPA") released updates to the FIT program late yesterday. A summary of the changes is available here.

The program updates include in specific changes to:

• the FIT Rules (see also the blackline to the previous version, which highlights the changes;
• the FIT Contract (see also the blackline); and
• the Standard Definitions.

Developers will no doubt be scrambling to understand the implications of the changes (some of which are substantive) as the November 30 deadline of the launch phase is imminent.

BC Hydro Releases Q&A on First Nations Consulation with Respect to Power Calls

On November 18, 2009 BC Hydro released Questions and Answers (Q&A) on its website regarding BC Hydro's role with respect to First Nations consultation. The Q&A stems from uncertainty in the nature and scope of consultation required as a result of BC Court of Appeal decisions in Carrier Sekani Tribal Council v. British Columbia Utilities Commission, (2009 BCCA 67) and Kwikwetlem First Nation v. British Columbia Utilities Commission (2009 BCCA 68).

The Q&A is directed to Independent Power Producers (IPPs) to "help in understanding BC Hydro's role regarding First Nations consultation for current and future power acquisition activities."

In the Q&A, BC Hydro describes a shift in assessing IPPs consultations with First Nations, from a risk assessment standpoint in evaluating IPPs proposals (ie. will consultations affect securing of land tenure), to adequacy of consultations prior to submissions of Electricity Purchase Agreements (EPA) to the BCUC under section 71 of the Utilities Commission Act.

One question begging to be answered from this is: how will this affect IPPs in the Clean Power Call, the Bioenergy Call, or future power calls? For the current Clean Power Call, BC Hydro's response is that "further information or action may be required from or by those proponents to enable BC Hydro to complete that assessment."

For the Bioenergy Call Phase II, since the call is in its early stages, BC Hydro intends to incorporate new requirements with respect to First Nations consultation into call documents and timelines, and will update the website accordingly.

For the Standing Offer Program (ongoing acquisition process for projects up to 10 megawatts), this program requires proponents to apply with permits already in place, but BC Hydro notes that it will still assess the adequacy of consultation before offering an EPA to an applicant.

For future power calls, it appears as though BC Hydro will build in this new assessment approach into each call. When assessing the adequacy of consultation, BC Hydro will "seek to identify what, if any, other agencies have already assessed the adequacy of consultation", and this evidence may satisfy their requirements, or they may require "additional evidence to support an IPP proposal".

The factors BC Hydro will consider when assessing First Nations consultation may include:

• Information on how the IPP determined which First Nations to consult.
• Information on the potential degree of impact from a project on aboriginal rights and title, and information on how this assessment was reached.
• Information on the level of consultation and potential avoidance, mitigation or accommodation required for each impact and how this was, or will, be undertaken by the IPP as evidenced by consultation reports, logs, impact benefit agreements, letters of support, correspondence and any other material submitted demonstrating consultation.

What is clear from this Q&A is that the BC Hydro has recognized that the ground rules with respect to First Nations consultation have changed as a result of the Carrier Sekani and Kwikwetlem cases and they are attempting to respond to this in a way that addresses this issue with respect to current power calls and future power calls, to provide some level of clarity for IPP proponents, First Nations and other interested stakeholders.

Minister Prentice Talks Climate Change; PM Says He'll Go to Denmark

Minister Prentice believes that in order for the international community to reach a new framework to deal with climate change, the U.S. must "get on board".

Speaking to a packed room on November 13 in Edmonton, the Minister spoke about climate change on the global stage and about the road to the UNFCCC Climate Change Conference in Copenhagen, which begins in less than a month. The Minister's key message during the speech was that in order for Copenhagen, the "mother of all negotiations" to result in a meaningful frameworks to address the stabilizing of greenhouse gases in the atmosphere, the United States has to "make a substantial effort going forward".

The Minister's other key message hit a bit closer to home:

"If the US does not make a substantial effort going forward, there is nothing Canada can do. Our own mitigation efforts will be futile - as a practical matter, we should probably focus on adaptation.

If we do more than the US, we will suffer economic pain for no real environmental gain - economic pain that could impede our ability to invest in new clean technologies.

But if we do less, we will risk facing new border barriers into the American market.

In short, we need a substantial effort from the United States; and a comparable effort from Canada, so we can create an effective North American climate change regime with national policies that are harmonized, consistent and free from conflict. A continental system composed of national policies and regulations that are equal in value and of similar effect, so we foster fair competition and maintain free trade in the integrated North American market".

The crux of his comments? That a harmonized (although not identical) climate change framework is absolutely crucial for Canada and for the U.S.

Why?

1. We share a common environment;

2. Our economies are integrated. The Minister remarked, "many firms in such key sectors as aerospace and automotive do not so much compete with each other as cooperate, being suppliers to, and customers of each other, somewhere on complex supply chains"

3. Canada's energy supply = security of energy for the United States - "[w]e are not just the single largest supplier to the American market of oil, natural gas, hydroelectricity and uranium - we are an indispensable supplier to the land-locked northern tier states"

4. Our pipelines and power grids transcend the border.

The Minister also pointed to a number of cross border harmonization initiatives, such as identical tail pipe emissions standards, the fact that both countries are busy preparing national cap and trade systems, and commitments on both sides of the border to clean energy technology.

But ultimately, his remarks confirmed that both Canada and the United States, while committed to addressing the effects of climate change, will not do so at the expense of the economy. The Minister's philosophy and one that is shared by his U.S. counterparts is to "do no harm - to avoid measures, no matter how well-intentioned, that would cause Canadian firms to be not just down in 2009, but out by 2010". What does this mean in terms of reductions? The American Clean Energy and Security Act has passed the House, and the Kerry/Boxer legislation has now commenced its journey through the Senate. The former sets the target of 17% less than 2005 levels by 2020; the latter currently talks of 20%. The Minister confirmed "[t]hat Both are similar to our own 2020 target of 20% less than 2006 levels".

Those dectractors who assert that Canada should be reducing its emissions by 25-40% less than 1990 levels are not focused on the economic consequences to our country. Minister Prentice addressed these critics and said "to say the least, reducing 2020 emissions in Canada by 25-40% from 1990 levels is easier said than done. The impact on the overall economy would be dire. In economic context, reductions of that magnitude equal an amount far in excess of all the emissions generated from all transportation sources in Canada".

Are the critics prepared to put away not only their own cars, but the cars of their relatives and everyone else they know, for good? To stop flying anywhere? Stop taking the bus? Probably not. And if the solution is to purchase international offsets to meet our emissions targets, are they comfortable with billions and billions leaving the country every year? We have to have a reasonable response to climate change in Canada - and it is reasonable that our system be consistent with that of our largest trading partner and not cause economic hardship to a nation of 35 million people.

So what will happen in Copenhagen? Canada's position is pretty clear. The United States' position is also increasingly clear - everyone, not just the developed nations, has to be a party to an international convention. That includes China and India, whose positions have really not shifted in the months leading up to the conference. Small concessions have been made, but really, the message is still "we're going to do what we want".

But, as Copenhagen draws ever closer, it appears that the international community is taking it more and more seriously. This morning the Edmonton Journal reported that there is increasing pressure on world leaders, including the U.S. President, to attend the conference. Prime Minister Stephen Harper's aides confirmed that if others are there, he'll likely attend as well.

With all these variables, the conference is December is shaping up to be very interesting. Stay tuned for on the ground coverage from Denmark.

OPA provides critical FIT updates

The Ontario Power Authority ("OPA") has released three important updates to the Feed-in Tariff ("FIT") program:

1) Domestic content Q&A

The OPA has been flooded with questions about the details of the domestic content rules, which are viewed by many as a high hurdle to clear to participate in the FIT program. In response, the OPA has posted some additional details about how it will interpret the "designated activities" set out in the various domestic content tables. For example, where a designated activity refered to the manufacturing of a system that has sub-components (e.g., mounting systems), the OPA has provided additional guidance as to which sub-components must be made in Ontario for the designated activity to qualify under the domestic content rules.

2) Agricultural land restrictions for solar PV

The OPA has been directed by the Minister of Energy and Infrastructure not to enter into FIT contracts for ground-mounted solar PV projects greater than 100 kW that are located on:

• lands comprised of Class 1 or 2 soils, as designated by the Ontario Ministry of Agriculture, Food and Rural Affairs ("OMAFRA") in the Canada Land Inventory ("CLI"); or
• specialty crop areas within the meaning of the Ontario 2005 Provincial Policy Statement.

FIT applicants must demonstrate compliance with these restriction by submitting CLI maps that show the entire property where the project will be located and the specific siting of the project on that property. CLI maps are available for download from OMAFRA. Where CLI maps for the subject property show multiple soil classifications, the applicant must also include a site-specific soil study performed by a qualified independent soil scientist to confirm the CLI classifications using accepted standards.

Additionally, the government has imposed a province-wide cap of 500 MW on projects on Class 3 lands. This 500 MW cap has been allocated between the four Regional Administrative Boundary Alignments (northern, central, western and eastern) of the province (as discussed in a previous posting, 100 MW of the portion of the cap allocated to the western region has been set aside by the province, likely in connection with its negotiations with the Samsung Group). FIT contracts on Class 3 lands will be awarded on a first-come, first-served basis.

Note that the foregoing limitations do not apply to lands zoned for non-agricultural purposes as of October 1, 2009.

3) Enhanced transition options for RESOP contract holders

In a concession to those who have invested time and money developing projects under the old Renewable Energy Standard Offer Program ("RESOP"), the OPA will now allow projects of any renewable technology that have a capacity of 500 kW or less and were purchased or were in service by 11:59 p.m. on October 1, 2009 to transition to the FIT and microFIT Programs. Such projects will be deemed to have met the domestic content requirements.

Proponents holding RESOP contracts for projects that are not yet in service and was not purchased by October 1, 2009 must executed a mutual termination agreement with the OPA to be eligible to transition to the FIT. Proponents of Micro RESOP projects 10 kW and less that were purchased or were in service by October 1, 2009 will have to executed a RESOP to FIT Transition Agreement with the OPA.

Word on the street

Anecdotal reports from local distribution companies suggest that very few FIT applications have been submitted to date. However, there continues to be significant buzz from developers, particularly of solar PV projects on industrial and commercial rooftops. Just under 3 weeks remain in the launch phase of the FIT. With details like those discussed above becoming more clear, we expect to see the trickle of applications increase to a deluge by November 30.

International Energy Agency launches World Energy Outlook 2009 in London

The International Energy Agency>International Energy Agency ("IEA") today launched its annual flagship publication in London. The World Energy Outlook 2009 (WEO 2009) looks at the impact of the economic downturn on energy use, CO2 emissions and energy investment and what will be required at the UN climate conference in Copenhagen to put together an agreement that stops global temperatures rising at a price that is affordable. The WEO 2009 also focuses on the natural gas resource base, current trends and the role gas will play in the future energy mix. Finally, the publication includes a review of energy in Southeast Asia, looking at that fast-growing region and its implications for global energy markets.

The IEA's Executive Director, Mr. Nobuo Tanaka declared that "World leaders gathering in Copenhagen next month for the UN Climate summit have a historic opportunity to avert the worst effects of climate change. The World Energy Outlook 2009 seeks to add momentum to their negotiations at this crucial stage by detailing the practical steps needed for a sustainable energy future as part of a global climate deal" and added that "WEO 2009 provides both a caution and grounds for optimism. Caution, because a continuation of current trends in energy use puts the world on track for a rise in temperature of up to 6°C and poses serious threats to global energy security. Optimism, because there are cost-effective solutions to avoid severe climate change while also enhancing energy security - and these are within reach as the new Outlook shows".

In conjunction with the WEO 2009, the IEA has also released an Executive Summary which provides an overview of the publication's key findings and topics, as well as a Fact Sheet, which provides data in a bullet-point format on the following questions and issues: (1) The sustainability of our current energy pathway; (2) The Impact of the financial crisis on Energy Investment (3) Natural gas' role in the global energy mix; (4) What a low-carbon energy future might look like; (5) The impact of the financial crisis on the outlook for CO2 emissions and global climate; (6) Assumptions on Energy Prices, volatility and the future of cheap energy.

Copies of the World Energy Outlook 2009 can be ordered from the IEA Bookshop.

Canada will face significant challenges in Copenhagen

Canada will face significant negotiating hurdles in Copenhagen as world leaders attempt to negotiate a successor to the Kyoto Protocol this December. While the world is begrudingly acknowledging that no treaty will be concluded in Copenhagen, the negotiations will give countries the opportunity to define their positions for climate change negotiations that will continue into 2011. Previews of Canada's positions have generally not been received well, particularly by developing nations.

As it stands, Canada will face four principal negotiating challenges in Copenhagen:

1) Canada's track record under Kyoto

Canada committed to reduce its greenhouse gas emissions by 6% from 1990 levels by 2012 under the Kyoto Protocol. Neither the current Conservative government nor its Liberal predecessor made any progress towards this goal. In fact, Canada's emissions are currently tracking about 26% above 1990 levels. These facts are well-known around the world. Canada therefore risks being perceived both as a climate villain (at least when emissions are measured on a per-capita basis) and as a country that has difficulty following through on its international commitments.

2) The state of Canada's domestic initiatives

Many countries are seeking to strengthen their negotiating position in Copenhagen by passing significant domestic climate change legislation before December (see e.g., India's recent announcements, which attempt to mandate emissions reductions indirectly through energy efficiency).

By contrast, the federal government's Turning the Corner plan, which was originally scheduled to take effect in 2011, continues to languish. Canada's Minister of the Environment Jim Prentice has suggested several times this year that the government intended to produce comprehensive climate change policies before Copenhagen. However, Le Devoir, a Quebec newspaper, reported two weeks ago that Mr. Prentice said the government no longer intends to do so. The continued failure of the federal government to advance the climate change file is likely related to the next two issues.

3) The US's lack of progress

Following the strategy of many countries, President Barack Obama has attempted to enact meaningful climate change legislation before Copenhagen. While the Waxman-Markey bill made its way through the House of Representatives (although by no means unscathed), it remains bogged down in the Senate. The US will not finalize its domestic strategy for managing climate change before December and will therefore not be in a position to agree to any definitive international agreement.

The only definitive position that Ottawa has adopted with regard to the file is that it will not do anything to jeopardize its trading relationship with the US - in other words, Canada will follow the lead of the US. Given the delays in Washington, Canada has been unable to finalize its own domestic lesgilation and will likely not be able to agree to anything substantive in Copenhagen.

4) The expected cost of climate change legislation

Surprisingly, the Canadian federal government has never undertaken a comprehensive study of the economic impact of proposed climate change legislation (or of failing to mitigate climate change). In a report sponsored by TD Bank Financial Group, the Pembina Institute and the David Suzuki Foundation commissioned the economic modelling firm M.K. Jaccard and Associates Inc. to conduct an in-depth study of federal and provincial government policies to allow Canada to meet a "2 degree Celsius target" by reducing emissions to 25 per cent below the 1990 level by 2020. The report concludes that Canada's national GDP growth would slow from about 2.4 percent annually to 2.1 percent annually as a result of policies required to achieve the country's stated climate change objectives. However, growth in Alberta and Saskatchewan would have to be curtailed significantly more than in other provinces, as the oil and gas sector and coal-fired electricity plants in these provinces contribute disproportionately to Canada's overall emissions.

The report has triggered tremendous backlash both from these provinces, who invoked the spectre of a wealth transfer worse than under the much hated National Energy Plan, and from the federal Conservative government, whose power is anchored in the West. Alberta Minister of the Environment Rob Renner called the report "divisive". Minister Prentice called its conclusions "irresponsible and divisive and the economic costs unacceptable". TD Bank his since distanced itself from the report, saying that it does not endorse the conclusions.

The report nevertheless highlighted two issues. First, addressing climate change will not be cheap. Second, it will require the federal government to reconcile strongly divergent positions in the provinces (for further evidence of the heightened emotions that only Canadians can bring to questions of federalism, see this editorial in today's Toronto Star, which questions "how the oilsands is a Canadian problem when it comes to emissions, but an Albertan birthright when it comes to talk about the wealth it creates"). Having addressed neither issue domestically, Canada will be unable to deal with analogous issues under a multilateral international treaty.

Implications for Copenhagen

So what will Canada do in Copenhagen? Canada's historical role in such negotiations has been to act as a middle power that can help mediate negotiations between some of the bigger players. In Copenhagen, it appears that Canada will adopt a firm position characterized by:

• a desire to follow the US;
• a need to protect its resource driven economy; and
• an unwillingness to make emissions reduction commitments that are not also undertaken by developing economies like China, Brazil and India.

This approach has already been received poorly by many, as evidenced in part by reports earlier this fall that developing nations walked out on Canada during discussions regarding the basic form of the post-Kyoto agreement. Minister Prentice appears to be girding himself for similar reactions in the coming months. In a recent interview with the Montreal Gazette, Minister Prentice said "if the price of having strong, capable, tough negotiators at the table is being singled out and given 'fossil of the year' awards, then so be it. Bring it on."

Smitherman steps down to run for mayor

George Smitherman announced his resignation as Minister of Energy and Infrastructure ("MEI") of Ontario over the weekend. The announcement caught few by surprise, as Mr. Smitherman has been hinting over the past few months that he intends to run for Mayor of Toronto. His resignation nevertheless creates some uncertainty for Ontario's emerging green energy sector.

Mr. Smitherman was the chief architect of the Green Energy and Green Economy Act, 2009, which is intended to boost the proportion of Ontario electricity that is generated from renewable sources, attract new investment in renewable project development and manufacturing companies, and create 50,000 new green collar jobs. Mr. Smitherman dropped the last few pieces into the regulatory puzzle in September and officially launched the flagship Feed-in Tariff program on October 1. However, it is too early to measure the success of the green energy initiative. With Smitherman gone, responsibility for its success will fall to Mr. Smitherman's successor, as well as to Premier Dalton McGuinty.

Mr. Smitherman, often referred to as "Furious George" has a reputation as having both a vitriolic temper and an unmatched ability to force change upon the government. This combination of traits made him very effective at driving the Green Energy and Green Economy Act, 2009 through the Legislature and the various Ministries responsible for its implementation. However, his personality may have been less well suited to the long-term management of a bureaucratically intensive array of programs. Hopefully Mr. McGuinty will choose a successor whose skills and interests lend themselves to the steady management of the province's transition to green energy.

In the short term, Premier McGuinty will likely keep his hands on the reigns of the province's second biggest ministry, as evidenced by his appointment of Gerry Phillips as interim Minister, an MPP who previously had no cabinet portfolio. In the long term, some question whether the Premier will not choose to split the portfolio into a separate Ministry of Infrastructure and Ministry of Energy. As it stands, the MEI will have the tendency to attract Minsiter's whose only other career move within the provincial government is to be Premier, a reality which no doubt informed Mr. Smitherman's decision to run for Mayor rather than for his friend and colleague's job.

In recent weeks, Mr. Smitherman has faced significant controversy. Many felt that David Caplan, a popular MPP who resigned as Minister of Health in light of the eHealth scandal, took responsibility for a scandal that may have originated during Mr. Smitherman's tenure as Minister of Health. In the green energy sector, Mr. Smitherman was facing criticism within his cabinet for the proposed $6-7 billion deal he was negotiating with the Samsung Group to bring huge investments in renewable projects and manufacturing capacity to the province. The state of that massive deal, which Smitherman suggested could create 15,000 of the 50,000 green collar jobs he promised, is now unknown.

BC government confirms decision to phase out Burrard Thermal

The BC government reiterated its commitment to green power and energy self-sufficiency last week. In a special directive issued to the British Columbia Utilities Commission ("BCUC"), the government ordered BC Hydro to phase out the Burrard Thermal station and to accelerate its generation procurement plans to ensure the province is self-sufficient by 2016.

On October 28 Blair Lakstrom, Minister of Energy, Mines and Petroleum Resources, confirmed that the government has ordered BC Hydro and the BCUC to stop considering Burrard Thermal in planning the provinces long term supply of firm energy. Effective immediately, Burrard Thermal is to be used only for up to 900 MW of emergency capacity.

The Vancouver Sun quotes Lekstrom as saying, "Burrard is antiquated technology in an airshed that is pretty difficult to manage. When we think about the air quality, running this just doesn't make sense."

The government also ordered BC Hydro to bring an additional 5,000 GWh of clean power online through internal projects and procurements from independent power producers. This accords with the original draft of the Long Term Acquisition Plan, which provided that 5,000 GWh should be procured through clean power calls. Additionally, the government has ordered BC Hydro to procure 1,000 GWh of biomass power (likely from the Phase 2 Bioenergy Call).

The government's directives directly contradict the controversial decision of the BCUC regarding BC Hydro's Long Term Acquisition Plan (discussed here).

As further evidence of the province's renewed commitment to green power, the government announced on November 2 that it will implement its Throne Speech promise to establish a Green Energy Advisory Task Force. The task force will include groups focused on:

• Procurement and Regulatory Reform;
• Carbon Pricing, Trading and Export Market Development;
• Community Engagement and First Nations Partnerships; and
• Resource Development.

After several months of uncertainty, it appears that the province is again on track to become an energy self-sufficient province powered by green energy. IPPs are no doubt looking forward to moving projects forward under BC Hydro's the existing and planned clean and bioenergy power calls.

OEB revises connection cost rules to encourage new renewable generation

The Ontario Energy Board announced last week that it had finalized amendments to the connection cost responsibility provisions of the Distribution System Code ("DSC") and Transmission System Code ("TSC"). The amendments to the DSC and TSC were prompted by the passage of the Green Energy and Green Economy Act, 2009 and by requests for the Minister of Energy and Infrastructure to facilitate the connection of new renewable generation.

The amendments to the DSC are intended to reduce the level of costs that renewable generators must pay to connect to distribution systems. The basic concept of the amendments is that investments in distribution systems will be classified as investments in:

• "connection assets", which will be paid for by generators;
• "expansions", which will be paid for in full by the distributor if the expansion is part of an OEB-approved plan or in part by each the distributor and generator if it is not part of an OEB-approved plan; and
• "renewable enabling improvements", which will be paid for by the distributor.

The amendments to the TSC are intended to facilitate the timely development of "enabler" lines to areas that have significant renewable energy resources. The enabler lines will make it possible for clusters of new renewable projects to conect to the grid. Such renewable generators will pay their pro-rata share of the cost of the enabler lines as they connect. The basic concept is that transmitters will temporarily pool the costs of enabler lines. As generators connect, they will pay their pro rata share of the pool. After a designated period, any costs associated with unsubscribed capacity would be recovered by the transmitter from its rate base.

These amendments are now in force and will likely become increasingly relevant in the coming year. Recall that the first phase of the Ontario Power Authority's FIT application process closes at the end of this month. Distributers and transmitters will likely have a much better idea of the demand for new renewable generation once the OPA runs the Transmission and Distribution Availability Tests and the Economic Connection Tests on the applications received in this first round.

Industry and NGOs call for comprehensive, nation-wide cap-and-trade rules

A coaltion of industry and environmental groups recently held a "ENGO-Industry Cap-and-Trade Dialogue" to discuss the appropriate trajectory for Canadian greenhouse gas regulation. In a joint statement, the group called for regulations that are:

• comprehensive;
• nation-wide;
• simple and readily implemented;
• transparent and that seek to ensure accountability;
• compatible with systems in other jurisdictions; and
• predictable but adaptable.

As discussed in an earluier posting, there has been recent concern that federal Minister of the Environment Jim Prentice may be under pressure to create a system that includes special treatment for Alberta's oil sands. In particular, some worry that the oil sands would be subject to an intensity-based cap, while other sectors would labour under a more stringent absolute emissions cap. The joint statement addressed the question of absolute targets versus intensity-based targets directly:

""The cap and trade system should place an absolute, national cap on covered emissions. Having sectors with different cap types (i.e. absolute and intensity) could create equity issues as well as fungibility issues that may impair trading efficiency. Intensity measures, while not suitable for determining the cap type, could be useful and should be considered for measuring sector and facility performance.""

The recurring debate as to whether allowances should be given away or auctioned was also addressed:

""Over time the cap-and-trade system should transition from providing some allowances free of charge to requiring the auctioning of all allowances. The speed of the transition will depend on many factors, and will require the balancing of economic, equity and environmental considerations.""

Perhaps what is most interesting about the joint statement is who made it. The participants include companies from the pulp and paper, energy, electricity, chemical and mining sectors, all of which tend to be large emitters of GHGs. The participants were the following:

• Catalyst Paper Corporation;
• David Suzuki Foundation;
• Direct Energy;
• Dow Canada;
• DuPont Canada;
• ENMAX;
• Environmental Defence;
• Forest Ethics;
• Pembina Institute;
• Royal Bank of Canada;
• Rio Tinto;
• Sierra Club Canada;
• Spectra Energy;
• Sustainable Prosperity;
• The Toronto-Dominion Bank; and
• World Wildlife Fund (WWF) - Canada.

The joint statement is in many ways further evidence that industry accepts emissions regulations as being inevitable, and now wants government to get on with implementation.

Samsung to bring 15,000 green collar jobs to Ontario?

As part of its green energy initiatives, the Ontario government is reportedly wooing industrial giant Samsung Group to make a major investment in Ontario. Details of the proposed investment are still confidential. However, it is expected that Samsung will participate both as a developer of renewable power projects and as a manufacturer of equipment that meets the local content requirements of the Feed-in Tariff ("FIT"). While potentially a big win for the province, the deal is attracting criticism both from within the McGuinty cabinet and from other players in the industry.

The Toronto Star reports that Minister of Energy and Infrastructure George Smitherman is pegging the investment at $6 to $7 billion and expects that he is "looking at a job count of more than 15,000." The deal would therefore be a huge leap forward in the government's promise to create 50,000 new green collar jobs in the province.

However, not everybody is enamored with the potential Samsung deal. The Star also reports that a major feud over the deal has erupted in Premier McGuinty's cabinet. Some MPPs are (correctly) concerned that taxpayers will ultimately bear the burden of any largess the government bestows on Samsung.

Other industry players are concerned that the deal is unfair, questioning why the government would already bend rules that it just spent almost a year developing. Minister Smitherman apparently retorted that the "economic adder" being offered to Samsung could be available to others: "Anyone who is prepared to make investments on that scale of course warrants our very substantial interest."

However financial incentives are only part of the deal being offered to Samsung. In a directive to the Ontario Power Authority dated Sepetember 30, Minister Smitherman ordered that 500 MW of transmission capacity be held in reserve. This is a significant portion of the 4,500 MW of capacity that the OPA estimates will be available for allocation as of November 30, when the first round of the FIT closes. In a previous directive, Minister Smitherman ordered the OPA to procure not more than 500 MW of ground-mounted solar projects over 100 kW. The September 30 directive further provided that 100 MW of this solar allocation in the Western Region of Ontario were also to be held in reserve. These special reserves are expressly being held for renewable energy generating facilities "whose proponents have signed a province-wide framework agreement with the Province" - i.e., Samsung. Other developers may be right to complain as these reserves have the potential to alter the dynamics of the initial FIT market significantly.