CLIMATE CHANGE: CANADA'S KYOTO FOLLOW-THROUGH:

UNCLAS SECTION 01 OF 02 OTTAWA 000687 SIPDIS SENSITIVE STATE FOR OES (WATSON),OES/EGC (REIFSNEIDER, DEROSA), EB/ESC/ISC (MCMANUS, DUDLEY),WHA/CAN (MASON, RUNNING, NORMAN) USDOC FOR ITA/MAC -- OFFICE OF NAFTA DOE FOR INT'L AND POLICY (PUMPHREY AND PERSON),IE-141 (DEUTSCH) AND BPA (ATKINS) EPA FOR OFFICE OF THE ADMINISTRATOR, INTERNATIONAL AFFAIRS AND BRIAN MCLEAN E.O. 12958: N/A TAGS: SENV ENRG CA SUBJECT: CLIMATE CHANGE: CANADA'S KYOTO FOLLOW-THROUGH: SPENDING DECISIONS MAY REQUIRE A NEW PROCESS REF: 02 OTTAWA 3560 SENSITIVE BUT UNCLASSIFIED - NOT FOR DISTRIBUTION OUTSIDE USG CHANNELS ¶1. (U) In its FY2003-04 budget, released on February 18, the GOC committed C$1.5 billion (about US$1 billion) over five years directly to achieving greenhouse gas emission reductions (plus modest additional funds for research and long-term technology development). This represents about 4.3 percent of the new spending promised in the budget (which totalled C$34.8 billion over five years, much of it for health care). ¶2. (U) The budget documents offer no details at all on how emission reductions are to be achieved, except that this will be done "with provinces and other partners" and will draw upon "expert external advice." The lack of detail quickly led to predictions that the C$1.5 billion would be tapped by various ministers to fund large "pet projects." Examples included a long-touted but expensive high-speed rail line between Quebec and Ontario, and a major power transmission line from Manitoba to Ontario, either of which could reasonably be claimed to reduce greenhouse gas emissions. ¶3. (SBU) Environment Minister David Anderson responded the day after the budget by calling for a "control group" of ministers to be charged with ensuring that the new spending flows to projects which are cost-effective in terms of reducing emissions. Speaking to Econoffs on March 6, Don Strange of the National Climate Change Secretariat said that the GOC was considering options for ensuring such cost- effectiveness - possibly through a newly created function within the Privy Council Office, which is a policy co- ordinating secretariat to the federal Cabinet. ¶4. (SBU) Strange noted the difficult squeeze between the time required to find and implement a suitable decision- making process, and the very brief time "window" available in which to get climate change programs started. Time is short, he said, for two reasons. First, Prime Minister Jean Chretien's "selling" of Kyoto implementation to Parliament and the public during 2002 created high expectations for action among stakeholders throughout Canada. This could soon turn to disillusionment and criticism unless real programs materialize by mid-2003. Second, the race within the governing Liberal Party to succeed Chretien as Party leader will culminate in a leadership convention in November 2003 and a change of leadership early in 2004. This transition is liable to interfere with policy decisions and could derail any programs not implemented by fall 2003. ¶5. (SBU) PM Chretien's show of determination during 2002 to formally "ratify" the Kyoto Accord, which was achieved with an act of Parliament in December, was intended to display independence from the USG on a high-profile, international environmental issue. Given Canada's comprehensive economic integration with the U.S., many of the GOC's critics emphasized the likely high economic price (and low efficacy) of any measure which could push business costs up relative to those in the U.S. ¶6. (SBU) COMMENT: While few details are yet available, ironically the pattern of GOC Kyoto "implementation" thus far looks quite similar to USG climate change initiatives - such as announced spending on research/development toward emission reduction technologies; announced spending on climate monitoring/research; and probable further spending on new fuel and transportation technologies (notably hydrogen fuel cells) and wind power. GOC policy leaders are sensitive to any cross-border differential in business conditions, and no doubt intend to keep up with (or ahead of) U.S. initiatives in each of these industries so as not to miss any opportunities. GOC officials remain enthusiastic about U.S.-Canada cooperation on climate change, including carbon sequestration. Environment Minister Anderson has also expressed interest in facilitating Canadian-based firms' participation in nascent international "carbon markets." ¶7. (SBU) COMMENT CONTINUED: One key question still unanswered is how the GOC will fulfill a potentially costly promise which it made in December (just as its motion supporting ratification of Kyoto was being debated in Parliament). The promise was to ensure that industry's cost of achieving mandated reductions in carbon emissions would be "capped" at C$15 per tonne. So far, we have seen no indication from the GOC as to how much this promise might cost, nor whether it is to be funded from the C$1.5 billion. Likewise, as noted in para. 2, there are long-standing expectations that the GOC will assist with transportation infrastructure and with Manitoba's dream of a major new east- west power transmission line. Even making a start in either of these areas could absorb all of the GOC's new climate change funding. Climate change funding is certainly among the areas where high expectations are liable to be disappointed in coming months. CELLUCCI