CANADA UNVEILS CLIMATE CHANGE STRATEGY:

UNCLAS SECTION 01 OF 03 OTTAWA 001125

SIPDIS

STATE FOR OES, OES/ETC, OES/EGC, EB/ESC/ISC, WHA/CAN

USDOC FOR 4320/ITA/MAC/WH/ONIA -- WORD

DOE FOR INT'L AND POLICY, 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: CANADA UNVEILS CLIMATE CHANGE STRATEGY:
MOST CALL IT TOO VAGUE, TOO LATE

REF: (A) OTTAWA 1020 (B) OTTAWA 0824 (C) OTTAWA 0995


SUMMARY
--------------


1. ON APRIL 13 CANADA ANNOUNCED ITS LONG-AWAITED STRATEGY
TO MEET ITS GREENHOUSE GAS EMISSION REDUCTION COMMITMENTS
UNDER THE KYOTO PROTOCOL. MOST PLAYERS ACKNOWLEDGE THAT
CANADA'S KYOTO TARGET (EMISSIONS SIX PERCENT BELOW 1990
LEVELS BY 2012) IS NO LONGER ATTAINABLE, IF IT EVER WAS.
THE NEED TO MAINTAIN A COMPETITIVE INDUSTRY ENVIRONMENT VIS-
-VIS THE UNITED STATES WAS A MAJOR CONSTRAINT IN CRAFTING
THE PLAN, BUT GOC ENVIRONMENT MINISTER STEPHANE DION BRAVELY
TOUTS THE ECONOMIC, TECHNOLOGICAL AND ENVIRONMENTAL BENEFITS
OF REDUCING EMISSIONS.


2. THE STRATEGY (FULL TEXT AT WEBSITE CLIMATECHANGE.GC.CA)
IS THE RESULT OF A MAJOR EFFORT BY DION TO OVERCOME
OPPOSITION AND SKEPTICISM, TAKE RENEWED AIM AT THE KYOTO
TARGET, AND BUILD CREDIBILITY AS HE ATTEMPTS TO ENGAGE
INTERNATIONAL PARTNERS - ESPECIALLY THE UNITED STATES - IN A
"BEYOND KYOTO" DIALOG. HOWEVER, INITIAL REACTION TO THE
STRATEGY WAS SKEPTICAL TO NEGATIVE. EXPERTS EXPRESSED
DISAPPOINTMENT AT THE LACK OF DETAIL, PARTICULARLY GIVEN
THAT THIS POLICY HAS BEEN UNDER DEVELOPMENT THROUGHOUT THE
GOVERNING LIBERAL PARTY'S ELEVEN-PLUS YEARS IN POWER. PRESS
CRITICIZED THE PROSPECT OF BUYING EMISSION CREDITS FROM
ABROAD (TRADING "TAXPAYER DOLLARS FOR THIN AIR") AND ALLEGED
THAT THE PLAN PUT MORE BURDEN ON INDIVIDUALS AND HOUSEHOLDS
THAN ON INDUSTRY.




3. THE ANNOUNCEMENT COMES WHILE THE LIBERAL PARTY MINORITY
GOVERNMENT IS REELING FROM SCANDAL AND OPPOSING PARTY
ATTACKS (INCLUDING OVER A KYOTO-RELATED LEGISLATIVE MEASURE
- REF C),AND MAY FACE AN ELECTION WITHIN 90 DAYS. AS SUCH,
THE GOC CAN BE EXPECTED TO USE THE CLIMATE CHANGE ISSUE IN
AN EFFORT TO GO ON THE POLITICAL OFFENSIVE, PARTICULARLY
AGAINST ITS CONSERVATIVE PARTY RIVALS. END SUMMARY.

THE CHALLENGE
--------------


4. WHILE ITS TECHNOLOGICAL LEVEL IS SIMILAR TO THE
UNITED STATES, CANADIANS CONSUME OVER 20 PERCENT MORE
ENERGY PER CAPITA, DUE TO THE COUNTRY'S LONG TRANSPORT
DISTANCES, COLD CLIMATE, AND ENERGY-INTENSIVE RESOURCE-
BASED INDUSTRIES (ENERGY PRODUCTION, FOREST PRODUCTS,
MINING AND METALS). CANADA'S EMISSIONS IN 1990 WERE
ABOUT 596 MEGATONNES (CO2 EQUIVALENT) AND ITS KYOTO
COMMITMENT - TO REDUCE THIS BY SIX PERCENT BY 2008-2012
- WOULD BRING THIS TO AROUND 560 MT. BUT IN 2003, BY
THE GOC'S OWN ADMISSION, EMISSIONS WERE ABOUT 740 MT, OR
24 PERCENT ABOVE 1990 LEVELS. IN SHORT, REQUIRED
REDUCTIONS THAT WERE CALCULATED AT ABOUT 240 MT IN 2002
- AND EVEN THEN CONSIDERED UNATTAINABLE BY MANY - HAVE
RISEN CONSIDERABLY.

PLAN ELEMENTS
--------------


5. MAJOR, MULTI-YEAR FUNDING FOR EMISSIONS REDUCTION WAS
RENEWED AND UPDATED IN THE GOC'S FEBRUARY BUDGET. REFS
A AND B DESCRIBED THE GOC'S VOLUNTARY AGREEMENT WITH
AUTO MANUFACTURERS, ANNOUNCED ON APRIL 5, UNDER WHICH
THE COMPANIES COMMIT TO REDUCE GREENHOUSE GAS EMISSIONS
FROM CANADA'S ENTIRE VEHICLE FLEET BY 5.3 MT BY 2010.
THE APRIL 13 ANNOUNCEMENT ATTEMPTED TO FILL IN MORE OF
THE PICTURE.


6. LARGE FINAL EMITTERS: LFE'S (MOSTLY IN ENERGY,
MINING AND MANUFACTURING) ACCOUNT FOR ABOUT HALF OF
CANADA'S GREENHOUSE GAS EMISSIONS. THE GOC'S STRATEGY
REMAINS VAGUE, DESCRIBING COMPANIES' OPTIONS FOR
COMPLIANCE. THE GOC CLAIMS THAT IT IS MEETING AN OLD
PROMISE TO LFE'S - THAT THEIR COST OF COMPLIANCE WILL
NOT EXCEED C$15 (ABOUT US$12) PER TONNE OF CO2
EQUIVALENT. THE CURRENT TARGET FOR REDUCTIONS BY LFE'S
IS 45 MT ANNUALLY.


7. EMERGING RENEWABLE ENERGY: THE GOC WILL ENCOURAGE
WIND, SOLAR AND TIDAL POWER THROUGH A VARIETY OF
MEASURES, WHICH "COULD" CONTRIBUTE ABOUT 15 MT OF ANNUAL
REDUCTIONS.


8. CLIMATE FUND: THE GOC PROMISES "A PERMANENT
INSTITUTION FOR THE PURCHASE OF EMISSIONS REDUCTION AND
REMOVAL CREDITS" BOTH IN CANADA AND ABROAD. THE
GOVERNMENT ESTIMATES THAT THE FUND "COULD YIELD IN THE
ORDER OF 75-115 MT OF REDUCTIONS ANNUALLY WITH FUNDING
IN THE ORDER OF C$4-5 BILLION." WHILE PRIORITY WILL BE
GIVEN TO FINDING DOMESTIC REDUCTIONS, "IT IS NOT
POSSIBLE TO PREDICT HOW MANY OF THESE REDUCTIONS WILL
OCCUR DOMESTICALLY."


9. PARTNERSHIP WITH PROVINCES: THE GOC WILL CREATE A
FUND TO INVEST IN TECHNOLOGIES AND INFRASTRUCTURE
DEVELOPMENT THAT ARE IMPORTANT TO PROVINCIAL
GOVERNMENTS, SUCH AS CLEAN COAL TECHNOLOGY, CO2 CAPTURE
AND STORAGE, ETHANOL, AND EAST-WEST POWER TRANSMISSION
FACILITIES (THE LATTER IS ALREADY TOUTED AS A WAY TO
HELP THE PHASE-OUT OF COAL-FIRED POWER PLANTS). HOPED-
FOR REDUCTIONS ARE 55-85 MT ANNUALLY BY 2008-2012, WITH
CUMULATIVE FEDERAL FUNDING IN THE ORDER OF C$2-3
BILLION.


10. OTHER ELEMENTS WITH SMALLER EXPECTED REDUCTIONS (OR
NO ESTIMATES) INCLUDE GREENING GOVERNMENT OPERATIONS,
ENGAGING CITIZENS TO REDUCE INDIVIDUAL AND HOUSEHOLD
EMISSIONS, BETTER AGRICULTURE AND FORESTRY PRACTICES,
AND PARTNERING WITH CITIES TO BUILD URBAN TRANSIT
INFRASTRUCTURE.

REACTION NEGATIVE
--------------


11. THE GOC'S APPROACH TO CLIMATE CHANGE HAS BEEN UNDER
ATTACK FROM ALL PARTS OF THE POLITICAL SPECTRUM FOR
YEARS, MAINLY DUE TO THE LONG DELAY IN PRODUCING A
COMPREHENSIVE PLAN TO MEET THE KYOTO TARGET - WHICH HAS
SHORTENED THE TIME FRAME FOR ACTION, MAKING THE TARGET
HARDER TO ATTAIN, WHILE CREATING UNCERTAINTY FOR
INDUSTRY. THE GOC'S PROMISE THAT THE COST OF COMPLIANCE
FOR LARGE FINAL EMITTERS WOULD NOT EXCEED C$15 PER TONNE
WAS AN EARLY EFFORT TO ADDRESS THE UNCERTAINTY PROBLEM.



12. REACTION TO THE APRIL 13 STRATEGY ANNOUNCEMENT WAS
NEGATIVE ACROSS THE BOARD. INDUSTRY AND ENVIRONMENTAL
NGO EXPERTS, MANY OF WHOM HAVE WORKED WITH THE GOC ON
CLIMATE CHANGE POLICY FOR MORE THAN A DECADE, EXPRESSED
DISMAY AT THE ONGOING LACK OF DETAIL. THE CANADIAN
CHAMBER OF COMMERCE ISSUED A GENERAL CONDEMNATION OF THE
POLICY, CITING THE ESCALATING COST, POTENTIAL LACK OF
ACCOUNTABILITY, AND THE COMPETITIVE CHALLENGES IT WOULD
CREATE FOR CANADIAN BUSINESS VIS--VIS OTHER COUNTRIES.
THE CHAMBER URGED THE GOC NOT TO PURCHASE EMISSION
CREDITS FROM FOREIGN SOURCES. MEDIA REPORTS ZEROED IN
ON THE FOREIGN-CREDIT ISSUE AS WELL, DEMANDING ESTIMATES
AS TO WHAT PERCENTAGE OF CANADA'S REDUCTIONS MIGHT BE
OBTAINED BY "SPENDING TAXPAYER DOLLARS ON HOT AIR."
THE MEDIA ALSO CRITICIZED THE MODEST SHARE OF TOTAL
REDUCTIONS TO BE OBTAINED FROM LFE'S, IMPLYING THAT MOST
OF THE POLICY'S BURDEN WOULD FALL ON HOUSEHOLDS AND
CONSUMERS.


13. Opposition politicians - who are in a position to force

an election in coming weeks or months - echoed all these
criticisms. The leading opposition party, the Conservative
Party of Canada, had already objected in recent weeks to the
surprise addition of a Kyoto-related provision in this
year's budget legislation, and threatened to defeat it, thus
bringing down the Liberal minority government. The
Conservatives have weak credibility with voters on
environmental issues, however, and backed off. The
Conservatives will have to continue to be careful to avoid
overt displays of pro-industry, anti-environment sentiment,
so as to avoid giving the Liberals useful election campaign
ammunition against them.

IMPLICATIONS
--------------

14. THE CURRENT POLITICAL UNCERTAINTY SURROUNDING THE
GOC'S TENURE COMPLICATES ANY ASSESSMENT OF IMPLICATIONS
FOR U.S. INTERESTS. TO THE EXTENT THAT THE CLIMATE
CHANGE STRATEGY IS IMPLEMENTED, CANADIAN BUSINESS, AS
WELL AS MANY IN GOVERNMENT, CAN BE RELIED ON TO
VIGOROUSLY RESIST ITS APPLICATION IN WAYS WHICH INCREASE
THE COST OF DOING BUSINESS IN CANADA VIS--VIS THE
UNITED STATES. THE GOC HAS SET ASIDE BILLIONS IN
FUNDING FOR THE STRATEGY, WHICH COULD POTENTIALLY COVER
A WIDE RANGE OF INFRASTRUCTURE PROJECTS. SOME OF THESE
COULD BE OF BENEFIT TO U.S. INTERESTS, SUCH AS ELECTRIC
POWER GRID IMPROVEMENTS, BETTER TRANSPORTATION, AND
IMPROVED BORDER FACILITIES, NOT TO MENTION THE GENERAL
ENVIRONMENTAL BENEFITS TO NORTH AMERICANS OF CLEANER
PLANT AND VEHICLE EMISSIONS.


15. A FAVORED THEME FOR ENVIRONMENT MINISTER DION IS THE
STRATEGY'S POTENTIAL STIMULUS TO CANADA'S ENVIRONMENTAL
TECHNOLOGY INDUSTRY - NOT ONLY ITS DOMESTIC GROWTH BUT
ITS EXPORT OPPORTUNITIES (INCLUDING THOSE WHICH COULD
POTENTIALLY BE LINKED TO PURCHASES OF FOREIGN EMISSION
CREDITS). SINCE CANADIAN AND U.S. FIRMS ARE SO CLOSELY
INTEGRATED, TO THE EXTENT THAT THIS STIMULUS OCCURS,
U.S. TECHNOLOGIES AND COMMERCIAL INTERESTS ARE LIKELY TO
ENJOY SOME OF THE BENEFITS.

DICKSON