QUEBEC GOVERNMENT STRATEGY PURSUES KYOTO TARGETS,

C O N F I D E N T I A L SECTION 01 OF 04 MONTREAL 000826 SIPDIS DEPT FOR OES SIPDIS E.O. 12958: DECL: 07/28/2016 TAGS: SENV ECON ENRG CA SUBJECT: QUEBEC GOVERNMENT STRATEGY PURSUES KYOTO TARGETS, GREEN VOTERS REF: A. A MONTREAL 0622 ¶B. B QUEBEC 0034 ¶C. C OTTAWA 1685 Classified By: Gary Sheaffer for reasons 1.4b, d ¶1. (C/NF) Summary. On June 15th, the Quebec Government released its Climate Change Strategy, including plans to improve public transportation systems, adopt California,s fuel-efficiency standards for vehicles and impose a carbon tax. This announcement follows some five months after Montreal hosted the COP-11 Climate Change conference, which saw then Prime Minister Paul Martin pledging Canadian fulfillment of its Kyoto targets. Quebec,s reliance on hydroelectricity gives the province the capacity to adopt measures which target carbon-based emissions without taking a major economic hit. These initiatives have been well-received by the Quebec public thus far and reflect an effort on the part of the Charest government to demonstrate its seriousness about an issue Quebeckers feel strongly about while distancing itself slightly from the Harper government's unpopular position on Kyoto. It remains to be seen how popular this Climate Change Strategy will remain if GHG emitting companies pass the costs of a hydrocarbon tax on to consumers in the form of higher prices. It is also unclear whether the Federal government will fork over the $328 million Quebec is counting on a part of the "Green fund" to finance its ambitious project. End summary. -------------- -------------- A good GHG performer, but with room for improvement -------------- -------------- ¶2. (SBU) Quebec has the lowest greenhouse gas (GHG) emissions per capita in Canada, primarily due to the province,s reliance on hydroelectricity. Quebec obtains 94% of its electric power from hydro, and electricity production in Quebec contributes only 1.7% of the province,s GHG emissions compared to 18.1% Canada-wide average. Between 1990 and 2003, Quebec,s manufacturing sector reduced its GHG emissions by 6.8% and its industrial process emissions by 15.1%. According to Quebec,s Climate Change Strategy, these reductions can be attributed to investments in the manufacturing sector in innovative technologies that increase energy efficiency. Nevertheless, overall GHG emissions in Quebec have increased by 6% between 2000 and 2003 (the most current statistics available). The Climate Change Strategy attributes these GHG emissions increases to the transportation and building sectors, and aims its climate change efforts towards these sectors, through actions such as placing speed limiters on heavy vehicles to keep them from exceeding 105 km/hr. -------------- -------------- Energy efficiency: Hydro, wind, and public transit -------------- -------------- ¶3. (SBU) In 2003, GHG emissions in Quebec reached 90.9 MT, up from 85.3 MT in 1990, of which 72.9% are emissions from hydrocarbons and coal (the burning of fossil fuels.) The strategy estimates that Quebec will be able to bring its emission below the 1990 level by 1.5 % (not reaching the 6% reduction specified within Canada,s Kyoto commitments.) The Quebec government notes that companies within countries like the US which have not committed themselves to "emissions reductions targets" have a competitive advantage over companies within countries like Canada that have ratified the Kyoto protocol. Yet, the Climate Change Strategy also states that in today,s climate of rising costs of fossil fuels, energy efficiency is "not only preferable, but also essential, if our companies and economy are to be competitive." ¶4. (C/NF) The Climate Change Strategy emphasizes that Quebec will continue to rely on and develop hydroelectric energy sources (drawing on the provincial government,s recently-released energy strategy). The Climate Change Strategy reaffirmed the Quebec government,s commitment to the development of wind power alongside hydropower, specifically to produce 4000 MW of wind-generated electricity. The report states that a combination of new hydroelectric developments, wind power, and energy efficiency can save the province a combined total of 10.9 MT of GHG emissions. A Hydro Quebec official privately noted in a recent meeting with EconMinCouns and EconOff that Quebeckers MONTREAL 00000826 002 OF 004 have unrealistic hopes about the contribution of wind power to Quebec's overall energy portfolio. (see ref A). The development of wind power nonetheless remains an important part of Hydro Quebec's strategy for the future. ¶5. (SBU) The Quebec government also promises to finance projects to increase energy efficiency, in a program designed for individuals, corporations, and small and medium-sized enterprises. The Quebec government states that it will bring its building construction standards (currently over 20 years old) up to new levels of energy efficiency. In its 2006-07 budget, the Quebec government laid out plans for investing C$ 1.5 billion in the public transportation sector and the creation of a program in which employers can deduct 100-200% of the cost of public transit passes provided to their employees. The program also includes a provision to refund provincial sales tax to those who purchase hybrid vehicles, additional registration charges for high-cylinder vehicles, and a series of vehicle inspection requirements designed to require road transporters to improve maintenance on their vehicles. -------------- Adopting stricter vehicle standards -------------- ¶6. (SBU) The Climate Change Strategy also plans to apply California,s standards for GHG emissions limitations to vehicles sold in Quebec. A representative from Paccar, the largest truck manufacturer in Quebec, told Econoff that the new, strict standards would not have any impact on its manufacturing procedures, since the company is already "ahead of the current legislation." It remains unclear how these new standards would impact the availability and price of vehicles in Quebec, since the cars purchased in Quebec are currently manufactured in either Ontario or the U.S. and not all manufactured cars currently meet California's strict standards. The Quebec Government also aims to make gas distributors include a minimum of 5% ethanol in their fuel sales by 2012 and to encourage the local production of ethanol from forest biomass. The Quebec Government also plans to discourage solo commuting by encouraging carpooling and car sharing, as well as constructing bike paths from residential areas to the downtown cores and industrial parks. -------------- Voluntary GHG reductions for industry -------------- ¶7. (SBU) The aluminum, pulp and paper, petroleum refining, metals, cement, and chemicals industries contribute the most GHG emissions in Quebec,s industrial sector. Although this sector has reduced its emissions from 1990 and 2003 by 6.8%, it is still responsible for 31% of the province,s GHG emissions. Quebec,s current Climate Change Strategy relies on voluntary actions by large companies and industrial associations to reduce GHG emissions according to their "financial capacity, available technology, and competitiveness on Canadian and international levels." The Quebec government states its intention to "adopt a regulation requiring major emitters to declare their GHG emissions and other contaminants." The provincial government,s Strategy also tackles the emission of methane (biogas) from landfills; methane is 21 times more powerful as a source of GHG than CO2. Larger landfills in Quebec already manage the biogas they generate according to legislation passed in 2005, but the Strategy will allow smaller landfills, not subject to the regulation, to install equipment capable of capturing biogas, at government expense. -------------- -------------- Funding the plan: Hydrocarbon royalties, and federal cash -------------- -------------- ¶8. (C/NF) The Quebec government's strategy would, in theory, be financed via a "Green Fund" comprised of "hydrocarbon royalties applied to GHG producing business in the energy sector" and managed by Quebec,s Ministry of Environment and Sustainable Development. Royalty levels, according to the report, would be set at levels determined by the Quebec Energy Board and will amount to roughly C$200 million/year over the next six years, based on a "polluter MONTREAL 00000826 003 OF 004 pays" principle. One representative from a large petroleum refining company with a significant share of the Quebec market told Econoff that he was "very surprised" at the final content of this financing measure. Noting that his company had been in consultations with employees at the Quebec Ministry of the Environment for more than two years on the issue of climate change, he stated that his company had been clear in its willingness to implement programs to change consumer habits with regard to gas consumption. He also stated that the Strategy does not clarify how the government will allocate what percentage of the Green Fun would be contributed by which company or energy-producing industry, and if it will apply to jet fuel as well as automobile fuel. ¶9. (C/NF) He maintained that although the action of individuals driving their cars releases the bulk of GHG emission in Quebec, petroleum refining itself does not contribute significantly to GHG emissions, and therefore the Quebec government's attempt to call its financing plan a "polluter pays" strategy was in fact a misnomer. The Quebec government has voiced its hope that energy-producing companies will simply absorb the costs of contributing the "Green Fund". "How can (the government) think we would swallow these costs?" the oil executive added, pointing out that the Climate Change Strategy would require an estimated $150 million annual contribution from the oil industry in Quebec, an amount roughly equal to his company's net annual profit. It is far more likely that companies required to contribute to the "Green Fund" will transfer the cost of their contribution to gas consumers, to the tune of 1 cent per liter. Quebec, while acknowledging the steps it will take to mitigate climate change, calls on the Federal Government to adopt GHG reducing actions, and provide $328 million towards Quebec,s Green fund. It also wants the Federal Government to acknowledge the contributions of GHG reductions by Quebec,s largest industrial GHG emitters as well as Quebec's reliance on hydroelectricity to Canada's overall GHG reduction efforts by taking such actions into account when designing any Climate Change Strategy at the Federal level. -------------- Comment -------------- ¶10. (C/NF) Quebec,s Ministry of Environment had previously expressed disappointment with the then Liberal Federal government,s Kyoto strategy that would not take into account Quebec,s voluntary GHG emissions reduction efforts (see reftel B). The climate change issue remains an extremely popular one in Quebec, whose citizens have been shown to be continually supportive of the Kyoto protocol, and where the Charest government earlier this year found itself being slammed for its decision to convert a portion of a provincial park, Mont Orford, into a real estate development. The Parti Quebecois, Quebec's separatist party, has been trying to use the issue of commitment to environmental protection, and specifically Kyoto targets, as one of the attractions of a sovereign Quebec. For the Charest government, announcing this comprehensive climate change strategy reflects an effort to bring the environmental issue into the Liberal agenda and win public support as Quebec approaches a potential provincial election as early as Fall 2006. It also offers Charest a painless way to highlight one issue where Quebec and the Harper government, who have been marching in lockstep on many fronts, have diverging views. ¶11. (C/NF) Initial public reaction to the strategy, according to a survey of editorials in Quebec periodicals and conversations with contacts, has been positive. But for the informed Quebec environmental policy watchers, this climate change strategy is a purely political maneuver, too late in the game. One of Quebec,s most prolific and respected francophone environmental journalists commented in confidence to Consulate officers: "The government doesn't do anything for three years except selling part of Mont Orford, and suddenly we have a strategy. It's a good one, but it's a bit late." The Climate Change Strategy itself offers an overview of lofty aspirations on the part of government, but it remains unclear how the implementation of the Strategy will play out on a practical level, and if consumers will remain as positive about it when it begins to hit them in the wallet. It also remains unclear exactly how the Green Fund will raise the necessary C $200 million annually, and whether the Conservative Federal government, which has shown itself to be far less Kyoto-enthused than the Martin administration, will be willing to contribute the C$328 million of federal MONTREAL 00000826 004 OF 004 funds which the Quebec government has factored into its "Green Fund" coffer. SHEAFFER