RE-WRITTEN CLEAN AIR ACT WOULD CAP GHG EMISSIONS

UNCLAS SECTION 01 OF 02 OTTAWA 000627

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DEPARTMENT FOR EB, OES AND WHA
WHITE HOUSE FOR CEQ
EPA FOR OFFICE OF THE ADMINISTRATOR AND INTERNATIONAL
AFFAIRS
DOE FOR POLICY AND INTERNATIONAL

E.O. 12958: N/A
TAGS: SENV ENRG PGOV CA
SUBJECT: RE-WRITTEN CLEAN AIR ACT WOULD CAP GHG EMISSIONS
-- IF ENACTED

REF: 06 OTTAWA 3423

This message is sensitive but unclassified. Please protect
accordingly.


1. (SBU) Summary: The Conservative's "Clean Air Act" emerged
March 30 from its legislative committee re-draft a very
different document from the draft bill that went to the
committee in December 2006. The new bill C-30 emphasizes
hard targets for reducing greenhouse gas emissions and
penalties for non-compliance. Yet it is far from certain the
bill will be adopted in this form. The government has
several options and controls next steps. It can submit the
revised bill to the House of Commons for a vote, or it can
resubmit the original bill, or its own revision. Or it can
choose not to return the bill to the House at all and proceed
with its regulatory approach under existing statute. Each
choice holds some risk, and whether the government would use
the bill to trigger an election remains a matter of much
speculation. The government is not tipping its hand. End
summary.

New Draft Sets Hard Targets for GHG Emissions...
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2. (U) The revised bill C-30 differs from the original Tory
bill (the "Clean Air Act," tabled in the House of Commons on
October 19, 2006) in several important aspects and not
surprisingly, given opposition parties' majority on the
legislative committee, bears a strong resemblance to the
Kyoto bill, C-288, the House passed on February 14, 2007.
For one, it mandates hard GHG emissions targets beginning in

2008. The Act prescribes a "national carbon budget," to be
determined by the Minister of the Environment, which for each
year from 2008 to 2012, corresponds to a 6 percent reduction
in Canada's domestic greenhouse gas emissions from their 1990
level (i.e., Canada's Kyoto Protocol target). Carbon budgets
in out years would require a 20 percent cut from 1990 levels
in 2020; a 35 percent cut by 2035, and a 60-80 percent cut by

2050. The original Clean Air Act called for initial
intensity-based targets for GHG emissions before switching to
hard targets in the 2020 to 2025 time frame.


3. (U) Under the re-drafted legislation the Minister would
also determine sectoral and individual carbon budgets for
sectors and individual emitters deemed significant by the
Minister. Individual budgets would take into account: early
action to reduce emissions; the range of abatement
opportunities available to the emitter, and "fair treatment"
of the emitter with respect to its prospects for economic
growth in comparison to the average for the sector.

... and Financial Penalties for Emitters
--------------

4. (U) Under the proposed legislation, once the carbon
budgets are determined, the Minister shall issue permits to
the emitter for a set amount of GHG emissions equal to that
entity's individual carbon budget. If emissions exceed the
permitted amount, the emitter will be liable for a financial
penalty per ton of carbon dioxide equivalent of C$20 in 2008,
C$25 in 2009 and 2010, C$30 for 2011 and 2012, and for 2013
and after C$30 or more, as prescribed by the Minister.


5. (U) To manage the financial accounting the re-drafted
legislation calls for the creation of an independent agency
to be known as the Green Investment Bank of Canada, which
would be responsible for monitoring and regulating the GHG
Qwould be responsible for monitoring and regulating the GHG
emissions of large industrial emitters. Emitters would make
annual deposits to their "green investment account" based on
their emissions level and the cost of carbon credits. The
emitter could withdraw funds from its account to retrofit
facilities to reduce GHG emissions, but funds that remain in
a green investment account for two years without being
allocated to an approved project will be transferred into a
"Green Investment Fund" and lost to the individual emitter.
The Green Investment Bank would invest those funds to further
reduce greenhouse gas emissions in Canada, targeting half for
a revolving building retrofit fund program, and half for
investment in greenhouse gas reduction projects with a
minimum of 80 percent of the funds to be spent on projects in
the province or territory where emitter is principally
situated.


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Next Steps
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6. (SBU) There has been significant speculation that the
revised Clean Air Act will be the trigger for an election,
because either opposition parties would like to goad the
government into fighting an election on climate change or
because the government would deem it a "confidence measure"
which would lead to an election if the opposition passes the
bill over the government's opposition. But in fact, the
government has several options, and it controls next steps
with the bill. As far back as November 2006, Rob Taylor,
then the Director of Parliamentary Affairs for the
Conservative House Leader, told Embassy the Conservatives
still hold some cards: if the legislation that comes back
from committee is unacceptable, the government can choose not
to submit it for third reading and consequently kill it
(reftel). Indeed, we have reconfirmed with House procedural
experts that there are additional options available to the
government. The government can submit the revised bill to
the House for a vote, it can re-submit the original bill, or
it can offer its own re-written version (these two latter
options would require the government to submit the bills at
first reading stage). Or, as suggested by Taylor, it can
choose to not submit the bill back into the House of Commons
at all and proceed with its regulatory approach under
existing statute (as government officials have assured us
they can and are prepared to do). The final possibility, of
course, is that an election is called before the bill, in
whatever form, completes all legislative stages, in which
case it would "die" on the order paper, and a new parliament
would have to initiate the legislative process from the
beginning.


7. (SBU) Each choice holds some risks for the government, and
the government's political calculus certainly involves many
variables. In sum, it is far from certain that the revised
C-30 will either be used to precipitate an election or that
its provisions for regulating greenhouse gas emissions will
be enacted. The government is as yet holding its cards
closely on how it intends to proceed with C-30, and with the
House still on recess until April 16, there is no compelling
reason to rush an announcement. We suspect the government,s
decision on how to push forward its climate change strategy
rests as much with its domestic political calculations as it
does with its environmental platform.

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WILKINS