Ken Silverstein EnergyBiz Insider Editor-in-Chief

It's all to prepare for Canada's participation in the Kyoto Protocol, the pact to address global warming that goes into effect in 2008. Canada's prescription for meeting its obligations -- called the Climate Change Plan -- empowers the government to invest about $10 billion (Canadian) between now and 2012. The goal is to reduce its greenhouse gas emissions by 6 percent from the level at which the country was producing in 1990.

"With this measure, the Government of Canada is taking an important step to reduce greenhouse gas emissions in an effective way, including for the industries involved," says Environmental Minister Stéphane Dion. "There is overwhelming scientific evidence to conclude that climate change is the greatest ecological danger facing the planet."

Much of the reduction will come from Canada's 800-plus so-called large final emitters, which produce about half of Canada's greenhouse gases and companies that are concentrated in oil and gas, mining, manufacturing and thermal electricity sectors. Those companies will be required to reduce their overall emissions by as much as 12 percent using a variety of technologies and strategies.

But any company or any project may also purchase 'offset credits' equivalent to their required reductions, or contribute to what has been dubbed as the Greenhouse Gas Technology Investment Fund. That account will be used to develop and commercialize Canadian technologies designed to achieve emission reductions over the long term.

Altogether, it's been estimated that the Kyoto requirement in Canada has so far prompted a $3 billion market for new technologies there. Some of the technological developments include such things as retrofitting existing structures and building new ones with state-of-the-art components. It also means using biofuels instead of petroleum in fleets as well as developing renewable energy sources and sequestering carbon emissions by growing trees.

Those initiatives, which are assigned a value and given a credit by a Canadian agency, can then be sold to any entity on the open market and trading will occur through brokers and exchanges. The credits can also be sold to Canada's own Climate Fund and the government there will buy them. Today, there's an estimated $1 billion (Canadian) market for carbon emissions credits.

The concern, of course, is that those businesses -- the large final emitters -- most responsible for greenhouse gas emissions will find it cheaper to buy credits than to invest in new technologies. "It is expected that these industries will use the offset credits as a cheap way of complying," says Steven Young, president of greenhousegasmeasurement.com, in a column he authored.

The Risks

In Canada, industry would be compelled to cut its greenhouse gas emissions by 240 megatonnes -- a megatonne is about 1.1 million tons by U.S. metrics -- by 2012. A recent government study of the issue there says that industry is on its way to reducing greenhouse gases by 80 megatonnes through a variety of means that include "carbon sinks" where forest and farmlands sequester gases.

The study predicts a reduction of 100 megatonnes by getting consumers to conserve and use energy more wisely, as well as through the use of trading credits and newer technologies. The 60 megatonnes balance could be wiped out through the use of credits given for exporting clean energies, such as natural gas that goes to the United States.

Previous estimates say that enforcement of Kyoto's standards will have a nominal effect on Canada's economy. Growth is expected to occur but at 0.4 percent less than otherwise. Along those lines, between 60,000 and 240,000 fewer jobs will be created during the first phase of the Kyoto agreement, which goes until 2012. Meantime, however, new jobs tied to innovative industries will expand. Given the potential health and environmental benefits, the government concludes, the risk is worth it.

To be sure, critics of Canada's plan to cut greenhouse gas emissions charge the effort will result in a huge morass that will not have effective means for keeping track of reductions. Meantime, the overall measure will have harmful ramifications in terms of jobs and real wages. Some manufacturing groups say that about 450,000 potential jobs will never be realized while a Canadian taxpayer group says that incomes after inflation will drop by 5.5 percent there. That's because prices will have to rise and wages will have to be slashed to pay for the cost of implementing Kyoto.

Detractors also say that not enough is known about climate science to conclude that Kyoto would serve a useful purpose, with some saying that the environmental effects of fossil fuels are much less profound than certain interest groups charge. The science, some experts say, doesn't support the ratification of Kyoto -- a point disputed by the majority of the scientists who study this issue.

The Kyoto agreement "will have a negative impact on the economy," says John Williamson, federal director for the Canadian Taxpayers Federation. "Ottawa will spend billions of dollars, increase the cost to businesses and slow the economy, which will mean lower wages and reduced family incomes. And despite the high cost, Canada will still not meet its targets to reduce greenhouse gas emissions."

Proponents of Kyoto, conversely, say that it is good for both the environment and business. Newer and cleaner technologies will emerge because of it. And, exchanges are now cropping up to support its aims by trading carbon dioxide emission credits. Emissions trading are likely to materialize as the leading force behind the reduction of carbon dioxide and other greenhouse gases.

Despite the divisions and the perceived shortcomings in the methods by which Canada will cut its greenhouse gas emissions, the country is on route to complying with the Kyoto Protocol. Its involvement has been more than a national pursuit; it's been a leading catalyst to get other nations and other global industries to take decisive steps to reduce their emissions that contribute to global warming. It's about linking economic growth and environmental awareness -- something in which the Canadian government is now vested.

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