This joint submission, prepared at the request of the boards of directors of the Canadian Global Change Program and the Canadian Climate Program, represents the independent views of a broad cross section of Canada's researchers, academics, and federal and provincial scientists. Two drafts were circulated for comment to the more than 50 members. In some cases, members also circulated the draft for comment within their organisations.

The submission reflects the majority of comments received from individual members and as such does not necessarily reflect the official position of the organisations they represent. It draws on the latest information publicly available from the Framework Convention on Climate Change and the Intergovernmental Panel on Climate Change (IPCC) Second Assessment Report. The submission is based on the premise that Canada and other countries must reduce total greenhouse gas emissions. It views this as an opportunity rather than a burden. After describing the scientific basis for the Challenge to our existing development paths, the submission outlines the International Policy Dimensions, the place of Canada in that international framework, economic and social Rationales for Action to gradually change course, the use of Market Instruments, enhancement of Competitiveness, and a set of Recommendations.

In the past year, the IPCC released its 2000 page, three volume assessment of the science of climate change, the scientific-technical impacts, adaptations and mitigation of climate change, and the economic and social dimensions of climate change. The report, which was three years in the making and involved peer review by more than 2000 scientists world-wide, has been described as "the most comprehensive and authoritative assessment of the science of climate change, its impacts, and response options now available"1.

At a time when Canada, like many other countries, is considering its options for meeting its commitments concerning climate change, this submission seeks to put in context the voluminous material on climate change, and to contribute to the debate that is necessary for the development of sound Canadian policies with respect to climate change. It is intended to inform and provoke discussion among the federal and provincial energy and environment Ministers as they take stock of the progress made to date in dealing with climate change. The submission briefly updates the state of science on climate change, highlights key elements of the international scene, and discusses some of the strategic options that Ministers may wish to consider as they review climate change policy in Canada 2.

The Challenge

With the release of the IPCC Second Assessment Report, climate change can no longer be dismissed on the basis of scientific uncertainty. The climate trends we are seeing today are consistent with the projections from models of radiative forcing due to greenhouse gases and aerosols. The IPCC points out, however, that uncertainties remain about future rates of changes, especially at a regional level. Because of the wide range of possible future emissions and remaining uncertainties as to how the climate system will respond to increasing changes in radiative forcing, the IPCC has chosen to provide a range of likely outcomes. Nevertheless, with global emissions expected to continue rising, some degree of climate change is inevitable. The challenge is to slow the rate of change to fall within the limits to which ecosystems and economies can adjust. A combination of actions designed to limit emissions and to adapt to inevitable changes is needed. Emissions limitation must be a global effort in which Canada should continue to play an active role.

Canada will not escape unaffected by the impacts of a changing climate. While there could be some positive effects, many of the trends, if they continue as predicted, would be disruptive not only to our environment, our economy, our communities and our quality of life, but also to those of future generations.

We need not accept the projected rates of change as inevitable, however. Canada and other countries have begun to act and there are further policy measures available to reduce emissions of greenhouse gases, while leading to net benefits to society as a whole. The IPCC has noted that "a prudent way to deal with climate change is through a portfolio of actions aimed at mitigation, adaptation and improvement of knowledge. The appropriate portfolio will differ for each country. The challenge is not to find the best policy today for the next 100 years, but to select a prudent strategy and to adjust it over time in light of new information".3

Canada is following this approach. It adopted a National Action Program on Climate Change in February 1995, and the environment and energy ministers will be reviewing progress in December 1996. The review will provide the opportunity for Canada to build on the experience of the last few years, both at home and in other developed countries, and adopt measures which will position it to take advantage of opportunities presented by climate change while at the same time meeting our commitments. Revisions to the National Action Program should send a signal that Canada is prepared to work towards meeting clear targets and timetables. A revised strategy should be consistent with Canada's vision for sustainable development, in which social, environmental and economic concerns are fully integrated into practices and policies4. In addition to continuing to adhere to the principles outlined in the National Action Program, any revisions must:

• achieve emissions reductions at least possible cost;

• provide for government action to realise the full potential of measures that are economically efficient for society as a whole;

• achieve an appropriate balance between mitigation and adaptation responses;

• engage the marketplace in finding innovative solutions; and,

• anticipate alternative development paths and ensure that the energy system is geared to Canada's potential competitive niches in the future.

The State of Climate Change Science

Science continues to support action

A large majority of the world's leading climate scientists now agree that "the balance of evidence, from changes in global mean air surface temperature and from changes in geographical, seasonal and vertical patterns of atmospheric temperature, suggests a discernible human influence on global climate."5 This conclusion is based on comparisons of observed climate trends with estimates from climate models of what should have happened with anthropogenic emissions to date. Among observed trends, as noted by the IPCC (or others as footnoted):

• shrinking glaciers around the world and melting permafrost in some areas of Canada and Russia;

• an increase in global mean temperature of 0.3 to 0.6 degrees C since the late 19th Century accompanied by a 10 to 25 cm rise in sea level;

• statistically significant warming in central and north western Canada, together with cooling in coastal areas of Labrador;

• large increases world wide in climate related economic losses from natural disasters far greater than expected from increased exposure of populations and infrastructure to the risks6;

• an increase in the number of heavy rain days (>50 cm/day) over continental U.S.A., an observation that scientists claim to have only a 1 in a 1,000 chance of being attributable to variations in an unchanging climate.7

Scientists now project that without policy intervention, average warming over the globe will continue at a mid-range rate of 0.2oC per decade. This rate is faster than any experienced in the past 10,000 years.

Canadian impacts from a changing climate, as inferred from the IPCC results, are likely to include increased incidence of forest fires8 and insect infestation, increased heat and smog related health problems in southern Canada, melting of permafrost, and probably increased frequency and severity of extreme weather events.9

The International Policy Dimensions

The international policy community is currently coming to grips with what the next steps may be under the UN Framework Convention on Climate Change. Against that backdrop, there are three factors worth highlighting.

Climate change threatens those who are least advantaged

On a global basis, the IPCC notes that available estimates of annual net damages and adaptation costs for doubled CO2 climate scenarios are about 1-2% of gross domestic product (GDP) for developed countries and 2-9% of GDP for developing countries. Developing countries, particularly small island states, are far more vulnerable to climate change impacts in terms of their export dependence, insularity and remoteness, and in terms of natural disasters.

In Canada, the results of the Mackenzie Basin Impact Study indicate that northern indigenous peoples, already one of the more vulnerable segments of Canadian society, would be affected by ecosystem shifts that may be outside the limits of historical experience. If these shifts occur at a rapid pace, there may be difficulties in adapting.10

The developed world is showing leadership on climate change action

The developed world is largely responsible for the historical build-up of CO2 and other greenhouse gases in the atmosphere11. In 1995, industrialised countries contributed about two thirds of total global greenhouse gas emissions. Canada's contributions to the total are among the highest per capita of any nation with only 0.5% of the world's population, Canada contributes four times that share, or 2%, of global emissions. But the largest growth in emissions is now coming from the developing world, and by sometime in the third decade of the next century, developing countries may account for more than 50% of total annual emissions.

While in the longer term a global response is essential, developing countries have repeatedly stated that they will consider acting in their turn only after the relevant commitments in the UN Framework Convention on Climate Change are met by the developed world. Leadership on climate change action must come from developed countries such as Canada partly because of their historical and current responsibilities for greenhouse gas emissions, and partly because they have the scientific, technological and economic capacity to act.

Moreover, actions that Canada may take to limit its emissions at home and to help developing countries may generate significant economic side benefits. The IPCC concludes that "there may be significant low-cost fossil fuel CO2 reduction opportunities for developing countries and that developmental pathways that increase energy efficiency, promote alternative energy technologies, reduce deforestation and enhance agricultural productivity, can be economically beneficial."12 These are areas in which some Canadian technologies have a world wide reputation. With rapidly increasing international competition in energy efficiency and renewable energy technologies, an assertive global response to climate change could contribute to opening doors to further export markets for Canadian companies abroad.

Agreement is needed on the most equitable way to differentiate between nations' responsibilities under the Framework Convention

The Framework Convention on Climate Change allows countries to document individual national circumstances that may affect their response to climate change.13 As negotiations proceed on the next steps for Annex I Parties14, and with the possibility that those next steps may entail legally binding emission targets, the debate about how to deal with individual national circumstances takes on additional significance. Canada has stated that it is "an energy intensive country because of unique characteristics such as low population density, large distances between urban centres, cold climate, relatively affluent lifestyles, and a reliance on energy-intensive economic activities."15 Some studies have in the past examined these factors and confirm that even when these special national circumstances are taken into account, Canada has a relatively high energy intensity and is less energy efficient than other industrialised nations, particularly Japan and Europe16. A few countries have adjusted their 1990 emissions baselines to factor in temperature anomalies and trade in energy services, the latter being an important issue for Canada. To support a credible negotiating position, a thorough, quantified determination must be made of these circumstances and their real impacts on greenhouse gas emissions in relation to other countries, and in relation to the next steps under the Convention17. Such a comparison will have to take into account changes in population in the 90's as well as changes in energy efficiency in many industrial sectors.

Where Canada Stands

Two points are important in considering where Canada stands on climate change: the projection that we will not reach the target of stabilising emissions; and the basis for that projection.

Canada is currently projected to not reach the "stabilisation by 2000" target

From 1990 to 1994, Canadian emissions of CO2 rose by 5%. Emissions of all greenhouse gases rose by 6%18 double the global rate. Projections suggest that without further action, Canada's total greenhouse gas emissions may be 8 to 13% higher in the year 2000 than in 199019.

Under the Framework Convention on Climate Change, Annex I Parties to the Convention are required to provide projections of their greenhouse gas emissions for the year 2000. A summary of these official projections were presented at the second Conference of the Parties (COP2) in July 199620. The projections for emissions of all greenhouse gases21 (not just CO2) show that of the 30 countries that reported as of July 1996, Canada is one of only seven nations estimating that they will not come within 5% of reaching the stabilisation target (the others are Australia, Finland, Greece, Ireland, Portugal and Spain). The other 23 reporting countries were publicly projecting to be either near or below stabilisation by 2000, either as a result of specific policy actions or because of economic circumstances not related to climate change22. Up to now a strong focus has been placed on the emissions stabilisation target. This short term goal should not, however, obscure IPCC conclusions that to stabilise global concentrations of CO2 at less than twice the pre-industrial levels will require that "future global annual average emissions cannot, during the next century, exceed the current global average and would have to be much lower before and beyond the end of the next century."23 All countries need to begin preparing to implement policies and measures that go beyond emissions stabilisation towards longer term emission reductions, an approach that is recognised implicitly in Canada's National Action Program on Climate Change24.

Canada has made progress but tends to discount past improvements

Canada's recent past demonstrates the value of sound public policy measures in support of energy efficiency, which, in turn, translates into reduced greenhouse gas emissions.

From 1973 to 1990, Canada's economy grew on average 3.3% annually. At the same time, CO2 emissions grew at only 1.0% (Figure 1). The overall small growth of emissions during these decades of economic growth is linked to the fact that Canada capitalised on more energy efficient ways of producing goods, benefited from switches to renewable energy sources and natural gas within the energy production mix, introduced some nuclear generating capacity and saw improvements as a result of structural changes to the economy. Although some decline in emissions can be attributed to the economic recession of the early 1980s, much of the innovation related to energy efficiency has come as a result of economic decisions and energy efficiency policies and programs. The fuel shortages of the late 1970s and the associated rise in gasoline and oil prices created a demand for smaller cars, more efficient engines, and measures to save energy in our homes. Corporations responded with new, more energy efficient products; governments introduced incentives, energy efficiency regulations and information programs designed to reduce demand for energy; and, the public became aware of the finite limits of conventional global energy supplies.

Current Canadian projections of emissions may underestimate potential energy efficiency gains within the economy25. The underlying assumptions for energy demand, energy efficiency improvements and the rate of economic growth are key determining elements of Canada's projected gap with regard to the stabilisation commitment by 2000. Natural Resources Canada pointed out the sensitivity of these underlying assumptions in its 1994 Update to Canada's Energy Outlook to 2020. When it comes to making emissions projections for the future, Canada, unlike some other countries, portrays a scenario that shows what is likely to happen in the absence of new policies and measures. Such forecasts imply that policy makers may not choose to implement additional measures that could help Canada achieve the goal of emissions stabilisation and longer term reductions. As new measures are being considered or adopted, alternative scenarios should be developed to project their impacts and help inform the public debate.

Until Canadian decision makers have a clear fix, for example, on what the Voluntary Challenge and Registry (VCR) will deliver, it will be difficult to determine the full extent of adjustments that may need to be made to the program and what further measures will be required. Studies that have examined the experiences of other countries with voluntary programs26 have found that the two key characteristics of successful programs are the need to specify clear targets and to establish effective monitoring programs to follow up on companies' performances27. Once the initial results of Canada's voluntary efforts are known, Ministers may want to consider how to strengthen Canada's program within the wide spectrum of voluntary approaches that are possible, ranging from the quasi-legal and highly structured Dutch system of covenants with industry to the approaches currently favoured by the U.S.A.

Rationale for Action

The main reason for reducing greenhouse gas emissions is to avoid the potential damages associated with climate change. However, in assessing the costs of emission reduction, it is important to look at the net costs, that is, the gross costs of emission reduction strategies minus the value of positive side effects of those reduction strategies28. There are three possible types of positive side-effects:

1. Measures that cost less to implement than the economic savings they cause (e.g. energy efficiency measures which save more money than they cost).

2. An economic double dividend resulting from, for example, reinvestment of revenues received from a particular measure to reduce taxes that are a burden on economic activity  typically taxes on employment and investment or as another example, from spin-off sales of technologies needed to meet emission reduction measures.

3. An environmental double dividend caused by the positive effect of greenhouse gas emission reduction on other environmental problems (e.g. urban smog and ground level ozone, toxic contaminants, etc.).

All of these positive side-effects can reduce, or offset, the gross costs of emission reduction measures. To the extent that measures exist for which the side-effects are greater than the gross costs, then there exists what has been called a "no regrets"29 or "worth doing anyway" potential for greenhouse gas emissions reduction. Achieving such a potential should be a primary initial goal of climate change policy.

The term "no regrets" does not imply that there are no negative impacts of such measures, just that the overall social benefits of such measures outweigh the costs. Two points are important here. First, for any given "no regrets" measure, some groups, industries or regions may bear more costs than benefits, even though the overall balance is positive. This suggests a need to consider appropriate ways of distributing the net benefits of such measures from winners to losers. Second, "no regrets" strategies include both measures that can generate economic benefits for those undertaking the measures (the first category of positive side-effects listed above) and those that create benefits for society as a whole (the economic and environmental double dividends). Governments have a key role to play in achievement of these latter social benefits. It would not be reasonable to ask industries or individuals to incur costs on their own to create savings for society as a whole. As a result, government action is required to achieve the full savings associated with the "no regrets" potential.

After reviewing the literature on these positive side-effects, Working Group III of the IPCC concluded that:

"Despite significant differences in views [between "top-down", macro-economic modelers and engineering oriented "bottom-up" analysts], there is agreement that energy efficiency gains of perhaps 10% to 30% below baseline trends over the next two to three decades can be realized at negative to zero net cost. (Negative net cost means an economic benefit). With longer time horizons, which allow a more complete turnover of capital stocks, and which give R&D and market transformation policies a chance to impact multiple replacement cycles, this potential is much higher."30

Of course, this "worth doing anyway" potential is only part of the story. Having pursued any achievable no regrets potential, policy makers need to consider how much additional cost is worth incurring to avoid future climate change damage. In the words of IPCC Working Group III:

"The literature indicates that significant `no regrets' opportunities are available in most countries and that the risk of aggregate net damage due to climate change, consideration of risk aversion and the precautionary principle, provide rationales for action beyond no regrets."31

In Canada, there exists a significant "worth doing anyway" potential that has been documented in a number of studies32 and would save society money but will not happen in the absence of new policy. Furthermore, for economic and equity reasons, Canada, along with other countries, should go beyond that "worth doing anyway" potential to the extent that there are climate policy measures that would cost less than the costs associated with climate change damage. While such damages are likely to be higher in developing countries than in industrialized regions, Canada too would have reduced climate change damages from concerted international action.

Policy makers have an array of measures from which to choose to stimulate "no regrets" actions, a number of which are being implemented in various jurisdictions within Canada. Examples include:

• regulations to set energy efficiency standards;

• development of community-based building retrofit programs;

• financial incentives for implementation of energy efficient technologies;

• market-based measures (e.g. tradeable permit schemes, feebates, etc.);

• information programs to promote energy efficiency; and

• programs designed to encourage fuel switching to make more use of Canada's extensive reserves of natural gas as an important transition fuel towards more reliance on renewable energy.

Given the potential of "no regrets" actions to address climate change and engage the private sector, such measures must be a central part of the next steps in Canada's National Action Program.

Engaging the market place is key

The private sector has demonstrated its willingness to be a partner in Canada's action on climate change. Over 600 companies and organizations, representing over half of Canada's sources of greenhouse gas emissions, have registered in the Voluntary Challenge and Registry Program. Several major industry associations have active climate change initiatives for member companies.

Taking the next steps should involve using the power of the marketplace to send the appropriate price signals to decision makers in the private sector, encouraging actions that will not only reduce emissions of greenhouse gases but pay double dividends in the form of additional environmental and economic benefits.

Sending an appropriate price signal is crucial if Canada is to meet its short and long term emissions limitation goals. Our submission to Ministers of Energy and Environment last year urged that we pursue the most cost effective means to achieve future emission reduction goals. We pointed out the need to send the right signals as soon as possible to ensure that decisions being made today concerning capital stock turnover take into account the need to adopt energy efficient technologies. We noted that among new initiatives needed were well designed economic instruments such as emissions charges and tradeable permits. Now, the Second Assessment Report of the IPCC concludes that "flexible, cost effective policies relying on economic incentives and instruments, as well as coordinated instruments, can considerably reduce mitigation or adaptation costs, or increase the cost effectiveness of emissions reduction measures" and that "failure to adopt policies as early as possible to encourage replacement at the end of the economic life of a plant and equipment imposes an economic cost to society"33 .

Tradeable permit schemes represent one possible avenue to pursue. International business leaders are currently investigating the possibility of implementing such a system. Canada has the opportunity to play a leading role in the early application of this policy tool, keeping in mind the need to tackle the very difficult issue of initial allocation of permits.

A proactive climate change policy can enhance Canada's competitiveness

There are two main views of the future for Canada's economy. One involves continued reliance on our strong natural resource base and the other implies a shift towards more knowledge based industries. For the foreseeable future, there will continue to be a mixture of both in the economy. At the margins, in response to the increasing global integration of the world's economies, high wage, resource-based industrialized economies like Canada's are likely find advantages in moving towards a future based on higher information content goods and services. Such a shift is required if we are to be able to compete internationally. Industry Canada's Science and Technology for the New Century recognizes that "...the world's advanced economies are undergoing a fundamental transformation to knowledge-based industries. Canadians must respond with policies, programs, institutions and partnerships that will maximize our economic opportunities and sustain our social fabric."34

When considering next steps on climate change, Canada should focus on anticipating alternative development paths and meshing our climate change policies with the appropriate market niches of the future. This approach to trade and competitiveness is consistent with a proactive climate change policy based on the principles of sustainable development. Improving energy efficiency, increasing the share of renewables in the energy supply mix, and fuel switching to reduce greenhouse gas emissions all involve the kinds of technologies that are integral to the information economy. In general, these technologies require advanced design and management of energy demand and supply, and the use of sophisticated control systems. They tend to be relatively small scale and applied at the point of use, thus reducing infrastructure and distribution costs.

All of these characteristics have important implications for international trade. The developed economies, economies in transition (e.g. former Soviet Union) and the rapidly industrializing economies of the Far East are developing infrastructure and responding to the growth management and environmental concerns associated with rapid growth rates and population growth. They are looking for technologies that meet their needs in ways that do not exacerbate environmental and demographic pressures. This offers strategic trade opportunities to those countries who can develop, test, and market such technologies. To be credible internationally, however, use of such technologies needs to begin at home. Opportunities exist in areas such as small-scale distributed energy supply technologies, energy-efficient technologies that improve service while using less energy, transportation technologies, and growth management strategies that reduce the waste and air quality impacts of growing urban populations.

From this point of view, the move to more environmentally benign, energy efficient and information-intensive technologies implied in a strong greenhouse gas emission reduction strategy may also form a fundamental plank in Canadian competitiveness strategy for the global economy and job creation. Such a strategy offers a host of opportunities that Canada cannot afford to miss.

Recommendations

A proactive climate change policy will:

• allow Canada to meet its obligations under the Framework Convention;
• maintain Canada's reputation as a leader in responding to global environmental problems; and,
• help to position Canada in the vanguard of globally competitive economies for the 21st Century.

Selecting an effective long term strategy and adjusting it in the light of new scientific information should continue to be the underpinning of Canada's National Action Program on Climate Change.

In support of this strategy, the Canadian Global Change Program Board and the Canadian Climate Program Board jointly recommend that Ministers at this time either strengthen existing efforts or initiate new measures towards:

• achievement of the full potential societal benefits of "no regrets" measures. A portfolio of measures could include, among others:
  • expansion and strengthening of the voluntary program a) to sectors currently not fully engaged, b) through wider public distribution of commitments and actions under the Voluntary Challenge and Registry Program, and, c) to take into account positive features of other countries' voluntary programs that are applicable to Canada;
  • supporting local municipal initiatives, notably a) the efforts of those municipalities who are members of the 20% club and b) approaches to urban planning designed to reduce greenhouse gas emissions;
  • further reduction in the number of implicit and explicit policies that distort energy prices;
  • financial incentives to promote adoption of the most energy efficient technologies;
  • support for R&D and demonstration projects aimed at increasing the share of renewable energy in Canada's total energy supply mix;
  • support for R&D and demonstration projects on efficient energy use and production technologies and processes;
  • further regulations to set minimum efficiency standards for energy-using equipment and buildings;
  • working with auto makers and the U.S.A. to develop and ensure use of more energy efficient vehicles;
  • working with municipalities to encourage urban and suburban design that minimizes vehicle use;
  • encouraging expansion of innovative programs such as the Federal Buildings Initiative; and,
  • advertising and information programs to promote energy efficiency.
• supporting achievable international and domestic emission reduction targets for the post-2000 era;
• engaging stakeholders in a discussion on how to use the market place in innovative ways, including investigation of the applicability, advantages and disadvantages of tradeable permits systems both domestically and internationally;
• convene or support a workshop to explore export opportunities for energy efficiency, alternative energy, and other greenhouse gas emission limiting technologies;
• develop effective adaptation measures in key sectors such as agriculture, water resources and forestry, and identify how critical infrastructures such as port facilities or pipelines must be modified to accommodate such changes;
• initiate further studies of longer term policy measures that may be required to meet the more severe emission reduction targets that the IPCC has advised will be necessary in the future to meet the ultimate objective of the UN Framework Convention on Climate Change; and,
• support an active science program to answer outstanding questions related to the natural climate system, climate change impacts, and adaptation and mitigation options including integrated assessment modelling of climate change and the economy.

The Canadian Global Change Program and the Canadian Climate Program Board

The Canadian Global Change Program was founded in 1985 under the auspices of the Royal Society of Canada to bring together scientists and other specialists from many disciplines in the sciences and humanities to plan interdisciplinary research, assess the significance of this research in the policy context, and communicate the implications to its target audiences. The Canadian Global Change Program is characterised by its independent, non-governmental status, its combination of the natural and human dimensions of global change, its access to world-wide networks of collaborating organisations, its emphasis on global issues that have relevance to Canada, and its access to Canadian and international capability that can be brought to bear on these issues.

The Canadian Climate Program Board was established in 1979 to provide governments and individuals with the best possible advice on climate science and on the impact of climate on economic and social concerns, as well as its effects on natural ecosystems and resources. The Canadian Climate Program Board has set the following goals for the multi-partner program in Canada:

• to develop the ability to predict climate and climate change,
• to assess the impact of human activities on the climate of Canada,
• to assess the socio-economic impacts of probable climate futures,
• to improve applications of climate information to Canada's economy,
• to assist in maintaining appropriate liaison with the World Climate Program, and
• to assist in co-ordinating systematic measurements of the climate system.