Canada May Exit Global Climate Change Agreement Under the Kyoto Protocol

Canada May Miss $6.7 Billion Carbon Offset Bill by Exiting Kyoto Protocol

December 2, 2011

Bloomberg - Canada, the country furthest from meeting its commitment to cut carbon emissions under the Kyoto Protocol, may save as much as $6.7 billion by exiting the global climate change agreement and not paying for offset credits.

The country’s greenhouse-gas emissions are almost a third higher than 1990 levels, and it has a 6 percent CO2 reduction target for the end of 2012. If it couldn’t meet its goal, Canada would have to buy carbon credits, under the rules of the legally binding treaty.

Canada, which has the world’s third-largest proven oil reserves, would be the first of 191 signatories to the Kyoto Protocol to annul its emission-reduction obligations. While Environment Minister Peter Kent declined to confirm Nov. 28 that Canada is preparing to pull out of Kyoto, which may ease the burden for oil-sands producers and coal-burning utilities, he said the government wouldn’t make further commitments to it.

“Canada is the only country in the world saying it won’t honor Kyoto,” said Keith Stewart, an energy and climate policy analyst for Greenpeace in Toronto.

Under a previous Liberal government, Canada was one of the first countries to sign Kyoto in 1998. The current Conservative government made a non-binding commitment at 2009 United Nations talks in Copenhagen to reduce emissions by 17 percent by 2020 from 2005 levels, in line with a pledge by the U.S., its biggest trading partner.

The biggest polluters in the nation of 34 million say they’ll cut emissions without a treaty.

“Kyoto no longer works,” said Rick George, chief executive officer of Suncor Energy Inc. (SU), Canada’s largest oil producer. “Whatever happens with Kyoto won’t change our direction” of reducing the environmental impact of oil production, he said.

Impact From Technology

For Suncor and Canadian Natural Resources Ltd., technology improvements will have a bigger impact on Canada’s greenhouse gas output than an international climate-change treaty, said Jack Mintz, director of the school of public policy at the University of Calgary.

“Technology is the only way we’re going to make significant progress,” Mintz said in an interview. “A lot of companies are already anticipating that the federal government will look at new regulations. Kyoto hasn’t been a strong treaty.”

Canada would likely avoid penalties if it exits the treaty before the end of the year, said Matt Horne, climate change policy director at the Pembina Institute, a Canadian think-tank focused on sustainable energy. Kyoto’s first commitment period from 2008 until 2012 requires reductions only from so-called Annex I countries, the world’s wealthiest and most developed. It doesn’t include developing nations including India and China, the world’s biggest CO2 emitter.

Reputation Tarnished

“Penalties apply in the second commitment period,” said Horne. “More importantly though, Canada’s international reputation will be tarnished.”

The $6.7 billion cost of complying with Kyoto compares with an estimated C$75.9 billion ($74.8 billion) in combined budget deficits projected through the fiscal year ending March 2015. By rejecting the accord, Prime Minister Stephen Harper is putting the country’s economy at risk, Elizabeth May, leader of Canada’s Green Party, said in an interview.

“We’re condemning ourselves to rising costs from extreme weather events as well as opportunity costs like the failure to have a renewable-energy industry,” she said. “The world would be grateful for Canada to be constructive instead of the government consistently repudiating Kyoto.”

Durban Talks

Canadian delegates, including Kent, are in Durban, South Africa for United Nations climate talks. Negotiators are struggling to agree to a successor to Kyoto, which expires at the end of 2012 and is also opposed by Japan and Russia.

Negotiators from host South Africa urged Canada on Dec. 1 to reconsider its position about not entering another commitment period, highlighting the risks to the developing world with rising temperatures and sea levels.

“Our government believes that the previous Liberal government signing on to Kyoto was one of the biggest blunders they made,” Kent said Nov. 28. “Kyoto is the past, Copenhagen and Cancun are the future,” he said, referring to the 2009 Copenhagen Accord.

Canada will have likely emitted about 890 million tons of CO2 above its Kyoto target by the end of the first commitment period next year, based on annual emissions data compiled by Bloomberg. Carbon Emission Reduction credits, or CER, cost 5.62 euros ($7.55) a ton on Nov. 30, according to Bloomberg data.

No Policy

Unlike countries such as Germany, Canada has implemented no policy to reach its targets and will find it difficult to reach even the Copenhagen Accord goals, said Greenpeace’s Stewart.

Already 60 percent of the country’s electricity is generated by hydroelectric power plants, which emit fewer gases than coal or natural gas, while the government’s plan to become an energy superpower by exporting crude oil from Alberta’s oil sands means the country faces “steep” increases in emissions in the coming years, Stewart said.

Emissions of carbon from oil sands production has risen to about 6.5 percent of Canada’s total from about 1 percent in 1990, according to the Pembina Institute. That figure will likely double by 2020 as companies such as Exxon Mobil Corp., Suncor and Royal Dutch Shell Plc expand operations to refine bitumen with annual investments of C$20 billion.