Manitoba Perspectives on Emissions Trading Bryan Gray Manitoba Energy Science and Technology March 14, 2003

EST Kyoto Seminar for Business - Mar 14, 2003 Outline Manitoba and Climate Change Trading: Requires a Buyer and Seller Why Trade Federal Proposal of Nov 21,2002 The Manitoba Context –Need clarity and communication from Ottawa –Seize Opportunities-contribute to Canada’s goal Next Steps

EST Kyoto Seminar for Business - Mar 14, 2003 Manitoba and Climate Change Premier Doer accepts Axworthy Task Force recommendations and releases Action Plan. The Plan states: –“climate change is a real and pressing problem for Manitoba…” –“strong support for ratification of Kyoto…” –“Kyoto reduction targets are only a modest beginning for what must be done…” –“It is our moral obligation to take all reasonable steps now to reduce emissions and begin adapting to climate change.” Strong advocate - smart Kyoto implementation

EST Kyoto Seminar for Business - Mar 14, 2003 Trading: Buyers and Sellers A relatively small number of Canadian ghg emitters will be required to account for their emissions and meet reduction targets by holding emission quota or permits or credits that match their emissions. Others that can produce emission reductions or sink enhancements can sell such reduction credits.

EST Kyoto Seminar for Business - Mar 14, 2003 Trading: Buyers and Sellers Will we have a liquid ghg market? –500 entities may need emissions credits 6 of these are in Manitoba –Quantum has moved from % to an upside of approximately % for some of the fastest growing major emitters. –Many major emitters still not willing to accept 55mt LFE target

EST Kyoto Seminar for Business - Mar 14, 2003 Trading: Buyers and Sellers Market uncertainty –Uncertainty of recognized offset sectors to generate credits for sale –Government role in subsidizing offsets –Stakeholders opposed to purchases of international credits (greened or otherwise) –Promise to cap price risk at max C$15 –Promise to cap quantity risk at -15% 2010 bau

EST Kyoto Seminar for Business - Mar 14, 2003 Trading: Buyers and Sellers Market uncertainty –Federal escape clause from LFE DET/covenant emission reduction requirements “The Government is prepared to discuss an approach whereby a pre-approved commitment of larger emissions reductions over the somewhat longer term could be accepted in lieu of reductions in the nearer term.” (p.32, Climate Change Plan for Canada, Nov. 21, 2002) –2nd budget period targets - restoration rate

EST Kyoto Seminar for Business - Mar 14, 2003 Why Trade Basic environmental economics suggest market forces = greatest efficiencies and allow market (not government) choices. Economic efficiency is not a determining factor in the November 2002 federal plan. –Home renovations are equally prominent as coal fired electric sector ghg reductions. –Contrary to AMG I / Markal cost curves

EST Kyoto Seminar for Business - Mar 14, 2003 Why Trade Some suggest international projects are available in unlimited quantity to produce credits under C$5. Canadian stakeholders have said keep our capital in Canada. Multiple public policy objectives in seeking ghg reductions.

EST Kyoto Seminar for Business - Mar 14, 2003 Federal Proposal (Nov/02) Far short of the approximate 240Mt required for Kyoto first budget period. Largest industrial emitters allowed to continue to increase ghg emissions. Coal power will continue to have a significant market price advantage over clean-renewable alternatives. No change in bau growth of coal power

EST Kyoto Seminar for Business - Mar 14, 2003 Federal Proposal (Nov/02) Massive public investment required. No progress to date in defining where investments will be made in programs. Investment continues to be deterred by uncertainty is coming.

EST Kyoto Seminar for Business - Mar 14, 2003 Manitoba Context Manitoba’s rate of increase in emissions is far below the national rate – only 1 Mt since 1990 Canada’s rose by 120 Mt (nearly two thirds of this in Alberta) Manitoba’s emissions are 1/3 of Saskatchewan’s Large ghg emitting firms who may be subjected to federal kyoto regulations make up less than 4% of Manitoba economy 97% of Manitoba hydro power is CO2 free Our economy is well-positioned to handle Kyoto

EST Kyoto Seminar for Business - Mar 14, 2003

Manitoba Context Need Clarity and Communication –Federal statements suggest 6 Manitoba firms may be subject to federal ghg reduction requirements. –Manitoba companies need clear statement of intention from Ottawa as to how they will be regulated by federal Kyoto implementation. –Sectors outside the “covered sector” need to know how they might play a role in creating offset reductions. –Clean-renewable electricity must play a greater role.

EST Kyoto Seminar for Business - Mar 14, 2003 Manitoba Context Seize Opportunities –Manitoba Action Plan - Kyoto and Beyond proposes a series of actions that could provide between 20 and 25 Mt of ghg reductions here and elsewhere in Canada for the first and second budget period of Kyoto. –Low-impact hydro power developed in partnership with interest First Nations.

EST Kyoto Seminar for Business - Mar 14, 2003 Manitoba Context Seize Opportunities –Ethanol and bio-diesel –Hydrogen –Wind and geothermal and methane power –Carbon storage and sequestration research –Manufacturing –Energy efficiency

EST Kyoto Seminar for Business - Mar 14, 2003 Next Steps Industry has to know if they are “in” “Entity” role in trading must be defined “Uncovered” sectors must assess opportunities. –Who is the buyer? –Subsidy price level and mechanism? –Verification and admin costs? –“bau” must be resolved Federal-provincial programs and funding must be agreed to.

EST Kyoto Seminar for Business - Mar 14, 2003 Next Steps Must have engagement of industry and stakeholders in substantive discussions for them to gain detailed understanding of program and have opportunity for meaningful input into policy and regulation drafting.