1. THE KYOTO PROTOCOL AND CANADA Gray E. Taylor gtaylor@dwpv.com 1 First Canadian Place, 44 th Floor Toronto, ON M5X 1B1 Ph: 416 863 5533 Fax: 416 863 0871 www.dwpv.com CBA National Environmental, Energy and Resources Law Section/Department of Justice Annual Meeting October 22, 2004 Ottawa Ontario

2. 2 FRAMEWORK CONVENTION ON CLIMATE CHANGE - 1992 FCCC resulted from : Scientific evidence UN initiative Experience from Vienna Convention on Protecting the Ozone Layer (1985) and the Montreal Protocol (1987 FCCC signed by 154 countries at Rio de Janiero Earth Summit in 1992 FCCC in force March, 1994 Ratified by all major countries including, US, Canada, EU, Japan, Russia, China and India Goals included return by 2000 to 1990 GHS emission levels for developed countries (including countries with “economies in transition”) )

3. 3 KEY PRINCIPLES OF FCCC Stabilization of GHG concentrations at non-dangerous levels Actions to be based on equity in accordance with common but differentiated responsibilities in accordance with respective capabilities Leadership by developed countries Consideration of developing countries to avoid disproportionate or abnormal burden or adverse effects of climate change Cost effective (but precautionary) policies and measures “Sustainable Development” goal No disguised trade restrictions

4. 4 KYOTO PROTOCOL objective at the first Conference of the Parties in 1995 (COP1) in Berlin was to move to numerical, binding protocol (“Berlin Mandate”) agreed December, 1997 but not in effect numerical limits (“caps”) on developed country GHG emissions for 2008-2012 (see Annex B attached) GHGs are CO 2, methane, nitrous oxide, hydrofluorocarbons (HFCs), perfluorocarbons (PFCs) and sulphur hexafluoride (SF 6 ) non-compliance “penalties” Kyoto Mechanisms

5. 5 CAPS ANNEX B Party Quantified Emission Limitation or Reduction Commitment (% of base year period) Australia 108Hungary * 94 Portugal 92 Austria 92Iceland 110 Romania * 92 Belgium 92Ireland 92 Russian Bulgaria * 92Italy 92 Federation * 100 Canada 94Japan 94 Slovakia * 92 Croatia * 95Latvia * 92 Slovenia * 92 Czech Republic * 92Liechtenstein 92 Spain 92 Denmark 92Lithuania * 92 Sweden 92 Estonia * 92Luxembourg 92 Switzerland 92 European Community 92Monaco 92 Ukraine * 100 Finland 92Netherlands 92 United Kingdom France 92New Zealand 100 92 Germany 92Norway 101United States 93 Greece 92Poland * 94 * Countries that are undergoing the process of transition to a market economy.

6. 6 KYOTO PROTOCOL – RATIFICATION To be effective, requires ratification by 55 developed countries with 55% of the 1990 CO 2 (not GHG) emission US is 36.1% of 1990 CO 2 emissions US not willing to ratify Australia is 2.1% unlikely to ratify Canada is 3.3% ratified (December, 2002) Currently 43.9% of 1990 CO 2 emissions have ratified Russia is 17.4% 43.9% +17.4% 61.3% > 55%

7. 7 KYOTO MECHANISMS 1) Emissions Trading* (*see next slide) Countries can sell unneeded AAUs Primarily “economies in transition” (Russia, Ukraine, Poland, etc. have “hot air”) Other countries may trade too Rely on other Kyoto Mechanisms Rely on buying later Rely on domestic reductions Reserve requirement

8. 8 Inter-Country Emissions Trading Emission Levels Before Emissions Trade Cancelled excess Cancelled over achievement Target Over achievement After Emissions Trade Excess Assume Country A’s cost to reduce excess is $100 Country B’s cost to overachieve by same amount is $60 Trade results in $40 savings which Country A and Country B can share

9. 9 KYOTO MECHANISMS 2) Joint Implementation (“JI”) projects in developed country parties that reduce GHG emissions generate Emission Reduction Units (“ERUs”) host country converts into AAU’s, CERs or RMUs) and assigns to another party or authorized participant*

10. 10 KYOTO MECHANISMS 3) Clean Development Mechanism (“CDM”) projects in developing countries that reduce GHG emissions against baseline “baseline” is “what would have happened without project” generates Certified Emission Reductions (“CERs”) that can be sold to developed country parties or authorized participants * sustainable development goals

11. 11 WHAT “KYOTO” MEANS Allocation to developed country parties of “permits” to emit GHGs First Commitment Period is 5 years (2008 – 2012) Kyoto Registry 5 x “cap” allocated in Assigned Amount Units (AAUs) Cap is Annex B % x 1990 GHG emissions Total GHG emissions in First Commitment Period cannot exceed AAU’s UNLESS country uses the Kyoto Mechanisms Total GHG emissions to be less in total than all AAUs + CERs + ERUs + RMUs

12. 12 KYOTO MECHANISMS Private entities can participate directly in Kyoto Mechanisms if authorized by a party Canada can authorize participation of Canadian subsidiaries of US companies entities from other countries Provinces and cities NGOs but Canada will be responsible for ensuring each such entity’s participation complies with Kyoto

13. 13 Canada’s Kyoto Challenge Kyoto Target 571 Mt 2010 Emissions 809 Mt 1990 Emissions 607 Mt BAU Gap 238 Mt or 30% Projection Mt CO2 equivalent Business as Usual (1999) 705 Mt Source: Canadian Climate Change Secretariat, January 2002

14. 14 CURRENT FEDERAL PLAN Total Need 240 million metric tonnes (Mt) of C0 2 equivalent reductions per year Sources 1)Previous Canadian government initiatives (50 Mt) and sinks (30 Mt)= total 80 Mt Both are suspect as to total 2)New Actiontotal 100 Mt Consumers20 Mt Domestic Emissions Trading System55 Mt (sectoral, large final emitters) Targeted measures Renewables11 Mt Fugitive emissions and SME initiatives5 Mt Agriculture, Forestry and Municipal20 Mt-28 Mt Government International Purchases of GHG Reduction Credits10 Mt 3)Remainder to be determined (or Clean Energy Exports?)60 Mt

15. 15 LARGE FINAL EMITTERS (LFEs) 55 Mt/yr of reductions required under Canadian Climate Change Plan Domestic Covenants Sectoral reductions of approximately 15% from recent intensity levels Sectors: thermal electricity, oil and gas, mining and manufacturing LFEs to be assisted by : Domestic emissions trading * (* see next slide) Access to offsets (agricultural, forestry and perhaps landfills and others) Access to international permits thus LFEs will purchase CERs and ERUs and perhaps AAUs

16. 16 Closed Market Inter-Company Emissions Trading Emission Levels Before Emissions Trade Cancelled excess Cancelled over achievement After Emissions Trade Assume Company A’s cost to reduce excess is $100 Company B’s cost to overachieve by same amount is $60 Trade results in $40 savings which Company A and Company B can share Target Excess Over achievement

17. 17 Open Market Emissions Trading (i.e. “Offsets” Used) Emission Levels Before Emissions Trade Reduction No Longer Available Target After Emissions Trade Cancelled excess Excess Assume Company A’s cost to reduce excess is $100 Company B’s cost to overachieve by same amount is $60 Trade results in $40 savings which Company A and Company B can share Reduction Baseline

18. 18 CANADA’S INTERNATIONAL PURCHASING OF KYOTO CREDITS $15 million investment in Prototype Carbon Fund and more millions into the Biocarbon Fund and Community Development Carbon Fund Climate Change Plan Consider purchase of a minimum of 10 Mt/yr of “international permits” with priority to permits from CDM/JI projects Collaborate with Canadian companies by “pooling” private sector and government expertise and purchasing power AAU purchases by Canada (not private sector) to be “greened”

19. 19 NATIONAL UNITY  Will Alberta or other Provinces challenge constitutionality of Kyoto?

20. Gray E. Taylor gtaylor@dwpv.com 1 First Canadian Place, 44 th Floor Toronto, ON M5X 1B1 Ph: 416 863 5533 Fax: 416 863 0871 www.dwpv.com