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In accordance with paragraph 5 (1) (c), the text and the table below set out Canada’s actual emissions for 2008 and 2009 as reported in the latest National Inventory Report, along with the projected greenhouse gas (GHG) emission levels for 2010 to 2012 and how these levels compare with Canada’s obligations under Article 3, paragraph 1, of the Kyoto Protocol. In addition to the expected reductions from federal GHG mitigation measures and policies, provincial plans and actions are expected to contribute to lowering Canada’s emission levels over the 2008 to 2012 time period. The projected emission levels will ultimately be verified by the National Inventory Reports, with the Report covering 2008 actual emissions (the first year of the Kyoto Protocol period) submitted on April 15, 2010, and the final report on emissions within Kyoto Protocol period (i.e. covering 2012) due on April 15, 2014. The degree to which Canada has met its emission reduction obligations under the Kyoto Protocol will be assessed after its final report has been filed in 2014.
Canada’s allowable emissions under the Kyoto Protocol for the period 2008 to 2012 are 2,792 Mt.
The Government of Canada uses Environment Canada’s integrated Energy, Emissions, and Economy Model for Canada (E3MC) to estimate the reduction for the overall integrated package of measures. The modelled runs incorporated the individual initiatives and aggregated the results to estimate Canada’s net emission reductions from a continuing trends baseline to report the remaining emission levels for 2010-2012. The use of the model responds to the National Round Table on the Environment and the Economy’s (NRTEE) suggested methodological improvement for an “integrative accounting of the emission reduction estimates”.
There are a number of key determinants that influence energy supply and demand, and emissions. These determinants include: the pace of economic growth, population and household formation, energy prices (e.g., world oil price and price of refined petroleum products, regional natural gas prices, and electricity prices), technological change, policy decisions, and consumer response to policy price and government actions. Varying any one of these assumptions could have a material impact on the energy and emissions outlook.
Taking all these drivers into consideration could result in the development of some 27 alternative baselines:
As a basis for assessing the additional reductions required to achieve the GHG emission reduction targets implied by the Kyoto Protocol Implementation Act, nine alternative baselines of projected emissions excluding government measures were constructed. Given a projection period of 2010 to 2012 and that preliminary economic growth rates for 2010 are in the public domain, it was decided to use only one set of economic growth rates – those reported in Budget 2011 – and sensitivity analysis was performed around the following energy price and program effectiveness scenarios:
The most likely scenario as well as the overall high and overall low scenarios are presented in this Plan.
The projected emissions growth is highly dependent on forecasting assumptions, such as the pace of economic growth and world oil prices. The short-term economic outlook underlying the emissions reference case is grounded in the GDP growth forecast contained in Budget 2011.19 The Department of Finance regularly surveys private sector economic forecasters on their views on the outlook for the Canadian economy. The economic forecasts reported in this budget, and that form the basis of the Department’s fiscal forecasts, are based on a survey conducted in early March 2011 and include the views of 15 private sector economic forecasters.
As illustrated in the table below, the near-term economic projection based on a survey of similar private sector economic forecasters has varied. While the average real GDP growth for the 2010 to 2012 period is similar, there is significant variation in the year-to-year rate of growth. This affects the emissions estimates presented here.
| 2010 | 2011 | 2012 | Average 2010-2012 |
|
|---|---|---|---|---|
| 2010 KPIA Plan (Budget 2010) | 2.6 | 3.2 | 3.0 | 2.6 |
| 2011 KPIA Plan (Budget 2011) | 3.1 | 2.9 | 2.8 | 2.6 |
Under the reference case, the economy is projected to grow at 2.6% per year over the 2010 to 2012 period.20 Over the same period, the world oil price is assumed to average about $87 per barrel (in US$2010).21 The natural gas price at Henry Hub is assumed to average about $4.54 per thousand cubic feet (in US$2010).
Under the reference case, Canada’s baseline emissions levels (excluding the measures described in this Plan) would be expected to increase from 690 Mt in 2009 to 740 Mt in 2012. Through the federal measures presented in this Plan, emissions levels are expected to be about 5 Mt below the baseline at 721 Mt in 2010 and about 9 Mt below the baseline at 731 Mt in 2012. Given actual emissions for 2008 and 2009 (732 Mt and 690 Mt, respectively) and the reductions anticipated from the measures in this Plan, domestic emissions are expected to be some 805 Mt above Canada’s Kyoto Protocol target of 2,792 Mt during the 2008 to 2012 period. This does not include emissions related to land use, land change, and forestry (LULUCF), which will be factored in over the entire compliance period.
| Actual Emissions (Mt) | Projected Emissions (Mt) | ||||
|---|---|---|---|---|---|
| 2008 | 2009 | 2010 | 2011 | 2012 | |
| Emissions excluding federal government measures | 734 | 694 | 726 | 729 | 740 |
| Emissions including federal government measures | 732 | 690 | 721 | 723 | 731 |
| Emission reductions from federal measures | 2 | 4 | 5 | 7 | 9 |
The baseline includes the effects of existing provincial government policies and programs, including those financed by the Clean Air and Climate Change Trust Fund, as well as federal measures announced before April 1, 2006. The combined impact of federal measures announced after April 1, 2006 (and detailed in this Plan) is then estimated to establish a projection of emissions including all measures to date.
Given the uncertainty concerning key modelling assumptions, a set of alternative baselines was developed focused on the following drivers22:
In these alternative scenarios, the Budget 2011 economic growth rates for the 2010 to 2012 period prevail. Any variation in the GDP growth rate is due to the interaction with the world oil price and the North American natural gas price.
Higher world oil and natural gas prices generally have the effect of increasing energy efficiency, thereby reducing emissions. Likewise, higher energy costs tend to increase the cost of production, thereby lowering manufacturing activity and resulting in lower emissions from these sectors of the economy. As an oil-exporting country, however, higher world oil prices will also stimulate increased oil and gas production activity in Canada and increase emissions from that part of the economy.
For the purpose of illustrating sensitivity analysis, only the lowest and highest alternative emission scenarios are presented.
The lowest alternative emission scenario is represented in the table below.
| Actual Emissions (Mt) | Projected Emissions (Mt) | ||||
|---|---|---|---|---|---|
| 2008 | 2009 | 2010 | 2011 | 2012 | |
| Emissions excluding federal government measures | 733 | 693 | 726 | 722 | 733 |
| Emissions including federal government measures | 732 | 690 | 719 | 713 | 721 |
| Emission reductions from federal measures | 1 | 3 | 7 | 9 | 12 |
Through the federal measures presented in this Plan, emissions levels are expected to be about 7 Mt below the baseline at 719 Mt in 2010 and about 12 Mt below the baseline at 712 Mt in 2012 in the Lowest Emission Scenario. Given actual emissions for 2008 and 2009 (732 Mt and 690 Mt, respectively) and the reductions anticipated from the measures in this Plan, Canada expects to be some 783 Mt above its Kyoto Protocol target of 2,792 Mt during the 2008 to 2012 period in this scenario.
The highest alternative emission scenario is represented in the table below.
| Actual Emissions (Mt) | Projected Emissions (Mt) | ||||
|---|---|---|---|---|---|
| 2008 | 2009 | 2010 | 2011 | 2012 | |
| Emissions excluding federal government measures | 735 | 695 | 726 | 737 | 745 |
| Emissions including federal government measures | 732 | 690 | 723 | 732 | 738 |
| Emission reductions from federal measures | 3 | 5 | 3 | 5 | 7 |
Through the federal measures presented in this Plan, emissions levels are expected to be about 3 Mt below the baseline at 723 Mt in 2010 and about 7 Mt below the baseline at 738 Mt in 2012 in the Highest Emission scenario. Given actual emissions for 2008 and 2009 (732 Mt and 690 Mt, respectively) and the reductions anticipated from the measures in this Plan, Canada expects to be some 823 Mt above its Kyoto Protocol target of 2,792 Mt during the 2008 to 2012 period in this scenario.
19 Budget 2011 was tabled in the House of Commons on March 22, 2011, by the Honourable James M. Flaherty, Minister of Finance, but was not adopted prior to the dissolution of Parliament on March 26, 2011.
20 This is similar to the average growth rate assumed in the 2010 KPIA Plan.
21 The world oil price in the 2010 KPIA Plan was assumed to average $76 per barrel, while the natural gas price at Henry Hub was assumed to average $6.1 per thousand cubic feet (mcf).
22 Consideration was given to using alternative economic growth rates for the projection. However, as preliminary economic growth rates for 2010 are in the public domain making the projection period only two years, it was decided to use the economic growth rates reported in Budget 2011. In very short projection periods, there is considerable information to inform projections, as such there is less room for large changes from a “most likely” scenario, limiting the impact on emissions levels.