The conclusion of this analysis is that Canada cannot meet its 2008-2012 Kyoto target, as envisaged under Bill C-288, in a manner that would assure the required level of real GHG reductions on both a domestic and global level without experiencing significant economic costs. Like any such analysis, this conclusion depends on a few core assumptions:
First and foremost, it is assumed that Canada would not be willing to take advantage of those Kyoto compliance mechanisms, in particular AAUs, that do not represent guaranteed incremental GHG reductions. To the extent that Canadians and their governments chose to diverge from this assumption, the results of this analysis could change, although some economic costs would still likely arise.
It is further assumed that Canada will be able to purchase about 75% of the currently estimated available supply of project-based credits (about 65 Mt/year) at a price of $25 per tonne over the Kyoto period. To the extent that more or fewer credits are in fact available to Canada (and to a much lesser degree, the extent to which the price is higher or lower than $25 per tonne), the costs for Canada could vary, up or down, from those presented under this scenario.
Finally, it is also assumed that there are no breakthroughs in current energy efficiency and other technologies pertaining to GHG emissions, or any dramatic reductions in the cost of access by Canadians to clean energy sources over the 2008 to 2012 period. Unforeseen developments on either of these fronts in the near future could also dramatically change the economic costs of meeting Canada's Kyoto target.
This last assumption is particularly important because, although it is quite reasonable for the purposes of this analysis, it also underscores the real source of the economic costs associated with Canada significantly reducing GHG emissions within the Kyoto period - a lack of time for business and consumers to smoothly transition to the changes required. Because of the assumed imperative that Canada will need to reduce its GHG emissions by an annual average of 33% beginning next year and for each of the following four years, this analysis cannot, for example:
Credibly incorporate such long-term transformational technologies as carbon capture and storage, that could, by 2015 or so, allow many sectors of the economy, particularly the oil and gas and electric utility industries, to sequester a significant proportion of their GHG emissions at a relatively low cost;
Include the emissions impacts of long-term energy infrastructure projects, such as planned new hydro- electric generation capacity in northern Quebec, Manitoba, and Newfoundland and Labrador that, together with development of an east-west electricity grid, could dramatically reduce the dependence of Canadian industry and consumers on high GHG-emitting energy sources;
Accommodate business capital turnover cycles to allow for relatively low-cost incremental investments in more energy-efficient technologies and processes as existing machinery and equipment reaches the end of its productive life;
Allow for an evolution in consumer awareness and behaviour that would result in increased use of energy-efficient household and transportation choices, and facilitate a shift to a low-carbon lifestyle without affecting overall standard of living;
Wait for development and implementation of solid international certification procedures with respect to "greened" AAUs that could transform these currently questionable credits into verifiable and incremental GHG reductions on par with CDM/JI, thereby providing much-needed liquidity and integrity to current international carbon markets; or
These and other potential ways to dramatically reduce Canada's GHG emissions over the long-term suggest that the economic hurdles for Canada to address climate change in a significant manner can be overcome with sufficient time, and on the basis of an effective and consistent policy framework.