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Dec 14, 2015

Climate Change & Canadian Business Pt 2

The Canadian Chamber participated in the COP21 Climate Conference, which ran from November 30 to December 11. Canadian Chamber staff produced periodic briefing notes to keep our membership apprised of the proceedings and the potential impact for Canadian business. 

The World Agrees at Last

On Saturday, history was made as the world adopted the first-ever universal agreement on climate change. The Paris Agreement differs from all previous COP agreements in the sense that it provides a framework for a bottom-up approach to fighting climate change, whereby each country submits its own voluntary plan of action (its INDC). Previous agreements had attempted to implement top-down approaches (e.g., emissions reductions targets by certain years) that placed a heavy burden on developed countries while placing relatively little responsibility on developing nations, as seen in the Kyoto Protocol. The Paris Agreement is legally binding in the sense that nations are required to report on their progress in meeting their pledges every five years. However, nations are not obliged to meet their targets, and the punishment for not reporting is essentially limited to reputational damage.

As the parties sat down in the final plenary to adopt the agreement, there was a last-minute point of contention regarding Article 4.4. The U.S. insisted that the word “shall” be replaced by “should” in the line now stating “Developed country Parties should continue taking the lead by undertaking economy-wide absolute emission reduction targets.” The article then states “Developing country Parties should continue enhancing their mitigations efforts...” This change of wording is more than a minor edit and speaks to the idea of differentiation, which has been at the heart of these negotiations—the division in responsibility between developed and developing nations in tackling climate change and reducing emissions. Underpinning this idea is the right for developing countries to power their development, if need be, by using the same fossil fuels that propelled developed countries to their current high standards of living. The chatter in the halls was that the U.S. delegation wanted to be able to tell its domestic audience that the U.S. and China are held to the same standards in the agreement, since the latter is still considered a ‘developing’ nation.


Canada Represents

“Canada is back” was the slogan uttered by Prime Minister Trudeau during his speech at the conference, and the international community is generally pleased about this. Also keeping true to his promise to be back, Arnold Schwarzenegger made an appearance at COP last week to encourage sub-national governments to take an active lead in fighting climate change.

Despite Canada bolstering its environmental agenda since the federal election, Climate Action Network International presented Canada with two fossil-of-the-day awards, along with other developed nations, for preventing increasing ambition in the text and for supporting the exclusion of compensation and liability in the loss and damage section (referring to financial and other assistance to nations, mainly vulnerable states such as small islands, which are damaged due to the impacts of climate change).

Almost all the premiers were active at COP, in addition to opposition leaders and provincial ministers. But behind the glitz and glamour, Canada’s bureaucrats worked tirelessly from morning to night negotiating the gritty details of the text and deserve to be commended for their tireless efforts.
The Canadian Chamber Active on the Ground

The Chairs of our Natural Resources and Environment Committee and our International Strategic Advisory Committee were on the ground last week, following negotiations. We were one of the few business and industry NGOs (BINGOs) at COP, which in the final days of negotiations met with Minister Ségolène Royal, the French Minister of Ecology, Sustainable Development and Energy and the chief of the French delegation, and Special Envoy Minister Manuel Pulgar-Vidal, in order to convey the business community’s thoughts on the draft text. The group expressed its desire to see the following in the final agreement: 1) explicit reference to the private sector as a key stakeholder; and 2) reference to international emissions trading and carbon pricing.

Where the Text Landed

  • Ambition - Parties have agreed to keep the global temperature increase to “well below 2 °C above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5 °C.”Canada was one of the first developed countries to support moving toward the 1.5 °C target. However, countries’ submitted commitments (the INDCs) are estimated at best to keep the temperature increase to 2.7 °C. Therefore, to meet the 2 °C target, countries will need to either exceed their current commitments or increase them in the coming years. Also of note, the agreement indicates that in the second half of the century, man-made emissions should be reduced to a level that forests and oceans can absorb.
  • Finance – Developed countries will raise $100 billion a year by 2020, through public and private means, to assist developing countries. This figure will be considered a floor level from 2025 onward. Only part of this sum will pass through the Green Climate Fund, which was set up by the U.N. in 2010 to assist with climate finance.
  • Review mechanism – Each country’s progress in meeting its targets will be reviewed every 5 years, starting in 2023, using a common accounting framework. 
  • Loss and damage – Although referenced in the agreement, there is no liability for financial compensation to be paid to developing nations that suffer damage from the adverse effects of climate change, such as extreme weather events. 
  • The role of business – Business was not explicitly referenced in the preamble of the agreement. However, the preamble does refer to “various actors,” which can be interpreted to include business. The private sector is specifically referenced in parts of the decision text and in article 6 of the agreement, which deals with markets. In article 6, international emissions trading is referenced through the phrase “internationally transferred mitigation outcomes.”

What are the Implications for Canadian Business?
One of the main purposes of the Paris Agreement was to send a strong signal to markets that the world is shifting away from fossil fuels to renewable energy and, thereby, encourage financial flows to move more in that direction. To some extent, the agreement accomplishes this goal. With a target of $100 billion a year by 2020 to assist developing nations (the OECD calculates over $60 billion flowed in 2014), there will be opportunities for Canadian business in the clean technology field to access this money for projects in developing countries.

It is important to recognize that despite the increasing appetite for renewable energy, the fossil fuel industry will continue to form a critical component of the energy mix moving forward. As the federal government offers ongoing support to boost renewable industries, so too will it be necessary to work with fossil fuel industries to reduce their carbon footprint through technologies such as carbon capture and storage.

What Now?
The Paris Agreement will come into effect once it is ratified by a least 55 countries representing more than 55% of global GHG emissions. It should be noted that any party can withdraw from the agreement following a year after giving notice, highlighting its voluntary nature.

On the domestic front, Prime Minister Trudeau has promised to convene a first ministers meeting within 90 days to identify national emissions reduction targets and develop a pan-Canadian framework for addressing climate change. Minister McKenna has indicated that the target Canada submitted at Paris (a 30% reduction in GHGs from 2005 levels by 2030) would be a floor from which to work from. Mr. Trudeau indicated that provinces and territories would be able to develop their own plans and systems for meeting this target, but many questions remain.

Other key pieces on the horizon include federal intentions to: review the environmental assessment process, develop a North American clean energy and environmental agreement with the U.S. and Mexico and develop a Canadian energy strategy. We will keep you informed as these issues progress.

Please contact Philip Tomlinson (ptomlinson@chamber.ca) should you have any comments or questions on this brief.