...change. meet these commitments, the government's main policy approach has been to provide information and subsidies for businesses and consumers to encourage them to shift voluntarily to technologies and lifestyles that will reduce GHG emissions. A key emphasis has been on controlling emissions of carbon dioxide (C[O.sub.2]) from the production and consumption of energy.

During this period, however, the country's GHG emissions have continued to rise, and they show no sign of falling. In fact, domestic emissions have risen more rapidly since 1990 than in the preceding decade, when the federal government had no GHG policy. Nevertheless, the latest plan for reducing GHG emissions, announced in 2005 as Project Green, was an intensification of the information and subsidy approach. Although the newly elected federal government has cut significantly the funding for Project Green, it is uncertain what, if anything, it will do to reduce GHG emissions.

The past 15 years of policies for reducing GHG emissions, in addition to 25 years of programs by electric utilities to reduce or shift electricity demand, provide a large body of evidence for assessing the effectiveness of subsidies and information policies in influencing energy use and associated GHG emissions. This study uses this information to calculate the likely effect on Canadian GHG emissions of a long-term continuation of the policy approach represented by Project Green: The first part of the study recounts the Canadian policy approach to GHG emission reduction of the past 15 years and assesses the past and likely future effectiveness of this approach. The second part presents a 35-year (2005-2040) simulation of what would happen to Canadian GHG emissions if the government were to continue the approach epitomized by Project Green. Not surprisingly, emissions continue to grow at a rate that, if matched in the rest of the world, would lead to much higher atmospheric GHG concentrations within a few decades.

Not only does the information and subsidy approach allow GHG emissions to continue growing, it is also expensive. Estimates in this report suggest that a continuation of this approach to controlling GHG emissions would cost over $80 billion by 2040, much of that money being spent outside of Canada.

The third part discusses the lessons for policy design and then suggests alternative policy approaches for GHG emission control. In particular, there is strong evidence that while some firms and households may voluntarily make expenditures to reduce GHG emissions in response to moral arguments or to information about the financial advantages of energy efficiency, many more may choose energy-intensive, pollution-intensive options if those offer a competitive advantage or a benefit to their lifestyles. From a policy perspective, this means that if domestic GHG emissions are to be reduced substantially over the next few decades, firms and households must be prevented from freely emitting wastes into the atmosphere--by financial penalties or legal requirements or both. Fortunately, experience controlling different pollutants in various jurisdictions offers examples of politically acceptable policies that can effectively control GHG emissions without causing severe economic disruption in the short term.

The Canadian Policy Approach to Reducing Greenhouse Gas Emissions

International Commitments and Domestic Policies

The growing consensus of scientists and governments around the world is that to reduce the damage from climate change to an acceptable level, the atmospheric concentration of C[O.sub.2] should be stabilized at 450 to 550 ppm, which is about one and a half to two times the pre-industrial concentration. Since global energy demand is projected to grow at least threefold over the next 100 years, stabilization at this level implies that energy-related C[O.sub.2] emissions must fall by 75 percent to 90 percent from current levels in the course of this century. Given the inertia of long-lived capital stocks (transportation infrastructure, energy distribution networks, buildings, electricity generating stations, large industrial plants, petroleum refineries and mines), GHG emissions must be reduced during the next three decades if the longer-term goal is to be reached.

Recognition of this necessity has led Canada to make several commitments to reduce its GHG emissions over one or two decades. In 1988, Canada hosted the World Conference on the Changing Atmosphere, in which delegates and the Canadian government called for a reduction of global C[O.sub.2] emissions of 20 percent from 1988 levels by 2005. Later that year, at a meeting of the G7 countries, Prime Minister Mulroney made a commitment to stabilize national GHG emissions at 1990 levels by the year 2000. These commitments were echoed in national policy documents in 1990, and were made again at the 1992 Earth Summit in Rio de Janeiro, when Canada ratified the United Nations Framework Convention on Climate Change. This agreement was superseded in 1997 by the Kyoto Protocol, under which Canada agreed to reduce its emissions from 2008 to 2012 to 6 percent below their 1990 level. Canada ratified the Kyoto Protocol in 2002.

To meet its international commitments, the Canadian government has launched numerous policies over the last two decades. Its omnibus Green Plan of 1990, which involved over 200 environmental policy initiatives and a budget of $3 billion over five years, included $175 million for 24 GHG reduction policies, mostly focused on energy efficiency and alternative energy. Independent researchers noted that virtually all policies in the Green Plan emphasized the provision of information to businesses and consumers to persuade them to take voluntary actions for environmental improvement (Hoberg and Harrison 1994; Gale 1997). In 1990, the government also established the National Action Strategy on Global Warming, with the aim of information sharing between municipalities, provinces and industry to foster GHG reduction.

In 1995, the federal government launched the National Action Program on Climate Change, comprising information programs and some modest subsidies; the government estimated that this program would reduce GHG emissions by 66 Mt by 2010 (Canada 1995a). The main element in the program was the Voluntary Challenge and Registry, under which companies would submit plans for reducing GHG emissions and make regular progress reports, all voluntarily. The program also incorporated the Federal Buildings Initiative, which supported the retrofitting of federal government buildings to higher energy efficiency standards; and the National Communication Program, which sought to educate Canadians about climate change.

After signing the Kyoto Protocol, the government in 1998 launched its Action Plan 2000 on Climate Change, a set of policies designed to reduce annual domestic emissions of GHGs by 49 Mt C[O.sub.2]e by 2010 (Canada 1998).(1) This program included modest subsidies for renewable energy as well as a host of energy information programs for consumers and businesses, such as free energy efficiency audits of small businesses.

Before ratifying the Kyoto Protocol in 2002, the Canadian government released the Climate Change Plan for Canada, a composite of policies projected to reduce total emissions by 100 Mt C[O.sub.2]e by 2010 (Canada 2002a). A key component, accounting for 55 Mt of emission reductions, was a system of negotiated covenants with large point-source GHG emitters to set emission intensity caps for each sector and then allocate tradable permits on this basis. Other elements of the plan were a combination of information and modest subsidies to encourage voluntary actions by firms and households. These programs included financial support for public transit coupled with voluntary targets for increased transit use, high-efficiency insulation in commercial buildings, 10 percent renewables for new electricity generation and improved vehicle efficiency. The government estimated that through these programs as well as education, each Canadian would reduce his or her average annual C[O.sub.2] emissions by one tonne.

Most recently, in 2005, the government launched Project Green, yet another plan for reducing GHGs. This program is described in detail later in this study.

Table 1 shows the key components of each of the last three major policy initiatives before Project Green. (Not all policies were implemented.) Like their predecessors, these three programs rely almost entirely on voluntary policies--asking businesses and consumers to reduce their GHG emissions out of financial self-interest or an ethical concern for climate change.

In spite of Canada's international commitments and the numerous domestic GHG policies described above, the country's GHG emissions have continued to rise during the last 15 years. Figure 1 compares Canada's commitments with its actual emissions from 1990 to 2003, along with the policy initiatives intended to reduce domestic emissions. With emissions rising by 24 percent over this time, Canada missed by a substantial amount each of the targets set at the 1988 World Conference on the Changing Atmosphere, the 1988 G7 meeting and the 1992 Earth Summit in Rio. According to the latest government estimates, Canada's domestic emissions remain on a path that would miss its Kyoto target by at least 270 Mt in 2010, or by almost 30 percent (Canada 2005b). This is shown in the figure as the business-as-usual forecast.

[FIGURE 1 OMITTED]

This discrepancy between government commitments to reduce GHGs and the continuing growth of the emissions raises questions about the effectiveness of the information and subsidy policy approach. As yet, the federal government has not emphasized the other options available to it, namely regulations and fiscal disincentives. This is somewhat surprising given the evidence for the effectiveness of different types of policies in achieving environmental objectives cost-effectively. Some of this research is summarized in the next section.

Evidence for the Effectiveness of Information and Subsidies

Although program managers and businesses offer anecdotal evidence of voluntary actions to improve the environment, the effectiveness of voluntary programs is difficult to determine because one cannot be certain how the economy would have evolved without such policies. That is especially the case with efforts to stimulate energy efficiency. Since the 1950s, most OECD economies have seen steady improvements in energy efficiency because new technologies are often more efficient than those they replace. But it is difficult to know if a particular policy has hastened the uptake of more efficient technologies.

In a recent survey of voluntary policies for environmental protection, Khanna (2001) noted that the few empirical studies which have tried to estimate the actual environmental impact have found such policies to have a negligible effect. In another review, the OECD concluded that the "environmental effectiveness of voluntary approaches is still questionable" (OECD 2003, 14). Harrison (1999) and Harrison and Antweiler (2003) also found little environmental improvement from voluntary policies in Canada. Finally, some studies of Canada's voluntary GHG reduction programs found them to be almost entirely ineffective (Takahashi et al. 2001; Bramley 2002).

These discouraging results nonetheless confirm standard research findings on motivation in a market economy. Whereas some firms and households may voluntarily invest in energy efficiency or pollution reduction in response to moral arguments or new information about the financial advantages, many others may make an energy-intensive, pollution-intensive choice if it provides a competitive advantage or benefit to their lifestyle, especially if free discharge of GHG emissions into the atmosphere is still permitted. One need only think of the rapid spread of outdoor patio heaters, driveway heaters, roof de-icers, desktop refrigerators, deluxe air conditioners and various industrial energy-using devices. But these will go largely unnoticed if government, industry, environmental organizations and the media highlight only the cases where new GHG reduction actions appear to have been taken. This can create the misconception that voluntary policies are successful--until one looks at the expanding gap between the government's commitments to reduce emissions and the country's actual emissions.

Over time, however, the growing awareness of this widening gap between Canada's commitments and its actual emissions appears to have led to new subsidies in support of the existing information programs. This trend culminated in the significant budget commitments of the latest GHG reduction policy, launched in 2005 under the name Project Green. (The details of the subsidy mechanisms in this policy...

NOTE: All illustrations and photos have been removed from this article.




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