Canadian businesses risk being hit by international trade sanctions if the next federal government abandons or even properly withdraws from the Kyoto climate change treaty, observers say.
"It's very difficult to get out of the treaty," says Bob Mills, the federal Conservatives' environment critic.
"There would be all kinds of pressures, probably trade pressures put on you through the World Trade Organization (WTO), to try to keep you in," he says.
During the last election campaign, the Conservatives vowed to scrap Kyoto if they took power.
But Patrick Moran, a lawyer with Ogilvy Renault LLP law firm in Toronto, says it appears the Tories have realized that Kyoto binds Canada under international law at least to try to achieve its target to reduce the emissions blamed for global warming by 2012.
Canada would have to cut 270 million tonnes of emissions annually by then to meet its Kyoto target of reducing emissions to six per cent below 1990 levels.
The rising costs of energy, including electricity and natural gas, will spur whatever government is in power as well as Canadian industries to look for ways to improve energy efficiency and lower operating costs and emissions, Moran says. "It's just inevitable that we're going to be doing a lot more to become more energy efficient and to look at alternatives over the next seven years."
Mills, member of Parliament for the Alberta riding of Red Deer, says if the Conservatives win the next election, he won't recommend simply abandoning Kyoto, even though the party still opposes the treaty.
Instead, he intends to put forward the party's plan for clean air and energy, which involves energy conservation and using cleaner "transitional fuels," such as ethanol and biodiesel, and more alternative energy sources.
"We would have realistic (emission-reductions) targets over realistic timeframes," Mills says.
Aldyen Donnelly, president of the Vancouver-based Greenhouse Emissions Management Consortium (GEMCo) of energy companies, says Canada will be looking for the Kyoto "exit door" no matter who forms the next government, because the treaty target simply can't be achieved.
"Canada is going to fail to comply or withdraw no matter who the government of the day is," she says, adding it is just a matter of when and how.
Under Kyoto's rules, the earliest Canada could give notice of intention to withdraw is Feb. 16, 2008 - three years after the treaty becomes international law. There is a one-year withdrawal period after that, so the earliest Canada could legally be out of the treaty is Feb. 16, 2009.
However, since the first compliance period for Kyoto begins at the start of 2008, Canada would be withdrawing at a time the country had committed - under international law - to abide by the treaty.
"We are 100 per cent vulnerable if we fail to keep our treaty obligations, no matter who's in power," Donnelly says.
Under the WTO and the General Agreement on Tariffs and Trade, Japan, the European Union and other signatories to international treaties are allowed to impose penalties on Canadian exports such as energy, lumber and fish if we fail to comply, Donnelly says.
Under WTO rules, countries that are part of Kyoto wouldn't even have to show that they have complied with the treaty, she notes.
To impose trade sanctions, they just have to prove to the world trade body that Canada has failed to comply.
A treaty such as Kyoto, however, with its unique initial compliance period and penalties for non-compliance between 2008-2012, has never been tested under international trade laws, Donnelly says.
Also, it's likely that most countries - not just Canada - won't be able to comply with their Kyoto targets, which could essentially render the treaty meaningless.
"I'm not convinced that anybody's going to hit their target," Mills says. "So I don't believe that by 2012 there would be penalties that would be enforceable."
Canada's biggest trading partner is the United States, which isn't a signatory to Kyoto. That means the U.S. wouldn't be able to impose trade sanctions on Canada if it fails to comply with the treaty.
However, some of Canada's key exports - such as fish and coal - would still be at risk of trade sanctions by the European Union and Japan.
Pierre Alvarez, president of the Canadian Association of Petroleum Producers (CAPP), says he doesn't believe any country with significant emissions "is going to actually meet its Kyoto target."
Global oil consumption has risen to 86 million barrels per day (b/d) from 84 million b/d during the last couple of years, he points out.
Energy demand and greenhouse gas emissions continue to climb around the world, especially in developing countries with expanding economies such as China, India and Brazil, Alvarez says.
Even if Kyoto doesn't survive beyond 2012, however, Canada's oil and gas industry will continue its efforts to improve energy use and efficiency, and reduce emissions, he adds.
"We've always said there are fundamental flaws with Kyoto. But we've also said we need to deal with the issue of emissions," Alvarez says. "I think what we need is a better framework (than Kyoto) on how we do that."
Donnelly believes the uncertainty around Canada's Kyoto plan has already slowed financial investment in the country.
"I think it's going to be absolutely clear to the Liberals and Conservatives in 12 months' time that they've created a capital market problem," she says. She adds the situation will compel whichever party is in power to withdraw from the treaty.
Environmental groups, which are already skeptical that Ottawa actually intends to meet Canada's Kyoto target, say the country's reputation on the environment would be irrevocably tarnished if the next government withdrew from Kyoto.
Although the treaty's compliance period starts in less than three years, the Liberals' plan released this month contains no mandatory timelines, emission-reduction targets for specific industrial sectors, or mechanisms for implementing programs to work with the provinces in cutting emissions.
"The government's credibility on this issue depends as much on the urgency with which the plan is implemented as it does on the plan itself," says Matthew Bramley, director of climate change at the Alberta-based Pembina Institute for Appropriate Development.
Under the plan's climate fund, the federal government plans to reduce most of Canada's emissions reductions - 75 to 115 million tonnes - by buying emissions-reduction credits both within Canada and from other countries.
But Ottawa has yet to introduce a domestic emissions-trading program or participate in the fledgling international market to buy credits.
"A lot of other countries have already been participating in international credit markets, and have managed to buy credits at a price that's probably a lot lower than it will be going forward," says Moran at Ogilvy Renault.
Environmentalists say the government needs to improve its Kyoto plan and get it up and running before Canada stages the next meeting of the 140 nations that are part of the treaty. The 11th meeting of the Conference of the Parties (COP-11) to the UN's Framework Convention on Climate Change, which led to the treaty, is scheduled for Nov. 25-Dec. 9 this year in Montreal.
"Canada's simply going to suffer a severe international embarrassment in Montreal if things aren't improved," Bramley says.
(Mark Lowey can be reached at mark@businessedge.ca)
