Making It Work Kyoto, Trade and Politics...government and politics, public policy (especially...

Making it work: Kyoto, Trade and Politics 1

A Report Prepared

for Parkland Institute,

the University of Alberta,

October 2002

Making It Work

Kyoto, Tradeand Politics

Ian Urquhart

2 Making it work: Kyoto, Trade and Politics


Making It Work:

Kyoto, Tradeand Politics

A Repor t Prepared for Par k land Inst i tute, the Univers i ty of Alber ta • May 2002


A c k n o w l e d g e m e n t s

The author would like to thank Tanya Narozhna andLaurie Wein for their research assistance and theParkland Institute and the Communications, Energy,and Paperworkers Union for their valuable support.He also would like to thank Ricardo Acuña, TrevorHarrison, Brian Kohler, Dale Marshall, and Bruce Zifffor their critical comments on draft sections of thispaper. The usual disclaimer applies. Finally, the papercould not have been written without the help of theRev. Irmar.

A b o u t t h e a u t h o r

Dr. Ian Urquhart is Associate Professor of PoliticalScience at the University of Alberta. His main areas ofinterest in teaching and research include Canadiangovernment and politics, public policy (especiallynatural resources and environmental politics), publicadministration, and the Canadian Charter of Rightsand Freedoms.


E x e c u t i v e S u m m a r y

The paper begins by describing the Protocol and detailing thesignificant concessions Canada won during the last two rounds

of Protocol negotiations. These concessions, on subjects such as carbonsinks and international emissions trading, dramatically reduce thesize of the cuts in domestic greenhouse gas emissions Canada mustmake in order to meet its Kyoto target. For example, under Kyoto’scarbon sinks provisions Canada can meet twenty per cent of its annualemissions reduction target by afforestation and reforestation - growingtrees. These concessions, when combined with the American refusalto ratify Kyoto, should enable Canada to meet its Kyoto commitmentsat a fraction of the costs cited by the Protocol’s most strident criticsand without making the Draconian cuts in actual GHG emissionsthese critics wring their hands about. It is simply not true to tell thepublic, as too much reporting on Kyoto has done, that the only Kyotocompliance policy option open to Canada is domestic emissionsreductions.

How will trade agreements and federalism constrain Canadian policy makers if they

implement the Kyoto Protocol? This question is the focus of “Trade Agreements,

Federalism and the Politics of Implementing the Kyoto Protocol,” published by the

Parkland Institute.

Its conclusions likely will not sit well with partisans on all sides of the Kyoto debate:

• Drastic domestic emissions cuts are not the only route to implementing Kyoto;

• Strict environmental regulations may boost corporate competitiveness;

• The World Trade Organization is not necessarily an environmental straitjacket;

• NAFTA is a real threat to implementing Kyoto - it must be clarified and

renegotiated;

• Canada needs a national electricity policy and “big” hydro and public investment

should play important roles therein;

• Constitutional challenges to national action, as threatened by Alberta, may

threaten provincial powers;

• The mistakes of the National Energy Program conflict of the 1980s must be

avoided - federal and provincial governments finally must start to show genuine

leadership on the Kyoto file.


The second section of the study argues that carefully craftedenvironmental regulations actually may actually improve, not destroy,the competitiveness of Canadian industry. This argument, of course,is at variance with the public’s understanding of Kyoto’s impact,poisoned too often by self-interested rhetoric from various quarters.

The third section outlines a range of policies that a handful oforganizations - the International Energy Agency, the David SuzukiFoundation, the World Wildlife Fund, the Pembina Institute forAppropriate Development, and the Canadian Centre for PolicyAlternatives - have recommended to help Canada meet its Kyotocommitment. These policies include, but are not limited to: subsidiesfor renewable energy, increased automobile fuel efficiency standards,a national emissions trading system, and a transition strategy forworkers whose jobs will be jeopardized if Canada implements Kyoto.

But, does our membership in the World Trade Organization(WTO) and our obligations under the North American Free TradeAgreement (NAFTA) effectively brake any effort to implement thesepolicies? If many CEO’s are likely to close their eyes to the study’sarguments about competitiveness, some environmentalists likely willblanch at the paper’s suggestion that the WTO is not necessarily anenvironmental straitjacket. The WTO will not necessarily preventCanada from implementing many of the policies identified in thisreport. While the study recommends that the current Doha roundof trade negotiations should strive to improve the WTO’senvironmental sensitivity, the WTO’s environmental record is not asbleak as some Green rhetoric would have the public believe.

NAFTA is more problematic, despite its containing of somepromising environmental protection provisions. NAFTA’s energyprovisions figure prominently here. The national treatmentprovisions outlined in Article 606.1(a) may frustrate efforts to insurethat more of Canada’s electricity comes from renewable energysources (defined as solar, wind, and small scale hydro power). Otherelements of NAFTA’s energy chapter - its ban on export taxes and itsguarantee of proportional access to Canadian energy supplies forthe United States - prevent Canadian governments from introducingother measures that could assist a GHG emissions reduction plan.Finally, we do not have sufficient experience with NAFTA to knowwhether legitimate environmental regulations will fall victim to theinvestment chapter’s expropriation and compensation article. Theinvestment chapter must be clarified or changed to insure that NAFTA


cannot be used to challenge environmental regulations that are notdisguised trade protectionism.

The report also highlights two notably absent policy options - “big”hydro and a national electricity policy. Their absence from the Kyotodebate is unwarranted. Hydroelectricity should be valued for itspotential to replace electricity currently generated by coal-fired plants;a national electricity policy is needed to move cheaper hydropower toCanadian markets. Significant public investment and dramaticchanges to the National Energy Board (or the creation of a CanadianElectricity Board) will be needed to breathe life into this option.

Finally, Canadian federalism complicates whatever national planof action will be proposed. Provincial responsibility for developing,conserving, and managing natural resources has figured prominentlyin today’s angry debates over ratifying and implementing Kyoto.Alberta, emboldened by its jurisdiction over natural resources, hasthreatened to go to court if the federal government’s plan does notgive pride of place to provincial resource powers. This threat is illadvised; it is akin to constitutional brinkmanship. Past judicial rulingson powers over treaties and the environment make it very possiblethat a constitutional gambit may reduce provincial powers.

Constitutional showdowns and bitter federal-provincial conflictslikely await us unless federal and provincial leaders show some genuineleadership on the Kyoto file. This leadership is not found in the federalgovernment: Ottawa’s failure to involve the provinces in developing anational plan for reducing greenhouse gas emissions borders on theirresponsible. Nor is it found in the sleight of hand that passes forglobal warming policy in Alberta. Reduced “emissions intensity” doesnot equal reduced emissions. The study ends by urging federal andprovincial governments to recognize the legitimacy of their opponents’interests and to search for a compromise. Governments must sit downaround the conference table and craft policies and institutions thattake all of the challenges of reducing greenhouse gases seriously. Theapproach was absent during another political crisis alluded to in today’sKyoto rhetoric - the one centring on the National Energy Program.Canadians cannot afford to see that mistake repeated today.


The climate change debate, as may befitthe subject of global warming, hasplenty of hot air. Some partisans from

either side of the debate have been guilty ofrelying on inflammatory rhetoric, rather thanreason, to try to acquire political support. Thisauthor does not aspire to join them. I hopeinstead to shed some light on an issue that hasremained in the shadows during most of theCanadian version of the climate change debate- the extent to which the policy positions ofgovernments may be constrained by tradeagreements and our federal system ofgovernment. Sovereignty - the ability ofnation-states to manage their affairs withoutinternal or external interference - isincreasingly shared and challenged incontemporary world politics. In the Canadiancase, it is shared not just between Canada’snational government and other nationalgovernments but also between the federal andprovincial governments. The InternationalEnergy Agency’s recent examination ofCanadian energy policies implicitly made this

point when it noted that “the federal system ofgovernment and integration of the NorthAmerican economy” were two of the majorinfluences on Canadian energy policy and, byextrapolation, on efforts to grapple with globalwarming.2 In respect to climate change,Canadian sovereignty may be effectivelyshared through four institutionalarrangements and they are the focus of thispaper. Those institutions are: the KyotoProtocol to the United Nations FrameworkConvention on Climate Change, the WorldTrade Organization (WTO), the NorthAmerican Free Trade Agreement (NAFTA),and Canadian federalism.

This analysis has a handful of goals. First,it reviews the evolution of the Kyoto Protocoland suggests that decisions made at the Bonnand Marrakech conferences of 2001 easewhatever hardships Canadians may have to

“Climate change is biopolitical terrorism. . . . the major industrial-

ized countries must devise workable international efforts to

reduce the build-up of greenhouse gases, in cohort with the

industries that cause the problem.”

- Lancet, November 2001

“It’s the goofiest, most devastating thing that was ever conceived

and has ever been contemplated by a Canadian government in

the history of this country . . . other than the NEP.”

- Premier Ralph Klein, September 2002

2 International Energy Agency, Energy Policies of IEACountries: Canada 2000 Review, (Paris: Organization forEconomic Co-operation and Development andInternational Energy Agency, 2000), 38.


endure after ratifying the Protocol. The secondsection of the paper examines the possibilitythat concern for the competitiveness ofCanadian firms offers a compelling rationalefor the refusal of federal and provincialgovernments to take meaningful action toreduce greenhouse gas emissions in Canada.The third section of the paper introduces awide variety of policy options that could beimplemented in pursuit of the greenhouse gasemissions reductions Canada agreed to whenit signed Kyoto in 1997. The fourth sectionconsiders the extent to which these sorts ofpolicy options are likely to run afoul ofCanada’s commitments under the multilateraltrading system supervised by the WTO. Asimilar analysis of the NAFTA’s impact onKyoto implementation policies is offered inthe fifth section. The sixth section examinesthis issue in the context of Canadianfederalism.

From the outset, this paper makes twocrucial assumptions. First, the scientific workof the Intergovernmental Panel on ClimateChange makes it very clear that globalwarming is real, has been accelerated by theindustrialization of the developed countries,and is likely to become far more severe in thetwenty-first century. Second, the actions takento this point in time by Canadiangovernments to reduce greenhouse gasemissions have been laughable and pathetic.Anyone who doubts the value of theseassumptions is welcome to consult the publicrecord.

From Rio to Marrakech:The Evolution and Dilutionof the Kyoto Protocol

The catalyst that pushed the worldtowards negotiating the KyotoProtocol - concerns about global

warming - first came to the widespreadattention of the public during the UnitedNations Earth Summit held in Rio de Janeiroin June 1992.3 This summit wasunprecedented in terms of its size (172governments and more than 2,300representatives of non-governmentalorganizations traveled to Rio), the breadth ofits concerns, and its outcomes. Two legallybinding conventions, the United NationsFramework Convention on Climate Changeand the United Nations Convention onBiological Diversity, plus three other majoragreements were produced by this summit.4

The Climate Change Convention wasinformed largely by the work of theIntergovernmental Panel on Climate Change(IPCC). Created in 1988 the IPCC draws itsmembers from literally every corner of thescientific community - climatology,oceanography, biology, economics, paleo-

3 Climate change was arguably first regarded as a seriousproblem in 1979, the year the World MeteorologicalOrganization held the First World Climate ChangeConference. For a discussion of the scientific community’smobilization on the issue see James P. Bruce,“Intergovernmental Panel on Climate Change and the Roleof Science in Policy,” and Gordon McBean, Andrew Weaver,and Nigel Roulet, “The Science of Climate Change: WhatDo We Know?,” in ISUMA: Canadian Journal of PolicyResearch, Vol. 2, no. 4 (Winter 2001), 11-25.

4 These three agreements were Agenda 21, the RioDeclaration on Environment and Development, and theStatement of Forest Principles. Agenda 21 was a sweepingsustainable development program; the Rio Declarationdefined the rights and responsibilities of states in respectto the environment and development; and the statementon forest principles outlined sustainable forestmanagement principles.


ecology, glaciology, health sciences, andsociology. Its first assessment report, releasedin 1990, provided an important foundationfor the Climate Change Convention’sstipulation that the developed countriesshould reduce their greenhouse gas (GHG)emissions to 1990 levels by the year 2000.5

During the preparation of the IPCC’sSecond Assessment Report a “great majority”of the IPCC’s climate scientists believed thatgreenhouse gas emissions were changing theearth’s climate.6 This perspective animated thedeliberations of the parties to the climateconvention during 1995 and 1996. By the endof the first Conference of the Parties (COP),held in Berlin in 1995, more than 120countries had ratified the Convention. Thisconference produced the “Berlin Mandate.”Drawing on the IPCC’s work the partiesconcluded that the GHG reduction limitsagreed to in the Climate Convention (reducegreenhouse gas emissions to 1990 levels by2000) were inadequate. They would notfurther the objectives of the Convention. Themandate called upon the parties to negotiate aprotocol to the Convention that would setemission reduction levels for Annex I parties(the OECD countries, Russia, and the formersocialist countries of Eastern Europe).Between the COP 1 meeting in Berlin and theCOP 3 meeting in Kyoto hard, but largelyunproductive, bargaining took place amongthe parties to the convention. The UnitedStates was on one side of this debate. Itinsisted, contrary to the emerging scientificconsensus, that stabilizing greenhouse gasemissions at 1990 levels would be effective; theEuropean Union stood on the other side of thedebate and demanded that, by 2010, the

emissions of the three major greenhouse gases(carbon dioxide, methane, and nitrous oxide)in Annex I countries be cut to fifteen percentbelow their 1990 levels. The United States alsoproposed to impose some limits on GHGemissions on developing countries, a positioncontrary to the Climate Convention’scommitment that the industrialized countriestake the lead in making reductions since theemissions accompanying their economicgrowth were largely responsible for changingthe earth’s climate. Both sides compromised atCOP 3. The Kyoto Protocol, the product ofthis compromise, called for industrializedcountries to reduce GHG emissions by anaverage of 5.2 percent from their 1990 levelsby 2008-2012.7

The devil, according to an old Germansaying, is in the details.8 This must ring truefor many environmentalists who watchedKyoto’s many unresolved details hammeredout at subsequent Conferences, most notablyCOP 6 in Bonn and COP 7 in Marrakech. Thedecisions made there concerning carbon sinksand the so-called “flexibility mechanisms,”combined with the American withdrawal fromthe Protocol, have had two significant impactson the Protocol. This combination effectivelydiluted Kyoto’s effectiveness as a measure thatwill reduce greenhouse gas emissionssignificantly and dramatically tempered thepossibility the Protocol will harm theCanadian economy seriously.

5 United Nations, United Nations Framework Convention onClimate Change, Article 4.2(a)(b).

6 Bruce, “Intergovernmental Panel on Climate Change,” 14.

7 Although no reductions in greenhouse gas emissionswere imposed on developing countries Article 10 of theProtocol calls on all signatories to the Protocol to strive tomitigate climate change.

8 “The devil is in the details” The Concise Oxford Dictionaryof Proverbs. Ed. John Simpson and Jennifer Speake. OxfordUniversity Press, 1998. Oxford Reference Online. OxfordUniversity Press. 9 September 2002. http://www.oxfordreference.com/views/ENTRY.html/?subview=Main&entry=t90.000481


Consider first the carbon sinks issue.Article 1.8 of the UN Climate ChangeConvention defines a sink as “any process,activity, or mechanism that removes agreenhouse gas, an aerosol or a precursor of agreenhouse gas from the atmosphere.” Sinceplants and trees absorb carbon dioxide whenthey grow they act as carbon sinks. Nationsmay therefore manage their lands so as toenhance their performance as sinks. Article 3.3of the Kyoto Protocol consequently states thatafforestation (planting trees where noneexisted previously) and reforestation areactivities that developed countries mayemploy in order to meet some of their GHGreduction commitments. Article 3.4 of theProtocol raises the prospect that other landuse and forestry activities may be used asemission reduction credits, effectivelyreducing the severity of the genuinelydomestic emission reductions needed to reachKyoto’s targets. The size of these carbon sinkcredits were the subject of intense,acrimonious negotiations during the Bonnconference of July 2001. The European Uniondid not want to see carbon sinks play a majorrole in the GHG emissions reductioncampaign. Sinks, in the eyes of the EU, wereloopholes. They enabled countries to avoidmaking cuts to their domestic production ofgreenhouse gases. But, to the so-calledUmbrella Group of countries - Canada,Norway, Japan, Australia, New Zealand,Russia, Ukraine, and Iceland - sinks werelegitimate tools to reduce atmospheric levelsof carbon dioxide.

Heading into the Bonn session of COP6, the support of the Umbrella Group hadbecome crucial to the prospects of getting thelevel of international support needed to bringthe Protocol into effect. Kyoto acquires legalforce once two thresholds are crossed. First, atleast fifty-five countries must ratify Kyoto (as

of September 5, 2002 ninety-three countrieshad ratified the Protocol). Second, the list ofratifying countries must include enoughdeveloped (Annex I) countries to account forat least fifty-five percent of the world’s carbondioxide emissions in 1990. In that year, theUnited States share of these emissions was36.1 percent, the European Union share was24.2 percent, the Russian Federation share was17.4 percent, and Japan’s share was 8.5percent.9 Given the American share of globalCO2 emissions in 1990, when President Bushannounced in March 2001 that he would notask the Senate to ratify Kyoto he effectivelyincreased the bargaining leverage of the largerGHG emitters within the Umbrella Group -especially Japan, Russia, Canada, and Australia- at the Bonn and Marrakech conferences.10

If the Russian Federation followed theUnited States’ lead and left the ratificationpath it would be impossible to cross thesecond threshold. Kyoto would die. Canada,Japan, and the Russian Federation used thissituation to win very generous carbon sinksconcessions. The total annual forest sinkscredit available to Canada is 13.6 megatons ofcarbon, twenty per cent of Canada’s annualreduction target of 65.5 megatons during thefirst commitment period (2008-2012). Insteadof actually reducing emissions by this amount,Canada could apply these credits against itsGHG reduction commitment. Japan received aforest management credit of thirteenmegatons per year and Russia claimed a 17.63megatons credit.11 Russia’s thirst for sinks

9 “Setting the record straight,” available at http://unfccc.int/press/dossiers/factsheet.html

10 The significance of Canada (with 3.3 percent of global CO2emissions in 1990) and Australia (with 2.1 percent of 1990CO2 emissions) rested with the fact that ratification byeither country when combined with ratification by Japanand Russia would secure the necessary fifty-five percent ofCO2 emissions required to bring the Protocol into effect.


concessions was not satisfied by theseconcessions. The Russians claimed that theirforests soaked up nearly twice the amount ofcarbon recognized in the Bonn concession; ifRussia did not receive an annual carbon creditof thirty-three megatons it would join theUnited States on the sidelines, effectivelyscuttling the Protocol.12

Kyoto’s flexibility mechanisms refer tothree market-based mechanisms - JointImplementation, the Clean DevelopmentMechanism, and International EmissionsTrading - that, like sinks, enable industrializedcountries to meet their Kyoto commitmentswithout making emissions reductions athome. The Joint Implementation provisionsare found in Article 6 of the Protocol anddescribe a situation where an industrializednation listed in Annex I may claim creditstowards its emissions reduction target byfinancing an emissions reduction project inanother Annex I country. The marketsensitivity of this mechanism rests in thepossibility that it may be less costly to cutGHG emissions in Eastern European countriesstruggling to make the transition to marketeconomies than in OECD countries. Prior toKyoto the concept was proposed, in more orless restrictive terms, by Australia, Costa Rica,the European Union, New Zealand, Norway,Russia, Switzerland, the United States, andUzbekistan.13 The European Union wantedJoint Implementation to be “supplemental todomestic policies and measures;” others

wanted to stipulate a maximum percentage ofGHG reduction commitments that could berealized through this mechanism;14 the UnitedStates, the European Union, and Australia allwanted to insure that corporations would beable to participate in Joint Implementationprojects. Absolute ceilings were not specifiedin the Protocol. Instead, Article 6.1(d)incorporates a version of the European Unionproposal: “The acquisition of emissionreduction units shall be supplemental todomestic actions for the purposes of meetingcommitments under Article 3.” No actionswere taken at Bonn or Marrakech that placedadditional restrictions on the use of thismechanism by industrialized countries.

Similar stories may be told about theClean Development Mechanism andInternational Emissions Trading. The CleanDevelopment Mechanism enablesindustrialized countries to meet anunspecified amount of their domesticreduction obligations by financing emissionreduction projects in developing countries.15

The profile of emissions trading was raisedwhen the United States announced its supportfor this concept at COP 2 in 1996. At Kyoto,emissions trading threatened to become anissue that, in the words of the Chairman of thegroup of countries trying to fulfill the BerlinMandate, “could blow up the wholeprotocol.”16 Economists predict that emissionstrading will reduce the costs of GHG

11 These credits were in addition to a general 8.2 megatonscredit potentially available to all Parties who managedforests to retain carbon. This general credit was increasedto a maximum of nine megatons at Marrakech.

12 Gilles Trequesser, “Haggling Over Fine Print of ClimateChange Treaty,” Reuters, 9 November 2001.

13 Joanna Depledge, “Tracing the Origins of the KyotoProtocol: An Article-by-Article Textual History,” (FCCC/TP/2000/2), 25 November 2000, 62.

14 Switzerland proposed a fifty percent ceiling; Costa Ricawanted to set the ceiling at twenty-five percent. SeeDepledge, “Tracing the Origins,” 62.

15 Two limitations are attached to the use of the CleanDevelopment Mechanism. Investment in CDM projectsmay not replace existing overseas development assistance.A second limitation concerns the establishment of forestmanagement sinks in developing countries. A Partycannot use these projects to claim more than one percentof its 1990 level of emissions.

16 Depledge, “Tracing the Origins,” 85.


emissions abatement by between fifty andseventy-five percent.17 It would allow nationsthat have more than met their Kyoto emissionreduction targets to sell GHG credits tocountries whose present level of GHGemissions are greater than their Kyoto targets.Russia and Ukraine are two countries thatcould be sellers of emission credits. TheirKyoto emissions targets are their 1990emissions levels. But, as a result of the severeeconomic crises that hit these countries asthey attempted the transition to marketsystems, their economies - and their GHGemissions - shrank dramatically during the1990s. Between 1990 and 2000 Russia’semissions dropped by thirty percent whileemissions in Ukraine fell by more than fortypercent.18 Consequently, today a considerablegap or GHG emissions surplus exists betweentheir current emissions levels and their 1990benchmarks. Unlike a country like Canada,these nations have a right under Kyoto toincrease their domestic GHG emissions inorder to reach their Kyoto target. If emissionstrading is allowed these countries may selltheir GHG emissions surpluses to countriesthat, like Canada, have higher emissions levelsthan Kyoto allows. Much of the opposition toemissions trading came from developingcountries and environmental organizations,constituencies objecting to the notion thatwealthy countries should be allowed to buytheir way out of making genuine domesticcuts in GHG emissions. The Chairman andExecutive Secretary of the ad hoc group ofcountries tackling the Berlin Mandate may

have saved the Protocol from stillbirth whenthey proposed that Kyoto would embrace theprinciple of emissions trading but would leaveit to future Conferences of the Parties todefine “relevant principles, modalities, rulesand guidelines.” This definitional work wascompleted at the Bonn and Marrakechmeetings in 2001. These conferences placedfew restrictions on the ability of countries andtheir “legal entities” - corporations and otherprivate actors - to buy and sell emissionreduction credits. Consider, for example, thefollowing statement in the Marrakech Accordsregarding the principles, nature, and scope ofthe flexibility mechanisms:

Affirming that the use of the mechanismsshall be supplemental to domestic actionand that domestic action shall thusconstitute a significant element of the effortmade by each Party included in Annex I tomeet its quantified emission limitation andreduction commitments under Article 3,paragraph 1.19

Domestic action to cut emissions isrequired to be “a significant element” of GHGemissions efforts. Use of the flexibilitymechanisms “shall be supplemental todomestic action.” Such imprecise languagegives great latitude to the Annex I parties torely heavily upon these measures, and notdomestic cuts, to reach Kyoto’s targets.20

The withdrawal of the United Statesfrom Kyoto makes the emissions tradingoption more appealing to all OECD countries.The American refusal to join the rest of thedeveloped world and accept Kyoto eliminatedwhat would have been the most significant17 William D. Nordhaus, “Global Warming Economics,”

Science, Vol. 294, 9 November 2001, 1283.

18 Carnegie Endowment for International Peace, “Russia,Energy, and Global Climate Change: Senior ScientistWilliam Chandler speaks on Russian and global climatechange,” 7 February 2002. http://www.ceip.org/files/events/events.asp?EventID=459

19 United Nations, Report of the Conference of the Parties onits Seventh Session, Held at Marrrakesh from 29 Octoberto 10 November 2001 - Addendum - Part Two: ActionsTaken by the Conference of the Parties, Volume II, (FCCC/CP/2001/13/Add.2), 21 January 2002, 2.


source of demand for the emission credits thatcountries like Russia and Ukraine will sell in aCO2 emissions market. Consequently, unlessRussia, Ukraine, and East European countrieswith GHG emission surpluses form aneffective emission credit cartel, analysts predictthat the costs of these carbon credits will fallprecipitously in the emissions market. WilliamNordhaus, Sterling professor of economics atYale, estimates that the withdrawal of theUnited States will depress the price of carboncredits in 2010 from around fifty-five dollars(U.S.) per ton to around fifteen dollars perton.21 Others see even steeper reductions.William Chandler, senior staff scientist atPacific Northwest Laboratories in WashingtonD.C., concludes that the supply of creditsavailable from the former socialist economieswill be so large relative to the demand fromthe OECD that the price of carbon credits in2010 will be less than three dollars per ton.22

Of course the effectiveness of Kyoto as amechanism to reduce GHG emissions in thefirst commitment period of 2008 to 2012suffers from both the withdrawal of theUnited States and easy recourse tointernational emissions trading. Nordhauscalculates “that the accord will accomplishrelatively little in emissions reductionswithout U.S. participation - reducing globalcarbon-dioxide emissions by about 1%relative to no policy in the first period, 2008 to2012.”23 The assessment of ChristophBöhringer, head of the Department ofEnvironmental and Resource Economics atthe Centre for European Economic Researchin Mannheim, Germany, is even morepessimistic. “Non-compliance of the U.S.,” hewrites, “reduces environmental effectiveness ofthe Kyoto Protocol practically to zero if thereare no restrictions to hot air sales from Russia,Ukraine, and Eastern Europe.”24 Many,perhaps most, of Kyoto’s Canadian critics baseat least part of their opposition upon theProtocol’s diluted environmental effectiveness.“In fact,” wrote author and journalist PeterFoster as he bludgeoned away at thosefavouring ratification, “if there’s one thingKyoto won’t do, it will be to produce anydiscernible change in the climate.”25

If Kyoto won’t deliver a substantialreduction in GHG emissions is there any goodreason to cross the remaining threshold

20 After the successful completion of the Bonn conferenceone analyst of the conference outcomes noted: “The latestversion of the Kyoto Protocol does not foresee anyconcrete caps on the share of emissions reductions acountry can meet through the purchase of permits fromother industrialized countries. . . .” See Christoph Böhringer,“Climate Politics from Kyoto to Bonn: From Little toNothing?,” The Energy Journal, Vol. 23, no. 2 (2002), 52. Asimilar sentiment may be found in a report on theMarrakech conference prepared by the SustainableEnergy Industry Association of Australia. In respect tosupplementarity the Association noted: “It was decided atCOP 7 that Parties ‘shall’ report on supplementarity butthat reporting failures would not trigger loss of mecha-nisms eligibility.” See http://www.seia.com.au/Policy/Policy/Kyoto.pdf

21 Nordhaus, “Global Warming Economics,” 1284.

22 Carnegie Endowment for International Peace, “Russia,Energy, and Global Climate Change.” A similar conclusionis offered in Böhringer, “Climate Politics from Kyoto toBonn: From Little to Nothing?” Although I have not seenan estimate from the Russian Federation of what itbelieves the costs of emission credits will be withoutAmerican participation in the emissions credit market, thegovernment has implied that revenues from the sale ofcredits will be much lower since the withdrawal of theUnited States has “greatly reduced” the size of theemissions market. http://www.energy.ru/eng/confer-ences/mechanisms.htm

23 Nordhaus, “Global Warming Economics,” 1283.

24 Böhringer, “Climate Politics from Kyoto to Bonn: From Littleto Nothing?,” 53.

25 Peter Foster, “Don’t rush to ratify Kyoto,” The National Post,31 August 2002. Readers of The Globe and Mail wereshelled repeatedly with this argument in early September2002. See, for examples, Brian Milner, “Implementing Kyotowould be a costly error,” The Globe and Mail, 6 September2002; Jeffrey Rubin, “Why Canada signing Kyoto is anempty gesture,” 7 September 2002; William Thorsell,“Accept it: Kyoto won’t stop global warming,” The Globeand Mail, 9 September 2002.


needed to give legal effect to Kyoto? In thisrespect too many critics of Kyoto ignorecompletely the long-term value to be derivedfrom Kyoto’s establishment of institutions,processes, mechanisms, common knowledge,and rules for addressing climate change.Despite the failure of Kyoto to deliversignificant substantive reductions in GHGlevels, its agreements on issues such asdefinitions, procedures, and institutions formeasuring carbon emissions, for registeringcarbon credits, for monitoring, and forcompliance offer the building blocks - thepotential - to manage GHG emissions moreeffectively in the future. Critics (other than theleading environmental organizations) seem toforget that the creation of this internationalagreement to manage the climate only cameabout after more than a decade of tough,difficult negotiations. An alternative to Kyotois not likely to appear in any less time or anymore easily. This acknowledgment is morelikely to be offered by environmental groups.While they recognize that Kyoto won’t delivermuch in terms of reducing GHG emissionsthey also see the value of creating aninternational institution to address the issue.Nordhaus, after concluding that Kyoto “willmake little progress in slowing global warmingwhile incurring a substantial cost” endorsesthis alternative rationale for ratifying Kyoto inhis closing remarks:

the major merit of the new accord is that itis the first experiment with marketinstruments in a truly global environmentalagreement. There is little appreciation of theimportance of “institutional innovations” ofthis kind, and even less appreciation for thefact that there are no mechanisms fordealing with economic global public goodslike global warming. For this reason, theKyoto-Bonn Accord may be a useful if

expensive guinea pig. Operating the Kyoto-Bonn mechanism will provide valuableinsights on how complicated internationalenvironmental programs will work. It ishard to see why the United States should notjoin with other countries in paying for thisknowledge.

Canadian governments would do well to heedthis advice also.26

The impact of carbon sink credits,flexibility mechanisms, and the United States’refusal to endorse Kyoto upon Canada’s abilityto meet its Kyoto obligations and to do soeconomically has to date been understated.Frankly, these factors should enable Canada tomeet its Kyoto commitments at a fraction ofthe costs cited by the Protocol’s most stridentcritics and without making the Draconian cutsin actual GHG emissions these critics wringtheir hands about. This perspective is ignoredin virtually all of what passes for Kyotoanalysis in the mainstream Canadian media,however. For whatever reason, too manymedia commentaries tell readers that the onlyKyoto compliance policy option open toCanada is domestic emission reductions. Forexample, journalist Mike Byfield writes in TheReport: “If the 1997 Kyoto accord becomes abinding treaty, Canada would legally commititself to reducing its output of carbon dioxide(CO2) 6% below its 1990 level, or about 20%lower than today’s level.”27 Or, more recently,Jeffrey Rubin, chief economist and managingdirector of CIBC World Markets, in a columnironically called “Ahead of the Curve,” invitesreaders to “consider the facts. Reaching the

26 Some recognition of this point may be found in EricReguly, “EnCana CEO’s urge to kill Kyoto is misguided,” TheGlobe and Mail, 14 September 2002.

27 Mike Byfield, “Face it, Kyoto is pure politics,” The Report, 18March 2002, 33.


mandated emissions target (a 6-per-centreduction from 1990 greenhouse-gas emissionlevels by 2012) no longer requires a 20-per-cent cut in emissions, but something closer todouble that reduction.”28 Unfortunately forthe quality of public understanding, a vitalfact is missing from Rubin’s analysis (as well asByfield’s): the carbon credits Canada mayclaim through sinks and use of the flexibilitymechanisms may substitute for reducinggreenhouse gas emissions in Canada. Eachmegaton of carbon credited to Canada’s Kyotobalance sheet through any of these means isone less megaton of carbon that must be cutfrom the domestic emissions side of the ledger.Once lax restrictions on the use of flexibilitymechanisms and American isolationism areadded to this vital fact, Canada may honour itsKyoto commitment while seeing more GHGgases emitted from Canadian sources in 2010than went into the atmosphere in 1990.29 Thisprobably does not mean that, in 2010,Canada’s GHG emissions will be greater thanthey are today. But, it does show there areoptions available to Canadian governmentsand corporations that may significantly reducethe size of domestic emissions cuts and thecosts of compliance. This perspective meritsmore consideration in the debate overratifying Kyoto than it has received so far.

Government Inaction and theCompetitiveness Fallacy

To this point in time, Canada’s federaland provincial governments have notacted as if they took global warming

seriously. In fact, despite President Bush’srefusal to embrace Kyoto, “governments in theU.S. have, in fact, taken far more significantaction to reduce GHG emissions than havegovernments in Canada.”30 Some will arguethat this policy pattern, one highlightingniggling results, is justified by competitivenessconcerns. According to this school of thought,corporate competitiveness will be crippled ifgovernments forced industry - throughregulation and/or taxation - to reducegreenhouse gas emissions. United StatesPresident George W. Bush, this position’s mostpowerful champion, used this logic to stitchtogether his rejection of the Kyoto Protocol.Implementing Kyoto would cost the Americaneconomy dearly: it would cost the economy upto $400 billion and 4.9 million Americanswould lose their jobs.31 Canadian opponentsto Kyoto have followed Bush’s cue and portrayratifying Kyoto as a prescription for economicdisaster. The Canadian Manufacturers &Exporters (CME) paint a bleak picture of lifeunder Kyoto: 450,000 manufacturing jobswould be lost by 2010; Canadians would beforced to drive less (and, alas, in smaller cars);re-insulate their homes; pay up to 100 percentmore for electricity and 80 percent more forgasoline; and pay more taxes.32 The Canadian

28 Rubin, “Why Canada signing Kyoto is an empty gesture.”

29 In fact, Böhringer concluded that, with the carbon sinksconcessions from Bonn alone, Canada’s Kyoto emissionstarget went from 94 percent of 1990 levels (a 6 percentdecrease) to 107.9 percent (a 7.9 percent increase). SeeBöhringer “Climate Politics from Kyoto to Bonn: From Littleto Nothing?,” 56.

30 Matthew Bramley with Kirsty Hamilton and Leslie-AnnRobertson, A Comparison of Current Government Actionon Climate Change in the U.S. and Canada, (PembinaInstitute for Appropriate Development and World WildlifeFund, 2002), 1.

31 United States, Office of the Press Secretary to thePresident, “President Announces Clear Skies and GlobalClimate Change Initiatives,” 14 February 2002.


version of the competitiveness argument hasbeen fuelled by the Bush administration’srejection of Kyoto.33 The American decision,claims CME President and CEO Perrin Beatty,“creates a major competitiveness challenge forCanada and puts us in danger of losing salesand investment to competitors south of theborder and to other countries. It is not asituation we can afford.”34 The Americandecision, combined with a Canadian strategybased on taxation and regulation, “wouldmake Canadian industry less competitive,driving badly needed investments to othercountries and ultimately shifting emissionsout of Canada into countries that do not facestrict targets under the Protocol.”35 Thecompetitiveness gambit also figuresprominently in the Alberta government’snegative assessment of Kyoto’s economic

impact. With Canada standing as the onlyNorth American jurisdiction still consideringratification, Alberta warns that a Canadiandecision to ratify Kyoto without theparticipation of the Americans and theMexicans “creates a real risk of decreasedcompetitiveness, loss of investment, and lossof trade.”36

There is, however, a contrary and moreoptimistic view of the relationship betweencompetitiveness, efficiency, and the strictenvironmental regulations Kyoto coulddemand. It insists the conventional belief in aninevitable conflict between environmentalprotection and competitiveness is a “falsedichotomy.”37 On the contrary, there is “noevidence” that resource conservation measuressuch as energy efficiency standards damage thecompetitiveness of manufacturers ininternational markets.38 Furthermore, strictenvironmental regulations do not necessarilyerode a jurisdiction’s competitive advantage;such regulations, by stimulating innovationand upgrading, actually may boostcompetitiveness.39 Entertaining this alternativeoutlook is eased by recognizing there is littleevidence to support the doomsayer’s warningsthat strict environmental regulations are illwinds compelling businesses to set sail forpollution havens. Corporate investment andrelocation studies lend little support to the

32 Canadian Manufacturers & Exporters, “Pain Without Gain:Canada and the Kyoto Protocol,” 27 February 2002, 1-2.

33 Of course, not everyone welcomed the Bush position. TheUnion of Concerned Scientists has commissioned publicopinion polls purporting to show that 76 percent of likelyAmerican voters support government, not voluntary,action to reduce greenhouse gas emissions. See “U.S.voters want strict greenhouse gas cuts, says survey,”Reuters News Service, 10 July 2002. In the U. S. Senate, theEnvironment and Public Works Committee has approved ameasure that would require utilities to reduce their carbondioxide emissions by 24 percent. Republican Senators vowthat the carbon dioxide reductions will kill the bill’sprospects of passage. See Eric Pianin, “Senate Panel BacksBill to Curb Power Plant Pollution,” The Washington Post,28 June 2002, A5.

34 Canadian Manufacturers & Exporters, “Beyond Kyoto: AHealthy Environment, A Strong Economy,” Speaking Notesfor the Hon. Perrin Beatty, President and CEO CanadianManufacturers & Exporters, 9 May 2002 (Calgary), 7-8.

35 Ibid., 11. The same logic animates the position on Kyototaken by the Canadian Association of Petroleum Producers(CAPP), the most powerful interest in the Canadianpetroleum industry. According to CAPP, none of the Kyotoimplementation options introduced by the federalgovernment in its spring 2002 discussion paper “ad-equately addresses industry competitiveness.” SeeCanadian Association of Petroleum Producers, “TechnicalBackgrounder: Background to CAPP Input to June 14thWorkshop on Federal Climate Change Policy Options,” 3.

36 Alberta, “Albertans and Climate Change: An Assessment ofthe Economic Impacts of the Kyoto Protocol,” (February2002), 4.

37 Michael E. Porter, “America’s green strategy,” ScientificAmerican, Vol. 264, no. 4 (April 1991), 168.

38 Duncan Brack with Michael Grubb and Craig Windram,International Trade and Climate Change Policies, (London:Royal Institute for International Affairs/EarthscanPublications, 2000), 54.

39 Porter, “America’s green strategy.” A more elaborateexpression of this argument is found in Michael E. Porterand Claas van der Linde, “Toward a New Conception of theEnvironment-Competitiveness Relationship,” Journal ofEconomic Perspectives, Vol. 9, no. 4 (Fall 1995).


assumption that environmental regulationsare important considerations in the minds ofinvestors.40 The plausibility that regulationmay have this positive effect is furtheredstrengthened by accepting Porter and van derLinde’s point that “the world does not fit thePanglossian belief that firms always makeoptimal choices”41 - a thought more mayentertain in the wake of the spectacularblunders and scandals committed by firms likeEnron and WorldCom.

Finally, for those who need corporateendorsement before recognizing anargument’s legitimacy, consider the messagedelivered by British Petroleum Chief ExecutiveJohn Browne to Stanford University’sGraduate School of Business in the late winterof 2002. In 1997 BP accepted the logicunderlying the Kyoto Protocol. Sensing thatKyoto’s targets would one day be mandatory,BP sought to reduce its own 1990 level ofGHG emissions by ten percent by 2010.Browne’s Stanford speech announced that,eight years ahead of schedule, BP had reachedthat objective. By improving the efficiency ofBP’s operations, by adopting newtechnologies, and by better managing thecompany’s use of energy, BP met its goal “atno net economic cost - because the savingsfrom reduced energy inputs and increasedefficiency have outweighed all the expenditureinvolved.”42 BP’s story is a good illustration of

how tackling GHG emissions may actuallyimprove a company’s competitive position.The Pew Center on Global Climate Changehas found that improving corporatecompetitiveness has been one motivation forcompanies to look for ways of reducing theirGHG emissions.43

This alternative view on the regulation/competitiveness relationship is less categoricalthan the conventional wisdom. Whereas theconventional wisdom suggests that allenvironmental regulations damagecompetitiveness, the alternative does notsuggest that all environmental regulationsnecessarily improve competitiveness. Porterand van der Linde outline three principles thatenvironmental regulations must follow inorder to stimulate innovation. They must letindustry, not the regulator, select its preferredapproach to innovation; regulations shouldencourage continuous improvements andshould not demand that a particulartechnology be employed; as much uncertaintyas possible should be taken out of theregulatory process.44

40 Brack et al.., International Trade and Climate ChangePolicies, 9; Pierre Marc Johnson and André Beaulieu, TheEnvironment and NAFTA: Understanding and Implement-ing the New Continental Law, ((Washington: Island Press,1996), 45-46; some of these studies also are cited in Porterand van der Linde, “Toward a New Conception,” 109.

41 Porter and van der Linde, “Toward a New Conception,” 99.

42 John Browne, “Beyond Petroleum, Business and theEnvironment in the 21st Century,” (speech by JohnBrowne, Group Chief Executive, British Petroleum, hostedby Stanford Graduate School of Business, 11 March 2002),http://www.bp.com/centres/press/stanford/media_resources/speeches/index.asp

43 “Climate Change: Myths and Realities,” Remarks of EileenClaussen, President, Pew Center on Global Climate Changeat Emissions Reductions: Main Street to Wall Street - “TheClimate in North America,” New York, New York, July 17,2002. http://www.pewclimate.org/media/transcript_swiss-re.cfm

44 Porter and van der Linde, “Toward a New Conception,” 110.


A Climate Change Smorgasbord:Policies To Reduce Greenhouse GasEmissions

Against this background of greenhousegas policy inactivity many proposalsfor action by Canadian governments

have appeared. This section samples theseproposals. It highlights recommendationsfrom the International Energy Agency (IEA),the David Suzuki Foundation and the WorldWildlife fund, the Pembina Institute forAppropriate Development (PIAD), and theCanadian Centre for Policy Alternatives.

International Energy Agency

The IEA policy recommendations, althoughsensitive to the climate change issue, are takenfrom the Agency’s broader review of energypolicies in Canada.45 Depending upon thepolicy options ultimately selected and theamount of time allowed for compliance theeconomic costs of meeting Canada’s Kyotocommitment were judged to be “potentiallyhigh.”46 Throughout its review the IEAdisplayed a clear preference for strengtheningmarket mechanisms. This was certainly true ofits recommendations pertaining to GHGemissions. As well, however, the Agencyappreciated that the voluntary nature of mostefforts sponsored by Canadian governments toimprove energy efficiency, in a low energyprice environment, “may not be sufficient tomeet the present-day challenge of energyconservation and carbon dioxide emissionsmitigation.”47 The Agency felt that, in thepresence of low energy prices and strong

economic growth, the transition to a lessenergy-intensive economy would be unlikelyto occur in the absence of economicincentives. Consequently, governments shouldconsider measures such as heavier taxes on lessfuel-efficient vehicles as well as otherunspecified “selected fiscal incentives” in orderto reduce GHG emissions.48 The IEA alsourged governments to extend additionalsupport to renewable resources other thanconventional hydropower. Here, governmentsshould consider the incentives required tomake solar, wind, small-scale hydro, and co-generation electricity producers commerciallyviable.49 In this respect, the IEA was silentabout the fact that Canada’s renewable energyproducers historically have received no morethan a pittance from Canadian governments,especially when compared with the billions ofdollars in subsidies received by Canada’spetroleum producers.50 Equalizinggovernment support for these sectors wouldbe one way to act on the Agency’s concern.Finally, the IEA expressed its concerns aboutthe cutbacks made to the energy research anddevelopment budgets of governments. It feltthese cutbacks should be reconsidered andways to increase spending should bepursued.51

45 International Energy Agency, Energy Policies of IEACountries: Canada 2000 Review.

46 Ibid., 9.

47 Ibid., 68.

48 Ibid., 69.

49 Ibid., 97.

50 In his 2000 Annual Report the Commissioner of theEnvironment and Sustainable Development reported that,between 1970 and 1999, direct federal spending on non-renewable energy amounted to $40.4 billion compared to$200 million on renewable energy. Energy efficiencyreceived $3.3 billion in total spending over this period. TheCommissioner went on to note that today “the federalincome tax treatment given to renewable and non-renewable energy investments is reasonably similarexcept for certain investments in energy efficiency, oilsands, coal mines and alternative fuels.” See Canada,Report of the Commissioner of the Environment andSustainable Development, 2000, 3-11, 3-20.

51 International Energy Agency, Energy Policies of IEACountries: Canada 2000 Review, 132.


David Suzuki Foundation/World WildlifeFund (WWF)

Throughout the history of the climate changedebate the David Suzuki Foundation hasadopted one of the more aggressive stances onthe need for Canada to make substantialreductions to the country’s GHG emissions. Inan effort to reclaim some of the territoryclaimed by Kyoto’s opponents in thecompetitiveness debate, the Foundation joinedthe WWF and commissioned the TellusInstitute to study the issue.52

The Tellus Institute focused its analysis onjust seventeen measures from the hundredsproposed by the National Climate ChangeProcess (NCCP), a policy package the SuzukiFoundation and WWF regarded as only“modest.” The selected policies aimed toreduce GHG emissions in the building,transportation, waste management, electricity,and industrial sectors. Together, they wouldfulfill just over fifty percent of Canada’s 2012emission reduction target and delivereconomic benefits as well. The building sectoroptions selected included measures to improvethe energy efficiency of buildings and theirappliances/equipment, to offer favourable taxtreatment for investments in energy-efficientequipment, and to offer incentives to increasethe energy efficiency of new commercialbuildings. Waste management practices shouldbe altered to make use of the methane gasgenerated by landfills and to adopt “reduce, re-use, recycle, and compost” programs. Tellusconsidered two electricity sector proposals.They ask governments to develop a nationalcap and trade system for controlling GHGemissions from the electricity sector and to

insure that, by 2010, five percent of Canadianelectricity would be supplied by so-called“clean” renewable sources. For industry,governments should stimulate the co-generation of heat and electricity and reducemethane emissions in the petroleum sector.The transportation proposals examined byTellus included steadily increasing automobilefuel efficiency standards, speed limitenforcement, car sharing, mandatory ridesharing in firms with more than fiftyemployees, expanded public transitinfrastructure and services, and subsidizedinter-city bus services. Of the policiesconsidered, these are likely to be the mostcontroversial since they impact most directlyupon the lifestyle encouraged by NorthAmerica’s love affair with the automobile.

Pembina Institute for AppropriateDevelopment

Like the David Suzuki Foundation and theWorld Wildlife Fund, the Pembina Institutefor Appropriate Development has been aprominent voice calling for governments toact on climate change. Since the signing of theKyoto Protocol in 1997 Pembina has publisheda steady stream of GHG reduction policyrecommendations. Many echo therecommendations offered by the IEA, theSuzuki Foundation, and the WWF. Here, wedetail a very short list of policy options,options Pembina feels could improve theCanadian business community’scompetitiveness. One of the proposalsPembina endorses is creating a “cap and trade”emissions trading market similar to thesulphur dioxide emissions trading marketincorporated by the United States in its AcidRain Program (this program is found inamendments to the Clean Air Act in 1990).

52 Alison Bailie, Stephen Bernow, William Dougherty, andBenjamin Runkle, The Bottom Line on Kyoto: EconomicBenefits of Canadian Action, (April 2002).


Under the American sulphur dioxide emissionreduction program government ordered allAmerican power plants to reduce theiremissions of this pollutant in order to meetthe annual emission ceiling (the cap) set bythe federal government. The power plantswere given the option of meeting theirprescribed reductions through emissionstrading if this mechanism made betterbusiness sense to power plant owners. “Underthis program,” wrote an environmentalorganization that championed this market-based mechanism, “each power plant canchoose between various compliancealternatives, for example, using low-sulfur fuel,investing in energy efficient technologies,chemically removing sulfur from smokestackemissions, or acquiring allowances from otherutilities that can make reductions more cost-effectively.”53

Pembina also argues that energy andcarbon-use taxes also could be incorporatedinto a competitiveness-enhancing Kyotoimplementation strategy. Importantly, thisendorsement of environmental taxes does notnecessarily demand an increase in the totaltaxation burden. Rather, Pembina seems toprefer the path taken by a handful ofEuropean countries, countries that haveintroduced new environmental taxes whilereducing payroll and/or income taxes.54

Britain’s climate change levy offers oneexample of this approach. This levy on thenon-residential use of carbon-based energy isestimated to have increased corporate energy

costs by an average of twelve percent.55 But, byreducing employers’ National Insurance taxesby 0.3 percent the government claims its newenvironmental tax has produced “no net gainto the public finances.”56 Finally, Pembina alsoendorses increased vehicle fuel efficiencystandards and so-called “renewable energyportfolio standards” as policies that wouldlead to lower GHG emissions. Renewableportfolio standards require utilities to insurethat a certain amount of their electricity isproduced by low-impact renewable sources(the low-impact designation excludesconventional, large-scale hydro powerfacilities). Twelve American states have passedlegislation requiring the production of low-impact renewable energy. No provincialgovernment can make this claim. Perhaps themost significant law is found in Texas and wassigned, ironically enough, by President Bushduring his previous political incarnation as theGovernor of Texas. By 2009, 2000 megawattsof renewable energy, ten times the level ofwind resources in place or under constructionin Texas in 1999, will have to be provided bythe state’s electricity providers.57

53 Environmental Defense, From Obstacle to Opportunity:How acid rain emissions trading is delivering cleaner air,(Environmental Defense, 2000), 5. http://www.environmentaldefense.org/documents/645_SO2.pdf

54 Sylvie Boustie, Marlo Raynolds and Matthew Bramley, HowRatifying the Kyoto Protocol Will Benefit Canada’sCompetitiveness, (Pembina Institute for AppropriateDevelopment, June 2002), 22-23.

55 Road fuel gas also exempted from this tax.

56 United Kingdom, Department of Environment, Food andRural Affairs, Climate Change: The U.K. Program (Section 2“Delivering emission reductions,” 72. http://www.defra.gov.uk/environment/climatechange/cm4913/index.htm

57 “Texas rounds up wind for power,” Environmental NewsNetwork, 30 March 2001.


Canadian Centre for PolicyAlternatives (CCPA)

The last set of proposals to be considered hereis taken from Marshall’s CCPA study, MakingKyoto Work: A transition strategy for Canadianenergy workers.58 The study proposes, in part, a“just transition” for the workers whose jobs infossil fuel production and its associatedindustries are unquestionably at risk if Canadaratifies and implements Kyoto. Given theimportant profile of the Communications,Energy, and Paperworkers Union (CEP) in theenergy sector, the need for a just transition hasfigured prominently in the union’s thinkingabout climate change. The CEP asserts:

Workers and their communities too often bearthe brunt of changes required to protect theenvironment. This is fundamentally unfair.We need a JUST transition to sustainabledevelopment. 59

The CEP Just Transition policy documentlists a variety of measures that should besponsored under the umbrella of a JustTransition program. These measures couldinclude any or all of the following: education,retraining, relocation assistance, incomeprotection for displaced workers, andpreferential hiring for displaced workers inemerging “green” industries. Marshall, relyingon the economic simulation models employedduring the National Climate Change Process(NCCP), projects that up to 12,800 energysector workers could be clients for a JustTransition program.60 The cost of such aprogram is conservatively estimated at $1.084billion over ten years.61

As the foregoing suggests, the debatesurrounding how Canada could reach theGHG reduction target set by the KyotoProtocol stars literally dozens, if not hundreds,of domestic policy proposals. In the nextsection we begin to look at the severity of theconstraints that a variety of politicalinstitutions offer policy makers who wouldlike to move Canada closer to fulfilling thiscountry’s Kyoto GHG reductioncommitments. Three institutionalarrangements concern us: Canadianmembership in the World Trade Organization(WTO), the North American Free TradeAgreement (NAFTA), and Canadianfederalism. The implications of the WTO firstoccupy our attention.

The WTO and Kyoto:Can They Be Accommodated?

If there is a standard view of thehospitality of a liberal trade regime, asinstitutionalized in the WTO, to

environmental concerns it might be capturedin the phrase “sustained resistance.”62 Writingin 1999, von Moltke argued that the WTO’sCommittee on Trade and Environment hadbeen a “big disappointment” and that“environment remains part of the window-dressing rather than a significant concernwithin the trading system.”63 For Carl Pope,executive director of the Sierra Club, the WTOis likely to frown upon any environmental

58 Dale Marshall, Making Kyoto Work: A transition strategy forCanadian energy workers, (Canadian Centre for PolicyAlternatives, April 2002).

59 Communications, Energy, and Paperworkers Union, “Policy915,” http://www.cep.ca/policies/economy_energy_e.asp

60 The modeling scenario selected by Marshall assumes thatCanada, but not the United States, implements Kyoto. Theprojected job losses by energy sub-sector are: coal (1,700),petroleum and natural gas (400), gas utilities (6,600), andpetroleum and coal products (1,400). See Marshall, MakingKyoto Work, 41.

61 Ibid., 48-49.

62 Konrad von Moltke, “Trade and the environment: thelinkages and the politics,” Paper for the Roundtable onTrade and the environment, Canberra, 25 August 1999, 2.


subsidies. Its doctrines and rules “constitute atrade-driven regime that elevates materialconsumption and the interests ofmultinational producers above such values asthe ecological heritage of futuregenerations.”64 For those who worry that theWTO is crippling state sovereignty, MaudeBarlow - arguably Canada’s most passionateand articulate nationalist - paints a frighteningpicture. She characterizes the GeneralAgreement on Trade in Services (GATS) in thefollowing way:

Essentially, the GATS is mandated to restrictgovernment actions in regards to servicesthrough a set of legally binding constraintsbacked up by WTO-enforced tradesanctions. Its most fundamental purpose isto constrain all levels of government in theirdelivery of services and to facilitate access togovernment contracts by transnationalcorporations in a multitude of areas,including health care, hospital care, homecare, dental care, child care, elder care,education (primary, secondary andpostsecondary), museums, libraries, law,social assistance, architecture, energy, waterservices, environmental protection services,real estate, insurance, tourism, postalservices, transportation, publishing,broadcasting and many others.65

Government as the handmaid totransnational corporations, this is Barlow’spicture of life in the WTO’s liberalinternational trade regime.

As previously alluded to, however, somecorporations, including transnationals, aretaking actions to reduce their own GHGemissions and want government action onclimate change.66 A few of these corporations,American corporations that want the UnitedStates to reconsider its rejection of Kyotomight be regarded as “WTO optimists.” Theyforesee the possibility that the WTO may beused to punish those countries and theircorporations that do not ratify. DuPont, forexample, has suggested that, if the UnitedStates remains outside of Kyoto, America’strading partners might turn to the WTO anddemand action against American exports onthe grounds that operating outside Kyoto maycreate unfair competitive advantages over thesignatories to the Protocol.67

Another suggestion is that Article XX ofthe GATT could be used to impose tradesanctions, such as import restrictions, againstcountries that turn their backs on Kyoto andexhibit a cavalier attitude towards thegreenhouse gas threat. Article XX allows WTOmembers to adopt or enforce any measure“necessary to protect human, animal, or plant

63 Ibid., 10, 12. Brack, Grubb, and Windram also conclude thatthe Committee on Trade and Environment has not beensuccessful in resolving the conflict between trade andenvironment. See Brack et al.., International Trade andClimate Change Policies, 20.

64 Carl Pope, “Race to the Top: The Biases of the WTO Regime,”Harvard International Review, Winter 2002, 66.

65 Maude Barlow, “The Free Trade Area of the Americas andthe Threat to Social Programs, EnvironmentalSustainability and Social Justice in Canada and theAmericas,” (2001), 7. http://canadians.inline.net/docu-ments/campaigns-ftaa-threat-barlow.pdf

66 Some companies who recognize the need to take actionon global warming have joined the Pew Center’s BusinessEnvironmental Leadership Council. Two Canadian firms,TransAlta and Ontario Power Generation, may be countedamong the thirty-eight companies participating in theCouncil in June 2002. See “SC Johnson Joins Effort toMitigate Climate Change - Pew Center’s BusinessEnvironmental Leadership Council Climbs to 38 Members,”Press Release, 24 June 2002. http://www.pewclimate.org/media/press.cfm

67 Neil Franz, “Kyoto Pressure Will Mount for U.S.,” ChemicalWeek, Vol. 164, issue 14 (April 3, 2002), 36. Some Americantransnationals such as DuPont are eager to participate inan international emissions trading system, an optionrequiring American ratification of Kyoto. See Neil Franzand Alex Scott, “Firms at Odds with Bush,” Chemical Week,Vol. 163, issue 29 (August 1, 2001), 7


life or health” or any measure “relating to theconservation of exhaustible natural resourcesif such measures are made effective inconjunction with restrictions on domesticproduction or consumption.”68 Such actionscannot, however, constitute arbitrary orunjustifiable discrimination against WTOmembers nor may such actions be disguisedtrade restrictions. Kass and McCarrollspeculate that European nations could use thisarticle of the GATT to ban imports ofAmerican products such as sport utilityvehicles since such action would be designedto further a legitimate environmental objective- the Climate Change Convention.69

The outcomes of two disputes about thetrade impact of environmental protectionmeasures handled by the WTO’s disputesettlement process lend plausibility to thisscenario. In the United States - GasolineStandards case and the Shrimp/Turtle case,American air quality regulations and measuresto protect the endangered sea turtle, werechallenged. In the United States - GasolineStandards case, Venezuela and Brazilsuccessfully argued that the approach taken bythe Environmental Protection Agency (EPA)to set gasoline cleanliness standardsdiscriminated unfairly against importedgasoline. But, in affirming this WTO panelconclusion the WTO Appellate Body adopteda very different logic and made it very clearthat it did not question the legitimacy of theUnited States Clean Air Act. Rather, its quarrelrested with how the Act was implemented. TheEPA’s rules for imported gasoline were harsherthan those for gasoline produced by refineriesin the United States.70 As the EPA noted, theWTO decision “fully recognized a country’s

right to adopt appropriate measures to protectpublic health and the environment.”Furthermore, the decision identified clean airas an exhaustible natural resource andestablished that clean air conservationmeasures were legitimate under the terms ofArticle XX(g) of the GATT.71

The dispute in the Shrimp/Turtle casecentred on American efforts to force foreignshrimp trawling fleets to modify their trawls asAmerican shrimp boats operating in areasfrequented by sea turtles were required to do.The objective of this extraterritorial regulatoryinitiative was to reduce the significant,incidental mortality of sea turtles caused bytrawling for shrimp. Section 609 of this lawimposed a ban on shrimp and shrimp productimports from countries that did not follow thefishing gear modifications made by theAmerican fleet.

The American ban was challenged byIndia, Malaysia, Pakistan, and Thailand. TheWTO panel agreed with the complainants andrejected the American claim that this traderestriction could be justified by the exceptionfound in Article XX(g) “relating to theconservation of exhaustible natural resources.”Upon appeal the Appellate Body upheld thepanel’s decision but, as in the United States -Gasoline Standards case, used a logic that wasmuch more hospitable to environmentalprotection and conservation goals. Here, theAppellate Body endorsed the possibility thattrade sanctions may be used as legitimateenvironmental protection measures since itagreed with the United States that thechallenged regulation was focused upon

68 Article XX, paragraphs (b) and (g).

69 Stephen L. Kass and Jean M. McCarroll, “Standing Alone onClimate Change,” New York Law Journal, January 4, 2002.

70 World Trade Organization, Appellate Body - United States -Standards for Reformulated and Conventional Gasoline -AB-1996-1 - Report of Appellate Body, 29 April 1996.

71 World Trade Organization, United States - Standards forReformulated and Conventional Gasoline, Status Reportby the United States, 10 January 1997, 3.


realizing a legitimate environmental objective:

The means are, in principle, reasonablyrelated to the ends. The means and endsrelationship between Section 609 and thelegitimate policy of conserving an exhaustible,and, in fact endangered species, is observablya close and real one, a relationship that isevery bit as substantial as that which wefound in United States – Gasoline betweenthe EPA baseline establishment rules and theconservation of clean air in the UnitedStates.72

In principle Section 609 was “an even-handed measure.” It fell squarely within ArticleXX(g). But, discrimination may arise wheneven-handed measures are applied unfairly.Arbitrary and unjustifiable discriminationmay result from the manner in which a ban isimplemented. This was the rationale theAppellate Body used against the American law.The application of Section 609, not its sub-stance, produced unjustifiable and arbitrarydiscrimination.73

It is important to note that the WTO didnot demand that the United States revoke itslaw on sea turtle conservation; it instead askedthe United States to show more flexibilitywhen evaluating the comparability of foreignsea turtle conservation programs and to insurethat foreign governments had genuine oppor-tunities to participate in American delibera-tions concerning the imposition of shrimp/shrimp product import bans. The UnitedStates accepted these recommendations andrulings and altered its regulatory regimeaccordingly. The United States also redoubledits efforts to negotiate a sea turtle protection

agreement with the countries whose fleetsfished the Indian Ocean.74 These actions didnot impress Malaysia. The Malaysians re-quested that the original WTO panel bereconvened and that it find that the UnitedStates, by maintaining its shrimp import ban,had not complied with the findings of theDispute Settlement Body.75 The original panelrejected Malaysia’s appeal. The continuationof the American shrimp import ban wasjustified because the Americans had revisedtheir regulatory regime and were trying tonegotiate a multilateral sea turtle conservationagreement.76

How do these WTO trade disputeoutcomes speak to the Canadian ratificationand implementation of the Kyoto Protocol?First and most generally, these decisions areimportant for what they may say about animportant evolution in the WTO’s perspectivetowards environmental conservation andprotection. While history demands that we bewary of the WTO’s fidelity to environmentalconservation, these decisions suggest thatWTO dispute settlement bodies have“established the principle that trade rules donot stand in the way of legitimateenvironmental regulation.”77 Or, as Hobergbluntly puts it, “environmental criticisms are

74 World Trade Organization, United States - ImportProhibition of Certain Shrimp and Shrimp Products -Status Report by the United States, 15 July 1999.

75 World Trade Organization, United States - ImportProhibition of Certain Shrimp and Shrimp Products -Recourse by Malaysia to Article 21.5 of the DSU, 13October 2000.

76 This panel decision was upheld by the Appellate Body inOctober 2001. See World Trade Organization, United States- Import Prohibition of Certain Shrimp and ShrimpProducts - Recourse to Article 21.5 of the DSU by Malaysia- AB-2001-4 - Report of the Appellate Body, 22 October2001.

77 Michael M. Weinstein and Steve Charnovitz, “The Greeningof the WTO,” foreign Affairs, vol. 80, no. 6 (November/December 2001), 147.

72 World Trade Organization, United States - ImportProhibition of Certain Shrimp and Shrimp Products -Report of the Appellate Body, 12 October 1998, 53.

73 Ibid., 63-76.


exaggerated. Trade agreements leave far moreroom for domestic environmental measuresthan is frequently argued.”78 None of thisshould be taken to imply that the rules of theworld trading system should not be mademore sensitive to environmental concerns - apoint we return to in our recommendations.

Second, these disputes may offer aninteresting twist to the Canadian debate aboutthe trade consequences associated with thewisdom of ratifying Kyoto. Kyoto’s opponentshave controlled this terrain until now. But, thefailure of Malaysia’s appeal to both theoriginal shrimp/turtle panel and the AppellateBody signaled the WTO’s willingness totolerate trade sanctions used in the name ofprotecting endangered global commonproperty resources. In order for such a ban tostand, a nation’s regulatory measures must be:clearly connected to the environmentalobjective, non-discriminatory, implementedtransparently, non-prescriptive in respect totechnology-specific standards, and a last resortadopted only after genuine efforts to negotiatemultilateral agreements have failed.79 Toreturn to Kass and McCarroll’s point, WTOmembers who balk at ratifying Kyoto may facedamaging trade repercussions.

Finally, as just alluded to, these decisionsunderline the crucial importance of policydesign questions. Carefully crafted initiativesmay serve two masters: a liberal trade regimeand GHG emission reductions. This attentionto policy design figures prominently in studiespublished by the International Institute forSustainable Development (IISD) and theRoyal Institute of International Affairs (RIIA).During the turbulent WTO Ministerial

meetings in Seattle these bodies sponsored aseminar examining the potential for conflictbetween GHG reduction policies and WTOtrade rules. Although the seminar identified“serious potential problems in the interfacebetween the WTO rules and theimplementation of the Kyoto Protocol” itconcluded that careful policy design made itpossible to avoid them.80

Government incentives to increase the useof renewable energy would likely beconsidered subsidies under the WTO’sAgreement on Subsidies and CountervailingMeasures (SCM). Since such measures wouldtarget a specific sector or industry they wouldclearly be governed by this Agreement.However, as long as the subsidies were neitherexport promoting nor demonstrated to harma foreign competitor they would not violatethe SCM. “The key question to bear in mindwhen designing such programs is,” accordingto the IISD/RIIA seminar summary, “do thesubsidies impair the market share of acompeting foreign producer?”81 Care must betaken to minimize this possibility. Theadoption of higher energy efficiency standards- for automobiles, buildings, and appliances -figured prominently in the earlier discussionof possible implementation measures. HereWTO members may set whatever level ofenvironmental protection they desire. Ifgovernments want a zero-risk environment,they are entitled to adopt trade restrictions touphold those standards as long as they canoffer sufficient scientific evidence to justify thezero-risk option.82 Again, such standards mustbe non-discriminatory; they must not favourdomestic actors and punish foreign companiesor they could be challenged under the terms of

78 George Hoberg, “Trade, Harmonization, and DomesticAutonomy in Environmental Policy,” Journal of Compara-tive Policy: Research and Practice, Vol. 3, no. 2 (August2001), 192.

79 Ibid., 207.

80 Aaron Cosbey, “The Kyoto Protocol and the WTO,” seminarnote, no date. http://www.iisd.org/pdf/kyoto.pdf

81 Ibid., 4.


the WTO’s Technical Barriers to TradeAgreement (TBT). As Brack et al.. observe, it’shard to imagine any environmental reason forapplying energy efficiency standards in adiscriminatory manner.83

In respect to taxes, heavier taxes on lessfuel-efficient vehicles, as long as there was nodiscrimination against foreign-producedvehicles, would be unlikely to spark a WTOdispute.84 Carbon taxes would be a morecontroversial and more problematic option inthe context of the WTO. A carbon tax is a taxset according to the amount of carbon used toproduce a particular good. It would beparticularly damaging to energy intensiveindustries such as the Canadian oilsands,smelting, and chemical sectors. If the goodssubject to a carbon tax are traded

internationally this type of tax arguably couldbe doubly or triply damaging:

If foreign goods do not face the same taxes,then a unilateral carbon tax only has theeffect of giving away market share ofdomestic business to their foreigncompetitors, both at home and abroad. And,in the end, global carbon emissions may beunaffected - only the names of the emittingcountries would change.85

Border Tax Adjustments (BTAs) couldtemper these damaging market share/globalcarbon emissions consequences of a carbontaxation system.86 First, imported energy-intensive goods would be taxed at the borderas if they had been produced domestically.Second, energy-intensive goods exportedabroad would receive a refund of the carbontaxes they paid. Clearly, these import taxes orexport rebates are barriers to trade. Wouldthey be tolerated in the multilateral tradingregime supervised by the WTO? A definitiveanswer cannot be offered. According to oneanalysis of BTAs and the WTO system, “itwould appear that BTAs relating to productionprocesses are only allowable if they are appliedto inputs that are physically incorporated.”87

82 This conclusion is taken from the WTO’s handling of theBeef Hormones and Australian Salmon cases. See Hoberg,“Trade, Harmonization, and Domestic Autonomy inEnvironmental Policy.” This position was reiterated in theAppellate Body’s report on the dispute between Canadaand the European Communities over France’s ban againstCanadian asbestos imports. The decision upheld the bansince France’s decision to halt the spread of asbestos-related health risks was based on scientific evidencedemonstrating the carcinogenicity of chrysotile asbestos.The import ban was upheld. See World Trade Organization,European Communities - Measures Affecting Asbestosand Asbestos-Containing Products - Report of theAppellate Body, 12 March 2001.

83 Brack et al.., International Trade and Climate ChangePolicies, 52. It is unclear how the WTO’s TBT would regardthe propriety of environmental standards and any trademeasures taken to support them. In the Asbestos Case theAppellate Body ruled that the French decree banningCanadian asbestos imports was a technical regulation. Italso ruled that the decree was justified under the humanhealth protection exception. But, it did not rule onCanada’s claim that the decree violated four provisions ofArticle 2 of the TBT. These provisions stipulated thatregulations: should not discriminate between likeproducts (2.1), should be no more trade-restrictive thannecessary (2.2), should use international standards ifeffective and appropriate (2.4), and should be based onproduct performance requirements and not on design ordescriptive characteristics (2.8). Since the original paneldid not examine these claims the Appellate Body lackedthe factual basis needed to consider the Canadian claim.

84 In the so-called CAFE dispute of 1993-94 Europeancomplaints against a “gas-guzzler” tax imposed by theUnited States on vehicles that got less than 22.5 miles pergallon were dismissed. Since the tax applied to bothdomestic and imported vehicles it complied with theGATT.

85 Cosbey, “The Kyoto Protocol and the WTO,” 4.

86 A Government of New Zealand study concluded: “Bordertax adjustment ensures that domestic industries remaininternationally competitive.” See Jim Sinner, “AddressingCompetitiveness Impacts of Climate Change Policies,” Areport to the Ministry of Economic Development, NewZealand, February 2002, 17. Available at http://www.med.govt.nz/ers/environment/climate/competitive-ness/competitiveness.pdf

87 Brack et al.., International Trade and Climate ChangePolicies, 87.


Therefore, where the carbon utilized is notphysically present in the final product - aswould be the case for carbon-based energythat was only consumed or emitted duringproduction - BTAs would seem to run afoul ofWTO rules.88 It will be up to some futuredispute settlement panel to settle the questionunless institutional changes are made to themultilateral trading system.

National and international emissionstrading systems also figure significantly indiscussions of how Kyoto’s targets may be met.The potential for emissions trading to conflictwith the multilateral trading system is, in part,definitional. Will the emission reduction unitsthat Annex I countries will trade be treated asgoods or services by the WTO? If these unitsare treated as goods they may violate themost-favoured-nation principle because WTOmembers who are not included in Annex Iwould be discriminated against - they are notincluded in the international emissionstrading regime sketched out in Article 17 ofthe Kyoto Protocol. But, if these units areregarded as services they would fall under theGeneral Agreement on Trade in Services(GATS), not the GATT. This second scenariowould be unlikely to conflict with the WTO ifall financial institutions from all WTOmembers (including countries such as theUnited States that will not be governed by theProtocol) were allowed to handle the trades ofthe emission reduction units between Annex Icountries.89

Barring any changes to the world tradingsystem supervised by the WTO, the ultimateconformity between a multilateralenvironmental agreement (like Kyoto), thesorts of GHG emissions reductions optionshighlighted here, and the WTO will rest in thehands of WTO dispute settlement bodies. Therecord to this point in time might offer someoptimism. “So far,” notes the WTO, “nomeasure affecting trade taken under anenvironmental agreement has been challengedin the GATT-WTO system.”90 Of course, thisrecord neither guarantees that futurechallenges will not be forthcoming nor thatsettlement bodies will look favourably onenvironmental trade measures. However, themeasures identified in this paper, if designedin a careful, non-discriminatory manner, arelikely to survive any trade challenges broughtagainst them. A scarcity of domestic politicalwill, not the WTO, presents a more seriousthreat to these GHG emissions reductionoptions.

One dimension of a coherent Kyotoimplementation strategy - workforceadjustment or Just Transition - has beenignored to this point. Does the WTO pose amore or less serious threat to the type ofpolicies governments would include in acomprehensive, Just Transition program?Referring once again to the position onworkplace adjustment articulated by the

88 Ibid., 85-90. A more optimistic view of the likely fitbetween BTAs applied to energy consumed or emittedduring production is offered in J. Andrew Hoerner, “TheRole of Border Tax Adjustments in Environmental TaxationTheory and U. S. Experience,” (1998) available at http://www.SustainableEconomy.org/bta.pdf Sinner shares thisview. See Sinner, “Addressing Competitiveness Impacts ofClimate Change Policies,” 17-21.

89 At an OECD/IEA workshop on emissions trading underKyoto Jacob Werksman suggested that “emissionsallowances are government permits or licences to emit,and would not, themselves, qualify as either products orservices under the WTO (but the services associated withtrading of AAUs may be a “service” within the meaning ofthe WTO).” Any rules pertaining to the transfers, acquisi-tions, or trading of those allowances would not violate,therefore, WTO prohibitions on trade bans. See Organiza-tion for Economic Co-operation and Development andInternational Energy Agency, “Joint Implementation andInternational Emissions Trading Under the Kyoto Protocol:Workshop Report,” 19 November 1999. Available at http://www.oecd.org/pdf/M00006000/M00006931.pdf


Communications, Energy and PaperworkersUnion (CEP), a Just Transition could includeany or all of the following: education,retraining, relocation assistance, incomeprotection for displaced workers, andpreferential hiring for displaced workers inemerging “green” industries.

On the one hand, many of these measuresare consistent with the “active” labour marketprograms countries increasingly have adoptedin their efforts to restructure their domesticeconomies and cope with the disruptionaccompanying global economic changes. Thisis especially true in respect to education andtraining programs.

On the other hand, some fear that,although globalization may demand activelabour market policies, trade agreements likethe NAFTA, GATT, and GATS shacklegovernments. They sap the sovereignty ofnation states. By robbing states of theirsovereignty, contemporary trade agreementsseverely restrict their freedom of action.According to worse case scenarios of economicintegration, distinctive - and generous - socialprograms either will vanish or becomeimpossible to introduce. Social policies willconverge. And, of crucial importance toworking people, this convergence will not bebenign. Social programs, taking their cue fromthe mantra of economic competitiveness, willbe niggardly. Trade agreements will be used toattach social policies as subsidies that shouldeither be eliminated or compensated for. Thislogic invites us to consider whether or not thetypes of measures resting at the heart of a JustTransition program would be vulnerable inthis environment.

The provisions of the GATS seem to offerprotection to the type of policy initiativessuggested by the CEP’s Just Transition policy.Both the preamble to the Agreement andArticle XIX state that liberalization shall grant“due respect for national policy objectives.”91

As Canada approached a new round of GATSnegotiations, the federal governmentidentified the following as one of itsobjectives:

To preserve the ability of Canada andCanadians to maintain or establishregulations, subsidies, administrativepractices or other measures in sectors suchas health, public education, and socialservices.92

Again, if this position is maintained andfuture negotiations do not dilute the “respectfor national policy objectives” it would appearthat a Just Transition program would not bethreatened by the GATS.

90 World Trade Organization, “The Doha Declarationexplained,” Available at http://www.wto.org/english/tratop_e/dda_e/dohaexplained_e.htm

91 World Trade Organization, General Agreement on Trade inServices, accessed at http://www.wto.org/english/tratop_e/serv_e/gatsintr_e.htm

92 World Trade Organization, “Communication from Canada -Canadian Initial GATS Sectoral/Modal/Horizontal Negotiat-ing Proposals,” (S/CSS/W/46), 14 March 2001.


The NAFTA and Kyoto

Let us now turn and consider the extentto which the Kyoto implementationpolicies identified above are likely to

survive any potential challenges under theNAFTA. In respect to a Just Transitionprogram, Annex II of the NAFTA reserved forCanada “the right to adopt or maintain anymeasure” pertaining to a variety of socialservices “established or maintained for apublic purpose.” The following services arecovered by this declaration: income security orinsurance, social security or insurance, socialwelfare, public education, public training,health and child care. As long as Canada doesnot relinquish this right, the NAFTA likely willtolerate the range of social policies needed torealize a Just Transition.

These brief looks at the substance of a JustTransition program in the context of Canada’sGATS/NAFTA commitments and positionsoffer an important reminder. It would be amistake to assume, by definition, thateconomic integration and trade agreementslead to an unhealthy, or lowest commondenominator, social policy convergencebetween countries such as Canada and theUnited States. Policy analyst Keith Banting’scomments are instructive:

Although international pressures on the statehave clearly grown, narrowing the autonomyof national states in a palpable way, it isimportant to avoid deterministinterpretations. Each nation must adjust topowerful pressures emanating from the globaleconomy, but the global economy does notdictate the way in which each countryresponds. Policy is also shaped by domesticpolitics. . . .93

When policy convergence, harmful orotherwise, occurs between countries we must

realize that domestic political pressures, aswell as or instead of, trade agreements may beresponsible. Conceivably, domestic politicalforces and considerations may bear the lion’sshare of the responsibility. For example, in the1990s Canadian unemployment insurancepolicy became more like Americanunemployment policy. But, the domesticobsession with deficit reductions - not thedemands of the NAFTA - led to Canadian UIbenefit reductions. And, on a more positivenote the federal government retained thefishermen’s benefit in the changes made to UIin 1991 because of another domestic politicalpressure - regional economic disparities. Theretention of the fishermen’s benefit, alongstanding irritant in Canada-U.S. traderelations, may also signal that regionallydifferentiated treatment, if warranted, couldbe incorporated into a Just Transitionprogram. If sufficient domestic politicalsupport could be mustered, a version of JustTransition offering more generous transitionprovisions for workers in one region of thecountry (such as workers in Alberta’s oilsands)than in other regions would seem quitefeasible.

From Just Transition we now turn toconsider NAFTA’s hospitality to the range ofenergy policy options outlined earlier. Giventhe cross-pollination between the WTO andNAFTA many of the conclusions offered in theprevious examination of the WTO’shospitality to implementing Kyoto may beextended to this look at the relationshipbetween Kyoto and NAFTA. However, we alsomust remember that NAFTA tries to create amore liberal economic environment for

93 Keith Banting, “The Social Policy Divide,” in Keith Banting,George Hoberg, and Richard Simeon (ed.), Degrees ofFreedom: Canada and the United States in a ChangingWorld, (Toronto: McGill-Queen’s University Press, 1997),309.


Canada, Mexico, and the United States than isavailable to these countries through theWTO.94 To the extent that trade liberalizationthreatens a country’s ability to regulate onbehalf of the environment, NAFTA may pose alarger threat than the WTO to Kyotoimplementation policies.

Several chapters of NAFTA merit closeattention in trying to gauge the constraintsthis trade agreement may place on efforts toimplement Kyoto. They are: Chapter Nine(standards-related measures), Chapter Eleven(investment), and Chapter Six (energy andbasic petrochemicals).

The standards-related measures chapter isanalogous to the WTO’s Technical Barriers toTrade (TBT) Agreement. Earlier we noted thatit is unclear how the type of environmentalstandards Canada could adopt to implementKyoto would fare in the context of the TBTAgreement. There is no case law on theagreement to use as a signpost on this issue.95

Under NAFTA most of the environmentalregulations with implications for tradebetween Canada, Mexico, and the UnitedStates will fall under Chapter Nine, a fortunatecircumstance given the chapter’s“unprecedented permissiveness to mostenvironmental standards-related measures.”96

This chapter gives these countries the right toadopt any standards-related measure relatingto environmental safety or protection and toset their environmental protection levels

wherever they feel appropriate.97 Moreover,unlike the TBT Agreement or NAFTA’s chapteron agriculture, sanitary, and phyto-sanitarymeasures (Chapter Seven), Chapter Nine doesnot require countries to use risk assessmentsto defend their chosen standards and levels ofenvironmental protection. Countries mayconduct risk assessments to support alegitimate objective such as environmentalprotection - they are not required to do so.98

The more permissive environment created inChapter Nine leads Johnson and Beaulieu toconclude that, as long as standards-relatedmeasures respect NAFTA’s national treatmentprovisions, do not raise unnecessary obstaclesto trade, and are related to environmentalprotection, they are likely to survive tradechallenges. Stricter emission standards, heaviertaxes on less fuel efficient vehicles, or tougherenergy efficiency standards would all seemlikely to pass these tests.

As friendly as Chapter Nine might be toenvironmental regulations generally and toKyoto implementation measures specifically,some fear these gains will become ephemeralbecause of NAFTA’s Chapter Eleven - theinvestment chapter. Since NAFTA took effectChapter Eleven has been the most contentioussection of NAFTA for those who supportstrong environmental protection measures.Mann makes this point emphatically: “Chapter11 can undermine efforts to enact new lawsand regulations in the public interest, inparticular to protect the environment andhuman health.”99 It arguably plays thiscorrosive role by sending a regulatory chill94 Maureen Appel Molot, “NAFTA Chapter 11: An Evolving

Regime,” 4, a paper presented at the NAFTA Chapter 11Conference, 18 January 2002, Carleton University, availableat http://www.carleton.ca/ctpl/chapter11/

95 Gary Horlick, Christiane Schuchhardt, and Howard Mann,NAFTA Provisions and the Electricity Sector, (Montréal:Commission for Environmental Cooperation of NorthAmerica, 2002), 18.

96 Johnson and Beaulieu, The Environment and NAFTA, 87,94.

97 North American Free Trade Agreement, Article 904.1, 904.2

98 North American Free Trade Agreement, Article 907.1. Thelanguage of Article 2.2 of the Agreement on TechnicalBarriers to Trade is more categorical in respect to riskassessments. It reads, in part: “In assessing such risks,relevant elements of consideration are, inter alia: availablescientific and technical information, related processingtechnology or intended end-uses of products.”


through governments. The generous treatmentof foreign investors and their investmentsoutlined in this Chapter are thought tointimidate governments, making regulatorsafraid of introducing environmental measuresbecause corporations are likely to challengetheir regulations successfully.100 Forenvironmental regulations, the greatest threatrests with several “substantive” articles foundin Section A of the Chapter as well as in theinvestor-state dispute settlement processoutlined in Section B. We first considerNAFTA’s investor-state dispute settlementprocess.

A path-breaking feature of NAFTA, onethat strengthens foreign investors vis-à-visgovernments, concerns “standing” - the issueof who is permitted to initiate NAFTA’sdispute settlement process. In the GATT onlygovernments have the right to launch a casebefore the WTO’s dispute settlement bodies.NAFTA extends this right to foreign citizensand corporations.101 Imagine theopportunities this creates for an Americancompany, for example, an American energycompany, with investments in Canada. Thiscompany could kick-start the disputesettlement process if it felt sufficientlydamaged by federal or provincial measures. ACanadian government could find itselfembroiled in a dispute if it treated this foreign

investor differently from Canadian investors(Article 1102: National Treatment) ordifferently than required by international law(Article 1105: Minimum Standard ofTreatment) or forced the foreign investor tomeet certain performance requirements suchas transferring technology (Article 1106:Performance Requirements). Our imaginaryenergy company, after first attempting to settleits claim through consultation or negotiation,then may unilaterally initiate a bindingarbitration process against the Canadiangovernment.102

When it comes to environmentalprotection, some of the substantive investmentprovisions in Section A are more threateningthan others. Regulations genuinely aimed atenvironmental protection would seem to haveno sound reason to discriminate based on thenationality of investors.103 Consequently, theChapter Eleven articles prohibitingdiscrimination between domestic and foreigninvestors (Articles 1102, 1103, and 1104) arenot particularly worrisome. More seriousconcerns have been raised though in respect totwo other articles in Section A: Article 1105(Minimum Standard of Treatment) andArticle 1110 (Expropriation andCompensation). Article 1105 requires NAFTAparties to treat the investments of foreigninvestors “in accordance with internationallaw, including fair and equitable treatment

99 Howard Mann, Private Rights, Public Problems: A guide toNAFTA’s controversial chapter on investor rights, (Winni-peg: International Institute for Sustainable Development,2001), 1.

100 Ibid., 33-34. For an argument refuting the emergence ofregulatory chill see Michael M. Hart and William A.Dymond, “NAFTA Chapter 11: Precedents, Principles, andProspects,” a paper presented at the NAFTA Chapter 11Conference, 18 January 2002, Carleton University, http://www.carleton.ca/ctpl/chapter11/

101 Article 1139 defines an investor as “a Party or stateenterprise thereof, or a national or an enterprise of suchParty, that seeks to make, is making or has made aninvestment.”

102 Christopher Wilkie, “The Origins of NAFTA InvestmentProvisions: Economic and Policy Considerations,” a paperpresented at the NAFTA Chapter 11 Conference, 18January 2002, Carleton University, http://www.carleton.ca/ctpl/chapter11/

103 This may be seen in respect to Chapter 11’s performancerequirements provisions. Article 1106.2 modifies theprohibition against setting performance requirements inorder to allow any “measure that requires an investment touse a technology to meet generally applicable health,safety or environmental requirements.” But, any suchmeasure must apply to domestic, as well as, foreigninvestments.


and full protection and security.” The concernenvironmentalists raised was that NAFTAtribunals would broadly interpret the phrase“international law.” Since the sources ofinternational law are many, environmentalmeasures would violate Article 1105 iftribunals were persuaded that the measuresviolated an international treaty, custom,judicial decision, or other article of NAFTAthe tribunals felt should be covered by theminimum international standards umbrella.104

Canada, Mexico, and the United States sharedthis concern about the wide meaning tribunalsmight ascribe to international law. In July 2001they acted through the Free TradeCommission and “clarified” whatinternational law meant for the purposes ofChapter Eleven. International law was onlycustomary international law; fairness, equity,protection, and security should be consideredonly in the context of due process; a breach ofanother NAFTA article or anotherinternational treaty did not establish that abreach of Article 1105 had taken place.105

Whether or not this clarification was aninterpretation or an amendment to ChapterEleven, the IISD feels that it has repaired the

key problem in Article 1105.106

The most serious remainingenvironmental concerns centre on ChapterEleven’s expropriation and compensationarticle (Article 1110). The ambiguouslanguage of Article 1110, like that of Article1105, fuels concerns about regulatory chill.107

NAFTA negotiators, unable to agree on precisedefinitions for concepts like “indirectexpropriation” and “tantamount tonationalization or expropriation,” left it toNAFTA tribunals to decide what, if anything,distinguishes one concept from the next. Theconcern is that the adjective “tantamount”opens the door for tribunals to find thatenvironmental regulations, by affecting theprofitability of business, should be seen as theequivalents of the confiscatory taxesinternational law usually associates withindirect expropriation.108 To this point intime, tribunal decisions have approached thequestions conservatively; they have viewed“tantamount” as equivalent to indirectexpropriation and have found it unlikely thatregulatory acts constitute expropriation.109

But, precedent does not bind NAFTAtribunals. They do not have to follow rulingsmade by their predecessors. Concerns linger

104 The sources of international law are outlined in Article38.1 of the Statute of the International Court. They are: “a.international conventions, whether general or particular,establishing rules expressly recognized by the contestingstates; b. international custom, as evidence of a generalpractice accepted as law; c. the general principles of lawrecognized by civilized nations; d. subject to the provisionsof Article 59, judicial decisions and the teachings of themost highly qualified publicists of the various nations, assubsidiary means for the determination of rules of law.”Article 59 reads: “The decision of the Court has no bindingforce except between the parties and in respect of thatparticular case.” See http://www.un.org/Overview/Statute/contents.html

105 Canada, Department of Foreign Affairs and InternationalTrade, “Pettigrew welcomes NAFTA Commission’sInitiatives to Clarify Chapter 11 Provisions,” news release, 1August 2001, http://webapps.dfait-maeci.gc.ca/minpub/Publication.asp?FileSpec=/Min_Pub_Docs/104441.htm&bPrint=True&Language=E

106 International Institute for Sustainable Development, “Noteon NAFTA Commission’s July 31, 2001, Initiative to ClarifyChapter 11 Investment Provisions,” http://www.iisd.org/pdf/2001/trade_nafta_aug2001.pdf The tribunalestablished in Pope and Talbot Inc. v. Government ofCanada believes that this decision by the Free TradeCommission is actually an amendment to NAFTA. See Inthe Matter of an Arbitration Under Chapter Eleven of theNorth American Free Trade Agreement - Award in Respectof Damages by Arbitral Tribunal, 31 May 2002, para. 47.http://www.dfait-maeci.gc.ca/tna-nac/damage_award.pdf

107 Mann, Private Rights, Public Problems, 30-33.

108 This understanding of indirect expropriation is taken fromJ. Anthony VanDuzer, “NAFTA Chapter 11 to Date: TheProgress of a Work in Progress,” 32, a paper presented atthe NAFTA Chapter 11 Conference, 18 January 2002,Carleton University, http://www.carleton.ca/ctpl/chapter11/


that more expansive, and threatening,interpretations of the link between regulationsand expropriation may be waiting just aroundthe corner.

The case of Methanex Corp. v. UnitedStates of America, the only case to date whereChapter Eleven has been used to attack anenvironmental regulation, may provide thecrucial test of whether or not environmentalregulations will be regarded as expropriationunder Chapter Eleven. At issue in Methanexare California regulations designed to promoteenvironmental and human health. Methanexargues that the Executive Orders calling for theremoval of the gasoline additive MTBE fromgasoline by January 1, 2004 are tantamount toexpropriation of its business.110 The companyproduces methanol, an ingredient of MTBE.Methanex argues that the MTBE banexpropriates some of the company’sinvestments in the United States and isclaiming damages from this regulatoryinitiative of $1 billion.111

In August the Methanex tribunal delivereda ruling “powerful enough to decimateMethanex’s case.”112 The United States hadurged the tribunal to interpret Article 1101(1)narrowly and to find that the relationshipbetween the California regulations andMethanex was so indirect that the company

did not have a valid claim to bring before aNAFTA tribunal. The indirectness of theconnection between the regulations andMethanex was said to rest in the fact that theregulations targeted MTBE. They did nottarget methanol, methanol producers, orMethanex. Because measures of generalapplication like environmental and healthregulations will affect a “vast range” of actorsthe United States argued that “relating to” - thedisputed phrase from Article 1101(1) -“requires a legally significant connectionbetween the disputed measure and theinvestor.”113 It was not enough for a companymerely to be affected by a measure. Thetribunal agreed; “(a) threshold which could besurmounted by an indeterminate class ofinvestors making a claim alleging loss is nothreshold at all . . . .”114 Since California’sregulations “do not relate to methanol orMethanex” the tribunal ruled it did not havethe jurisdiction needed to hear the originalclaim. The case will die this November unlessMethanex submits a fresh pleading andconvinces the tribunal that the Governor ofCalifornia intended to harm Methanex withthese regulations.

This decision, while it may destroyMethanex’s challenge to these regulations, isunhelpful for those who do not want to seeChapter Eleven used to challenge legitimateenvironmental regulations. “Indeed,” as theIISD’s Howard Mann concludes, “it confirmsthat measures of general application for thesepublic welfare purposes can be challenged, aslong as they have a legally significantconnection to the investor bringing theclaim.”115 Legitimate environmental

109 Ibid., 32-33.

110 The first 1999 Executive Order from Governor Davis calledfor the removal of MTBE from California’s gasoline suppliesby the end of 2002. In March 2002 Governor Davisannounced signed a second Executive Order postponingthe MTBE ban until January 1, 2004. See “MTBE,” http://www.methanex.com/investorcentre/MTBE.htm

111 United States Department of State, “Methanex Corp. v.United States of America,” http://www.state.gov/s/l/c5818.htm

112 Howard Mann, “Review of the Decision on Jurisdiction ofthe Methanex Tribunal, August 5, 2002,” 2, (Winnipeg:International Institute for Sustainable Development, 2002),http://www.iisd.org/pdf/2002/trade_methanex_analysis.pdf

113 1st Partial Award (August 7, 2002), paragraph 130, http://www.state.gov/documents/organization/12613.pdf

114 Ibid., paragraph 137.

115 Mann, “Review of the Decision on Jurisdiction,” 6.


regulations that are not camouflaged efforts atprotectionism need stronger protections fromChapter Eleven challenges.

Chapter Six, NAFTA’s energy chapter, alsodemands consideration here. Earlier we notedthat renewable energy portfolio standardscould be incorporated into a GHG emissionsreduction strategy. Governments wouldrequire a certain percentage of the electricityproduced by utilities to come from renewableenergy sources such as solar, wind, and small-scale hydro, sources that do not leave a heavyfootprint on the environment. Questions havebeen raised about whether these standardsviolate the national treatment provisionsoutlined in Article 606.1(a). Americanrenewable portfolio standards legislation, inthe jargon of the WTO, is a non-productrelated processes and production methodsmeasure.116 A trade-related problem raised byrenewable portfolio standards is that theydiscriminate against “like products” (in thiscase electricity) based on the process andproduction methods used to generate theelectricity (for example, renewable versuslarge-scale hydropower). The legislativedefinition of renewable energy found in a statelike New Jersey “suggests clearly that largescale hydropower producers such as HydroQuebec or Ontario Power Generation wouldbe excluded from the supply of renewableelectricity . . . .”117 Disadvantaging foreignproducts in this way “has consistently beeninterpreted as a violation of the national

treatment requirement . . . .”118 Although theCouncil for Environmental Cooperation heardthis argument developed in respect toAmerican renewable portfolio standardslegislation, the same logic would apply toCanadian versions of this type of legislation.They could run afoul of Article 606.

Other sections of Chapter Six imposemore certain constraints on the freedom ofpolicy makers. Article 604’s export taxprovisions, for example, prevent the nationalgovernment from funding GHG emissionsreduction initiatives through an export tax onenergy. Under NAFTA export taxes only maybe levied if they also are imposed “on any suchgood when destined for domesticconsumption.”119 The same policy makingrestriction, “do unto Americans only what youare prepared first to do unto Canadians,”applies to the possibility of reducing CanadianGHG emissions by export restrictions,reducing the volume of oil and natural gassold in the American market. Here, Canadianpolicymakers shackled themselves through the“proportional access requirement” found inArticle 605. Under the terms of this articleCanada can only reduce its exports to theUnited States if it reduces the energy availablefor domestic consumption by the samepercentage. Production cutbacks, in otherwords, must be shared equally betweenAmerican and Canadian consumers ofCanadian energy. If, for example, the UnitedStates continues to consume approximatelysixty percent of all the natural gas produced inCanada and the federal government decided tocut natural gas production as a way of meetingpart of its Kyoto obligation then the UnitedStates would be entitled to receive sixtypercent of this reduced production volume.120

116 A non-product-related processes and productionmethods measure “exists where the manufacturing of theproduct has a negative impact on the environment, butthe product itself does not carry any potential environ-mental damage (for example, through the release ofpollutants into the air or water.” Gary Horlick, ChristianeSchuchhardt, and Howard Mann, “NAFTA Provisions andthe Electricity Sector,” (Montréal: Commission forEnvironmental Cooperation of North America, 2002), 8.

117 Ibid., 11.

118 Ibid., 11.

119 North American Free Trade Agreement, Article 604(b).


“The higher our exports relative toconsumption,” concluded Pratt, “the greaterthe Americans’ proportional access.”121 In thecurrent environment - with Canada, but notthe United States, seemingly ready to ratifyKyoto - this proportional access situationcould deteriorate further.122 If Canada reducesdomestic GHG emissions and the pace of oiland gas exports to the United States remainssteady or accelerates, the American claim onCanadian energy production will grow apace.Pratt’s conclusion that if Canada wants toregain its energy sovereignty Chapter Six mustbe “drastically changed or abandoned asunworkable” will be strengthened if thisscenario unfolds.123

NAFTA, Electricity Infrastructureand the National Energy Board

It’s important to note that more thanNAFTA’s legal framework led to this lossof Canadian sovereignty and control over

our petroleum resources. An extensive north-south pipeline network pre-dated the Canada-United States Free Trade Agreement. Itsexistence and subsequent expansion in theFree Trade era established the infrastructureneeded to feed the growing American appetitefor Canadian petroleum. Without thisinfrastructure the pace of the oil and gas flowto the United States would have been, at thevery least, slower.

This point about infrastructure isimportant in the context of controlling ourexports of other types of energy such aselectricity. NAFTA’s energy chapter and itsproportional access requirements governelectricity, as they do natural gas. But, for thetime being, Canadian electricity exports arestable. Last year seven percent of the electricitygenerated in Canada was exported to theUnited States, little changed from the eightpercent shipped south in 1997.124 But, weshould not be sanguine about this situationlasting for much longer. There are many signsthat interest in and an appetite for Canadianelectricity exports is growing. Examplesinclude: NAFTA’s Commission forEnvironmental Cooperation has made theNorth American electricity market a priorityissue for study; Canada’s National EnergyBoard received more applications for newinternational power lines in 2001 (three) thanit had received during the previous five years;provinces are seriously considering joiningregional transmission organizations (RTOs)

120 Larry Pratt, Energy: Free Trade and the Price WePaid, (Edmonton: Parkland Institute, 2001),especially 16-21.

121 Ibid., 20.

122 In 1986 Canada produced 2.9 trillion cubic feet (tcf ) ofnatural gas and twenty-five percent of this productionwas exported to the United States; in 2000, productionhad doubled to 5.9 tcf and sixty percent of this volumewas headed to the American market.

123 Pratt, Energy: Free Trade and the Price We Paid, 39.124 National Energy Board, 2001 Annual Report to Parliament,

Appendices, (Canada 2001), 5.


formed in the United States by the FederalEnergy Regulatory Commission (FERC) -participation in RTOs will encourage morenorth-south trade and greater integration ofCanada-United States electricity markets;125

Alberta has established principles forelectricity exports;126 Manitoba Hydro pitchedhydroelectricity as the “cleaner Canadianexport” at a federally-sponsored UnitedNations Climate Change workshop on lessGHG emitting energy.127

If Canadians do not want to see theirelectricity resources follow the same pathtaken by oil and gas steps must be taken torestrict the construction of the additionalinfrastructure needed to expand exports to theUnited States - international transmissionlines. This will require amendments to federallegislation outlining the National EnergyBoard’s regulatory responsibilities for theinternational electricity trade. Currently, theNEB plays an overly passive role in respect tocarrying out these responsibilities. Underamendments made to the National EnergyBoard Act in 1990 electricity export permitsand permits for the construction andoperation of international power linescustomarily are issued without holding anypublic hearings. Between June 2001 andAugust 2002 none of the twenty-six electricityexport permit applications considered by theNEB was examined in a public hearing. The

Board summarily rejects requests to holdpublic hearings on export applications. Here,the experience of Alberta’s EnvironmentalResource Centre is typical. It requested apublic hearing into Consumers EnergyCompany’s export permit application becausethe public had not had sufficient opportunityto voice its support or opposition to thisproposal. The Board replied that first, theNational Energy Board Act required it to issuepermits without public hearings. It went on tosuggest, perhaps as only a bureaucracy wouldhave the nerve to do, that since Consumershad published a Notice of Application andDirections in the Canada Gazette Part I (apublication regularly consulted by dozens, ifnot hundreds, of citizens) Canadians had hadan adequate opportunity to raise any thoughtsthey might have about the application withthe Board.128 It is just as disconcerting to readthat the Board does not believe it has theauthority under Section 119.03 of the Actneeded to deny export applications. TheEnvironmental Resource Centre asked theBoard to reject Consumers’ application. Whenthe NEB rejected this request and approvedthe export permit, it wrote that it “may onlydelay the issuance of the permit andrecommend to the Minister that theapplication for the exportation of electricitybe designated as a license application; it maynot deny the application.”129

The Board would seem to be just asimpotent when it comes to internationalpower line applications. Manitoba Hydro’sSeptember 2001 application (approved in

125 National Energy Board, 2001 Annual Report to Parliament,21; National Energy Board, Canadian Electricity Trends andIssues: an Energy Market Assessment May 2001, (Canada2001), 59.

126 Alberta, “Energy Minister Announces Electricity ExportPrinciples,” (news release), 29 May 2002.

127 Ed Wojczynski, “Hydropower: A Cleaner Canadian Export,”a presentation to the UNFCCC workshop on Cleaner orLess Greenhouse Gas-Emitting Energy: Exchange ofInformation and Views, Whistler, British Columbia, 7-8 May2002. http://unfccc.int/sessions/workshop/070502/wojczyns.pdf

128 National Energy Board, “24 May 2002 Consumers EnergyCompany (Consumers Energy) Application for ElectricityExport Permits Pursuant to Section 119.03 of the NationalEnergy Board Act,” (A0F7C1 - Permit), 7. https://www.neb-one.gc.ca/ll-eng/livelink.exe?func=ll&objId=238314&objAction=browse

129 Ibid., 4.


March 2002) to construct and operate aninternational power line into North Dakotawas never aired at a public hearing.130

Furthermore, the language of Section 58.11 ofthe National Energy Board Act outlining theBoard’s responsibilities for issuinginternational power line construction andoperation permits is virtually identical to thatof Section 119.03. The Board also then wouldnot appear to have the authority needed todeny applications for these permits.

Changes must be made to the NationalEnergy Board if Canadians want an agencywith the wherewithal needed to insure that westeer the future of our electricity resourcesonto a different path than the one we placedpetroleum on. The legislative provisionsrestricting public hearings and limiting theBoard’s authority regarding the disposition ofexport and international power lineapplications must be changed. As well, theNational Energy Board Act should beamended to stipulate that international powerline applications shall only be consideredwhen it can be demonstrated that anyresulting additions to the export infrastructurewill not result in electricity exports surging tohigher than nine percent of Canadianproduction, the highest export percentagereached in the Free Trade era. Given the recentincursions of American companies intoCanada’s electricity marketing business it ispossible, perhaps likely, that this latterrestriction would be challenged under theinvestment chapter of NAFTA. But, this type

of infrastructure-oriented measure mightsurvive if non-discrimination guides both theimplementation of the measure and anyelectricity export applications made to theBoard. These sorts of changes, challengedthough they might be, must be made ifCanadians want greater control over futureelectricity use.

There may be a more powerful reasonthan reclaiming sovereignty for pursuing thesemeasures in respect to the National EnergyBoard and electricity exports. They areimportant because the most significant sourceof Canadian electricity, hydropower, has thepotential to reduce significantly Canada’sGHG emissions and therefore to help Canadareach its Kyoto target. When it comes to GHGemissions “(h)ydroelectricity productionemits virtually no greenhouse gases.”131 Itemits sixty times less GHG than coal-firedpower plants and eighteen times less than themost efficient natural gas plants.132 Theamounts of carbon emissions and coal-firedelectricity that could be eliminated by thistype of policy initiative are significant. Coal-fired electricity supplies eighteen percent ofCanada’s electricity supply and thedevelopment of new hydroelectricity sites inCanada could displace anywhere from 270 to740 million tons of carbon per year.133

Expanding Canadian hydroelectricityproduction would be “an importantcontributor to a least-cost solution to reducingGHG emissions in Canada.”134 Yet, this GHG

130 An important upcoming test of the NEB’s resolve on thepublic hearings question will be the application fromOntario’s Hydro One Distribution Services to lay anunderwater power line across Lake Erie to the UnitedStates. As of September 25, 2002 one hundred and twelvecitizens and environmental non-governmental organiza-tions had registered with the NEB their comments orobjections about the scope of the environmentalassessment needed for this application.

131 National Energy Board, Canadian Electricity Trends andIssues, 31.

132 Canadian Hydropower Association, “Quick Facts,” http://www.canhydropower.org/hydro_e/pdf/Quick_Facts_2202.pdf; Canadian Hydropower Association,“Submission to National Stakeholder Workshops 2002 onClimate Change,” 20 June 2002, 2. http://www.nccp.ca/NCCP/national_stakeholders/pdf/Cdn%20Hydropower%20Assoc.pdf

133 Wojczynski, “Hydropower: A Cleaner Canadian Export.”


reduction potential is barely recognized in thefederal government’s 2002 Climate Changediscussion paper, a paper that “contains nosignificant measure that would help acceleratethe development of Canada’s hydropowerpotential.”135 Why?

Part of the explanation for this failure togive hydropower more serious considerationmay rest in the capital costs of large-scalehydroelectric plants relative to natural gas-fired generating facilities. Building naturalgas-fired generating facilities is much lessexpensive than building dams. Yet, thisadvantage of natural gas-generated electricitymust be placed in the context of the recentNorth American experiences with natural gasprices. Continental market forces determinegas prices. As we saw in the winter of 2000-2001, when natural gas storage levels are lowand demand is high the cost of electricityproduced from natural gas may skyrocket.Water prices, on the other hand, are not set incontinental or international markets. Sincewater is much cheaper than natural gas themarginal costs of producing hydroelectricityare relatively low.136

The hydropower option also may sufferfrom the likelihood that it would requiregovernment intervention, a heresy to themarket faith still gripping most Canadianpolicy makers. This hesitation appeared, forexample, in the Electricity Issues Tableestablished as part of the National ClimateChange Process. The Table generallysupported the suggestion to improve the

country’s inter-provincial electricitytransmission infrastructure. New transmissionlines could allow supplies of low-GHGemitting electricity, like hydropower (as well asother renewable sources like wind and solar),to move across provinces and displace theelectricity produced by fossil fuels. They couldtherefore lower the costs of complying withthe Kyoto emissions reduction regimen.Additional inter-provincial transmissioncapacity would also increase the reliability andsecurity of the electricity system. But,measures to stimulate the construction of thisinfrastructure such as loan guarantees,subsidies, or government ownership “runcounter to some jurisdictions’ approaches.”137

A third obstacle to hydropower, probablymore powerful than the previous two, rests inhydro-electricity’s checkered history. Near myhome in southeastern British Columbia, hydrodams left heavy boot marks on landscapes andpeople’s lives. Flooded valleys and displacedpersons, they constitute the darker legacy ofthe dams built under the terms of theColumbia River Treaty. Those impacts pale incomparison, however, to those suffered by theaboriginal peoples and terrain of the JamesBay region in northern Québec. Yet, there aresigns that “Big Hydro” has learned from thosehistories and now seeks partnerships withaboriginal peoples and less-environmentallydamaging hydro facilities.138 Recentlyconcluded agreements between the Cree, Inuit,and Government of Québec may help torehabilitate the image of Big Hydro. Throughthese agreements the Cree and Inuit willaccommodate themselves to additional hydro

134 National Climate Change Process, Electricity IndustryIssues Table, “Options Paper,” 3 November 1999, 53.

135 Hydro Québec, “Hydro-Québec Brief, Submitted for thefederal consultation on Canada’s contribution to address-ing climate change,” 27 June 2002, 3. http://www.nccp.ca/NCCP/national_stakeholders/pdf/submissions/june2702_HQ_e.pdf

136 National Energy Board, Canadian Electricity Trends andIssues, 3.

137 Electricity Industry Issues Table, “Options Paper,” 41.

138 The scuttling of Hydro Québec’s Great Whale Project in the1990s at the hands of a coalition Cree/environmentalistcoalition underlined the importance of aboriginal consentto the prospects of future projects.


projects on the Eastmain and Rupert rivers inexchange for billions of dollars and increasedcontrol over economic and communitydevelopment.139 From a strictly environmentalperspective, hydropower producers askwhether the global challenge of reducing GHGemissions in order to protect species mightnot justify local habitat losses. Hydro Québecbluntly argues that environmental assessmentsof future hydro projects must be willing totolerate local habitat losses if these losses aremade in aid of the global GHG emissionsreduction campaign:

those responsible for applying theregulations must have the necessary tools toproperly weigh the need to safeguard a fishhabitat against the need to address climatechange by clearly favouring renewableenergy. What is the point in protecting abrook trout habitat by rejecting ahydropower project, when global warmingposes a much more serious threat to all troutand salmon habitats, both in Canada andaround the world? Government authoritiesand decision-makers must establish abalance between short-term, local impactsand planetary issues like climate change andbe able to choose the option that is leastdamaging for the environment. Regulations,policies and guidelines must therefore bemodified to give more importance to the

fight against global pollution as part of eachministry’s responsibilities.140

Corporate self-interest aside, the point isworth considering, especially in light of theapparent need to decrease global carbonemissions by at least fifty percent in order tostabilize the concentrations of greenhousegases in the atmosphere.141 Given a problem ofthis magnitude, local prejudices and historicalwrongs seem insufficient grounds fordismissing hydropower’s potential to make amajor contribution to reducing Canada’sgreenhouse gas emissions.

139 For details on these agreements see Kevin Dougherty,“Aboriginals now can ‘move ahead’: Erasmus,” TheMontreal Gazette, 8 February 2002, A11; MichelHebert,”Cree-Quebec deal draws opposition,” TheMontreal Gazette, 8 February 2002, A11; Kevin Dougherty,“Quebec Inuit approve $475M hydro deal,” The OttawaCitizen, 18 May 2002, A7. Manitoba Hydro also seems toappreciate the importance of aboriginal involvement tofuture hydro development in Manitoba. See ManitobaHydro, “Climate Change and the Kyoto Protocol,” pre-sented at the National Stakeholders Workshop on ClimateChange, 19 June 2002, 3-4.

140 Hydro Québec, “Hydro-Québec Brief, Submitted for thefederal consultation on Canada’s contribution to address-ing climate change,” 27 June 2002, 4.

141 Dale Marshall of the Canadian Centre for Policy Alterna-tives attributes this estimate to the IntergovernmentalPanel on Climate Change. See Canadian Centre for PolicyAlternatives, “No Reason Not To: CCPA’s response to thefederal discussion paper on Kyoto ratification,” presentedat the National Stakeholders Workshop on ClimateChange, 20 June 2002, 1.


Federalism and Kyoto:the Risks of Constitutional Gambits,the Need for a Federal-ProvincialPartnership

The reluctance to push hydropowerforward as a major player in the GHGemissions reduction campaign also

may be attributed to the last institutionconsidered here - Canadian federalism. Due tothe federal-provincial division of powersprovincial governments have been assignedthe primary responsibility for developinghydroelectricity projects in Canada. The keycomponents of these projects - dams,generating facilities, and transmission systems- are defined as “local works andundertakings” according to s. 92 (10) of theConstitution Act, 1867.142 Federalconstitutional authority, as noted earlier inour discussion of the National Energy Board,is generally restricted to the inter-provincialtransmission and international export ofelectricity.143

This constitutional division ofresponsibility, combined with a lack ofprovincial enthusiasm for cooperativeventures, has meant that hydroelectricitydevelopment has been driven by provincial,rather than national, priorities. The experienceof the Diefenbaker government in the early1960s is instructive here. For Diefenbaker, thedevelopment of a national electricity grid wasvalued for its nation-building potential. Like

Canada’s national transportation andcommunication networks, a nationalelectricity system could help to “bind thecountry together.”144 Diefenbaker’s dream,despite its technical and economic feasibility,was not shared by enough Premiers for it tobecome a reality. Apart from briefly flirtingwith the idea of a national electricity gridduring the so-called “energy crisis” of the early1970s, provincial governments have shownlittle interest in developing a nationalelectricity network. Instead, electricity projectshave been evaluated primarily according totheir potential impact on provincial jobs andinvestment. While this focus is understandablesuch parochialism has been damaging. Take,for example, the fate of efforts in the late1970s and early 1980s to develop a regionalelectricity grid connecting the four westernprovinces. Such a grid would have deliveredsignificant economic and environmentalbenefits. The net benefit of a western grid waspegged at $150 million; the development ofthe Limestone hydro project on Manitoba’sNelson River would have done less damage tothe environment than building planned coal-fired generating plants in Alberta andSaskatchewan. But, concerns in the capitals ofAlberta and Saskatchewan that they wouldlose employment and investment to Manitobahelped to scuttle the project.145 Whether ornot the time now is right to return to considerthe development of regional or nationalelectricity grids is an issue we return to later inthis section.

142 Peter W. Hogg, Constitutional Law of Canada, 2d edition,(Toronto: Carswell, 1985), 596. Originally called the BritishNorth America Act, 1867 the name of Canada’s originalconstitutional document was changed to the ConstitutionAct, 1867 when the Constitution was patriated andamended in 1982.

143 Since dams also affect the navigability or waterways theyalso are subject to federal jurisdiction in respect to thenavigation and shipping provisions of s. 91 (10) of theConstitution Act, 1867.

144 Prime Minister Diefenbaker made these remarks at the1962 Federal-Provincial Conference on Long-DistanceTransmission. See Karl Froschauer, White Gold: Hydroelec-tric Power in Canada, (Vancouver: University of BritishColumbia Press, 1999), 32.

145 Ibid., 43-44.


Federalism’s centrality to the politics ofKyoto is secured by much more than itsrelevance to understanding the developmentof electricity. Much of the fireworks explodingtoday around Kyoto rises out of judicialinterpretation of where the powers to makeand implement treaties reside. The power tomake treaties belongs exclusively to the federalgovernment. Until the latter half of the GreatDepression the power to implement treatieswas also judged to rest with the federalgovernment. In the Radio Reference case(1932), Canada’s highest court of appealfound that the power to implement treatiesrested exclusively with the federal government,even if the subject matter of the treaty restedin an area of provincial jurisdiction. In otherwords, the Radio Reference case opened thedoor for the national government to legislatein areas of provincial jurisdiction if thelegislation was required in order to fulfill atreaty commitment.

This interpretation of the federal-provincial division of the treaty powers, onethat assigned treaty making as well asimplementation to the national Parliament,did not last long. In the Labour Conventionscase (1937) the Judicial Committee of thePrivy Council stripped Ottawa of theunqualified treaty implementing powers it hadextended to federal authorities in the RadioReference. Ottawa could make, but could notimplement, treaties for subjects assigned to theprovinces by the Constitution Act, 1867.Treaties that, for example, dealt with subjectsexclusively assigned to the provinces by s. 92only could be implemented if the provincessaw fit to pass the necessary legislation. “(T)heDominion cannot,” wrote Lord Atkin, “merelyby making promises to foreign countries,clothe itself with legislative authorityinconsistent with the constitution which gaveit birth.”146 This second interpretation severely

limited the treaty making authority of thefederal government, effectively limiting federalimplementation powers to subjects assignedexclusively to the national Parliament by s. 91of the Constitution Act, 1867.

As long as the Labour Conventionsjudgment stands provincial ownership of andextended legislative authority over naturalresources are two of the features of the federaldivision of powers that rob Ottawa of thejurisdiction needed to implement the KyotoProtocol on its own. “(F)or theimplementation of Kyoto,” Prime MinisterChretien said, “we need the collaboration ofthe provinces. We don’t have all thejurisdiction to do it.”147 Provincial legislativeauthority over resources was strengthenedthrough the 1982 addition of s.92A “Non-Renewable Natural Resources, ForestryResources and Electrical Energy” to theConstitution Act, 1867.148 By establishing theexclusive provincial legislative right over the“development, conservation andmanagement” of non-renewable naturalresources, forestry resources, and electricitysites, s. 92A may offer an importantconstitutional resource to a petroleumproducing province like Alberta in its battleagainst Kyoto.149

146 Peter H. Russell, Rainer Knopff, and Ted Morton, Federalismand the Charter: Leading Constitutional Decisions,(Ottawa: Carleton University Press, 1989), 110. This volumealso offers helpful synopses of the Radio Reference andLabour Conventions cases at pp. 93-96 and 104-110.

147 Steven Chase, “Provinces have Kyoto role, PM says,” TheGlobe and Mail, 24 April 2002, A4.

148 William D. Moull, “The Legal Effect of the ResourceAmendment - What’s New in Section 92A,” in J. PeterMeekison, Roy J. Romanow, and William D. Moull, Originsand Meaning of Section 92A: The 1982 ConstitutionalAmendment on Resources, (Montréal: Institute forResearch on Public Policy, 1985). Provincial ownership ofresources, conferred by s. 109 of the Constitution Act,1867, was unaffected by the amendments of 1982.


The jurisdictional limitations identified bythe Prime Minister also could spring from theview the courts have taken of theconstitutional authority over the environment.Jurisdiction is shared between Ottawa and theprovinces.150 Nowhere in the CanadianConstitution will you find the heading“environment.” But, several of the heads ofpower assigned to the national and provinciallevels of governments allow each level tolegislate in ways that affect environmentalquality.151 Provincial authority over naturalresources and property and civil rights may bethe most significant bases for establishingprovincial jurisdiction over the environment;the basis for federal legislative action restsunder headings such as the criminal lawpower, fisheries, and the peace, order, andgood government power. In Friends of theOldman River Society v. Canada (Minister ofTransport) (1992) the Supreme Courtgenerally concluded “that the Constitution

should be so interpreted as to afford bothlevels of government ample means to protectthe environment while maintaining thegeneral structure of the Constitution.”152

Taken singly or together, these features ofCanadian federalism play a very importantrole in shaping the political debates we havewitnessed throughout most of 2002 on thesubjects of ratifying and implementing Kyoto.They figure prominently in the open lettersent by Alberta’s Premier Klein to PrimeMinister Chretien in early September 2002:

Alberta recognizes your government’sconstitutional rights to negotiate and signinternational treaties. At the same time, theGovernment of Canada does not have theconstitutional authority to implementinternational treaties in areas of provincialjurisdiction. Alberta hopes that yourgovernment recognizes its obligations toensure those treaties serve the best interestsof Canadians, and the constitutional rightsof provinces to manage their naturalresources.153

They also figure prominently in thecomparisons made between Kyoto and theNational Energy Program of 1980 (NEP) andin the mandate of the Kyoto External Advisory

149 However, Moull argues that s. 92 A “does not seem to takefrom Parliament any jurisdiction that it had before. . . . “Ibid., 53. The Supreme Court of Canada confirmed thisinterpretation of s. 92A’s impact in Westcoast Energy Inc. v.Canada (National Energy Board) [1998] 1 S.C.R. 322.Justices Iacobucci and Major wrote for the majority: “Theresource amendment increased provincial power withrespect to the raising of revenues from resources and toregulating the development and production of resourceswithout diminishing Parliament’s pre-existing powers.”

150 For examinations of the constitutional background ofenvironmental policy in Canada see Marcia Valiante, “LegalFoundations of Canadian Environmental Policy: Underlin-ing Our Values in a Shifting Landscape,” in Debora L.VanNijnatten and Robert Boardman (ed.), CanadianEnvironmental Policy: Context and Cases (2d edition),(Don Mills: Oxford University Press, 2002); Mark S. Winfield,“Environmental Policy and Federalism,” in Herman Bakvisand Grace Skogstad (ed.), Canadian Federalism: Perform-ance, Effectiveness, and Legitimacy, (Don Mills: OxfordUniversity Press, 2002).

151 As outlined in Friends of the Oldman River Society v.Canada (Minister of Transport) (1992) the court regardsthe concept of environmental quality as very diffuse. Itpossesses economic and social, as well as biophysical,dimensions.

152 This synopsis of the Court’s ruling in Friends of theOldman River Society v. Canada (Minister of Transport)(1992) is offered in R. v. Hydro-Québec (1997) [1997] 3S.C.R. 213.

153 Alberta, “Klein releases open letter to PM on Alberta’sopposition to Kyoto ratification,” (news release) 3September 2002. http://www.GOV.AB.CA/can/200209/13052.html Alberta’s Environment Minister Lorne Taylorhas made this argument on numerous occasions. See, forexample, Canadian Broadcasting Corporation, “Albertafumes over PM’s promise to ratify Kyoto,” http://www.cbc.ca/stories/2002/09/02/pm_kyoto020902 Finally,see the comments of former Premier Peter Lougheed inSteven Chase, Richard Mackie, and Patrick Brethour,“Divulge plan on Kyoto, angry Eves tells Ottawa,” TheGlobe and Mail, 2 October 2002, A5.


Committee created by Premier Klein andchaired by former Premier Peter Lougheed.This committee is intended to supportAlberta’s efforts to stop the implementation ofthe Protocol.154 Part of this committee’smandate is to “advise Alberta on the merits ofwriting its own laws to protect the provincefrom the effects of the accord.”155 Or, as PeterLougheed put it after the first meeting of thiscommittee: “We are here to advise thegovernment on how to deal with the KyotoProtocol if it is ratified.”156

These interpretations of federal-provincialpowers and responsibilities arguably haveemboldened Alberta to the point ofconstitutional brinkmanship. Some membersof the government, Environment MinisterLorne Taylor most notably, appear to relish theprospect of going to court over theimplementation of Kyoto. In this respect, themore cautious approach to taking legal actionoutlined by Lougheed may serve Albertansand Canadians better. For the Chair of theKyoto External Advisory Committee cautionon the legal front is warranted because thefederal government, to its obvious discredit,still has not produced a plan for implementingKyoto.157

More importantly, caution also isadvisable because of the genuine risks aprovincial constitutional challenge, based onprovincial authority over natural resources,poses to provincial jurisdiction over treatyimplementation and the environment. AsPeter Hogg has pointed out, the reasoning ofthe Privy Council in the Labour Conventionscase, as outlined by Lord Atkin, is quitequestionable. For example, Atkin concludedthat while s. 132 of the Constitution Act, 1867clearly gave the federal government theauthority to implement Empire treaties inareas of provincial jurisdiction this section didnot give the federal government thisimplementation power in respect to treatiesthat Canada entered into on its own. Herejected the inference that, after Canadabecame independent of Britain, the referenceto Empire treaties in s. 132 gave the power toimplement Canadian treaties to the federalgovernment.158 The decision in the RadioReference case offered a contrary view - withindependence the treaty power was undividedand rested within the federal power tomaintain the peace, order, and goodgovernment of Canada. Since the SupremeCourt became Canada’s final court of appealin 1949 a handful of its decisions haveappeared willing to reexamine Lord Atkin’sreasoning. In Hogg’s words, “it may well bethat the peace, order, and good governmentargument will ultimately prevail.”159 It may bea grave mistake, in other words, for Alberta tobelieve that the understanding of the treatypower established in the Labour Conventionscase rests in constitutional bedrock.

154 Alberta, “Lougheed committee established to supportgovernment’s Kyoto efforts,” (news release) 25 September2002, http://www.gov.ab.ca/can/200209/13187.html

155 Allison Dunfield, “Canadians kept in dark about Kyoto,opposition says,” The Globe and Mail (online edition), 1October 2002. http://www.globeandmail.com/servlet/ArticleNews/front/RTGAM/20021001/wkyot1001/Front/homeBN/breakingnews

156 Canadian Broadcasting Corporation, “News conferenceheld after the first meeting of the Kyoto External AdvisoryCommittee,” 1 October 2002. http://cbc.ca/clips/ram-newsworld/live_lougheed021001.ram

157 Ibid.

158 The Imperial Conference of 1926 proclaimed that theUnited Kingdom and the Dominions enjoyed equality ofstatus in respect to their domestic, international, andimperial conduct. The Statute of Westminster confirmedthis independence in 1931.

159 Hogg, Constitutional Law of Canada, 252.


Pursuing a constitutional gambit is riskyfor reasons other than those relating to thequestion marks surrounding the treaty power.This course of action also pays insufficientattention to themes or strands in severalSupreme Court decisions that might be usedto justify federal action under the peace, order,and good government power or the criminallaw power. Two decisions, R. v. CrownZellerbach (1988) and R. v. Hydro-Québec(1997) seem particularly relevant here.160 In R.v. Crown Zellerbach the Supreme Court foundthat federal laws concerning dumpingsubstances into the sea could be applied totidal waters that were clearly inshore andprovincial. The majority of the Court foundthat the Ocean Dumping Control Act fellunder the so-called “national concern” or“national dimensions” doctrine. The doctrinehas three criteria. First, it may be used tojustify two types of federal behaviour: actionsin respect to subjects that neither existed whenthe Constitution Act, 1867 was passed nor maybe clearly identified as local or private mattersand actions taken in respect to subjects that,while originally local or provincial in nature,have evolved into ones of national concern.Second, the federal action must be taken inrespect to a matter characterized by“singleness, distinctiveness, and indivisibility;”the matter must be clearly distinguished fromone of provincial concern; and, the impact ofthe federal action must be consistent with theConstitution’s federal-provincial distributionof legislative power. Third, a “provincialinability” test must be passed. According tothis test, federal action is warranted “when thefailure of one province to act would injure theresidents of the other (cooperating)provinces.”161

Are greenhouse gas emissions a matter ofnational concern? Could the federalgovernment design a greenhouse gasregulatory regime affecting provincial naturalresource use that could be justified under thenational concern doctrine? Since R. v. CrownZellerbach no Supreme Court decisionupholding federal authority overenvironmental protection has relied upon thisdoctrine. In Crown Zellerbach the SupremeCourt began its categorization of marinepollution as a matter of national concern byrecognizing “its predominantly extra-provincial as well as international characterand implications.” Greenhouse gas emissions,especially in light of the work of theIntergovernmental Panel on Climate Change,easily leap this hurdle. If the extra-provincialand international dimensions of greenhousegas emissions are acknowledged thenprovincial intransigence over reducingabsolute levels of GHG emissions, the optionAlberta trumpets and all other provincessilently endorse through their lack of action,then the conditions outlined by the provincialinability test also might be satisfied. The mostdifficult hurdle for the national concernjustification for relying upon the peace, order,and good government power to overcomelikely rests in arguing that controllinggreenhouse gas emissions is a single,distinctive, and indivisible matter. Greenhousegas emissions could be viewed, as inflation wasby Justice Beetz in the Anti-Inflation Referencecase (1976) or environmental protection wasby Justice La Forest in Crown Zellerbach, astoo broad or all-pervasive a subject to meetthis test. Here, the targets and design of anyfederal regulatory program may be a crucialconsideration. Any federal regulations mustfocus as narrowly as possible on any or all ofthe three primary greenhouse gases: carbondioxide, methane, and nitrous oxide. A narrow

160 R. v. Crown Zellerbach Canada Ltd. [1988] 1 S.C.R. 401; R.. v.Hydro-Québec (1997) [1997] 3 S.C.R. 213.

161 Hogg, Constitutional Law of Canada, 379.


focus is vital to allay the very legitimateconcerns that, if broad subjects such asenvironmental pollution are seen to beexclusively federal under the peace, order, andgood government power then the federal-provincial division of powers will be alteredradically in favour of the nationalgovernment.162 Recourse to the nationalconcern doctrine must be sensitive to rockingthe jurisdictional balance as little aspossible.163

Other than Crown Zellerbach, a SupremeCourt decision that should make Alberta waryof pursuing constitutional challenges in thatof R.v. Hydro-Québec (1997). This caseinvolved a challenge to the federalgovernment’s authority under the CanadianEnvironmental Protection Act to prosecuteHydro-Québec for allegedly dumpingpolychlorinated biphenyls (PCBs), a toxicsubstance, into a Québec river. Several aspectsof this decision are noteworthy and potentiallythreatening to any natural resources basedchallenge Alberta might launch. First, JusticeLa Forest, writing for the majority in thisdecision, argued that the stewardship of theenvironment is a fundamental Canadian valueand therefore the criminal law must keep pacewith such a fundamental value. His languagewas forceful:

The protection of the environment, throughprohibitions against toxic substances, seemsto me to constitute a wholly legitimatepublic objective in the exercise of thecriminal law power. Humanity’s interest in

the environment surely extends beyond itsown life and health.164

The more narrowly focused federal regimementioned above would also seem to be morecompatible with the majority opinion inHydro-Québec since, unlike the nationalconcern doctrine, the criminal law power onlyassigns partial rather than full power togovernment. The criminal law power “seeks bydiscrete prohibitions to prevent evils fallingwithin a broad purpose, such as, for example,the protection of health.”165 From theperspective of GHG emissions reductions, thedecision also is noteworthy for endorsing theWorld Commission on Environment andDevelopment’s (Brundtland Commission)conclusion that setting regulations andstandards for matters such as the “energy andresource efficiency of products or processes”should normally be a national responsibility.Local governments should be allowed tosurpass but not lower those nationalbenchmarks.166

It is clear from comparing Justice LaForest’s reasons in Hydro-Québec, where hewas writing for the majority, with the minorityopinion he wrote in Crown Zellerbach, that heregarded the criminal law power as the bestvehicle for enabling Ottawa to perform itsenvironmental stewardship responsibilities.Relying on the criminal law power, rather thanthe national concern doctrine, allows thefederal government to defend legitimateenvironmental protection measures whilepreserving the fundamental balance offederal-provincial legislative powers:

162 As Justice La Forest wrote in the minority opinion inCrown Zellerbach: “To allocate environmental pollutionexclusively to the federal Parliament would, it seems tome, involve sacrificing the principles of federalism . . . .”

163 This point is made more elegantly in Katherine E. Swinton,The Supreme Court and Canadian Federalism: The Laskin-Dickson Years, (Toronto: Carswell, 1990), 204.

164 R. v. Hydro-Québec (1997), [1997] 3 S.C.R. 300.

165 Ibid., 297. My emphasis.

166 Ibid., 296.


In Crown Zellerbach, I expressed concernwith the possibility of allocating legislativepower respecting environmental pollutionexclusively to Parliament. I would beequally concerned with an interpretation ofthe Constitution that effectively allocated tothe provinces, under general powers such asproperty and civil rights, control over theenvironment in a manner that preventedParliament from exercising the leadershiprole expected of it by the internationalcommunity and its role in protecting thebasic values of Canadians regarding theenvironment through the instrumentality ofthe criminal law power.167

In light of the significant potential risks toprovincial jurisdiction that may rest in theconstitutional gambit what options mightAlberta and other opponents of Kyotoconsider? Here, I would plead with them, andalso with their federal opponents who I believeare in the stronger jurisdictional position, torecognize the possibility of developing federal-provincial strategies for reducing GHGemissions that would benefit all regions. Todate, this recognition, like genuine leadershipon the Kyoto file, is nowhere to be seen in thenation’s capital. Nor can such recognition andleadership be detected among the provincesthat oppose ratifying and implementing theProtocol. Canadians deserve better.

Obviously, this is a tall order but it is onewhere I believe the Western provinces may beable to take a strong leadership position. Ourcontemporary history should make WesternCanadians particularly sensitive to the need todevelop this type of productive federal-provincial partnership. The leading provincialprotagonists in the fight against Kyoto,Premier Klein and former Premier Lougheed,

should reflect for a moment on the veryhistory they have been using to drum uppublic support and to slag those who favourratifying Kyoto. An important aspect of theconflict over the National Energy Program,one that was ignored during the energy warsof twenty years ago, was the failure of theNEP’s architects to recognize that petroleum-driven growth in Western Canada could offerimportant economic benefits to other regions.Peter Lougheed, and others from an earliergeneration of Alberta politicians, were right tocriticize Prime Minister Trudeau’s call in 1980for a “made-in-Canada” oil price, a foundationof the NEP. Too many central Canadian eyeswere closed to the short and long-termbenefits that could have flowed to Ontario andother provinces through the acceleratedpetroleum resource development a move toworld oil prices would have encouraged. Thecall for a “made-in-Canada” oil price, federal-provincial bickering over shares of economicrent, and federal efforts to steer explorationactivities onto “Canada” lands in the northand offshore blinded the policy-makers andthe public alike to important linkages betweenthe Alberta and Ontario economies. Theselinkages meant that strong, petroleum-drivengrowth in the West could deliver substantialeconomic benefits to Ontario. Energy mega-projects did not take jobs away from Ontario;they brought jobs to the province.

Today, the very people who rebelledagainst the Trudeau government’s “made-in-Canada” oil price policy now advocate a“made-in-Canada” alternative to Kyoto that isjust as short-sighted as Trudeau’s vision was in1980. Like that earlier vision, today’s assumesthat Canadian governments cannot respond tointernational forces and work together todevelop strategies and policies offeringbenefits to Canadians across this country. It istruly a sad irony we are forced to witness.167 Ibid., 314.


Can the impasse be broken? Those whowant to avoid the constitutional showdownand bitter federal-provincial conflicts we maywell be headed for might be wise to heed thecounsel of Bernard Crick. He champions“normal politics,” a politics where rivals forego“winner take all” strategies and are prepared tocompromise and recognize the legitimacy oftheir opponent’s position. Instead of asking“who is in the right?’ Crick urges politicalactors to try to understand the legitimateconcerns that most likely drive theiropponents.168 Policies and institutions mustbe crafted that address and respond to thoselegitimate concerns and try to encouragecompromise.

One small illustration of this approachflows out of the earlier discussion ofhydroelectricity and the National EnergyBoard. Canada needs a national electricitypolicy as part of its efforts to reduce ourgreenhouse gas emissions and this policyshould be a priority for federal-provincialnegotiation. Given how shriveled theelectricity regulation function of the NationalEnergy Board has become, the administrationof this policy might be entrusted to a newfederal regulatory agency, the CanadianElectricity Board. Either the current NEB orthis new institution must recognize thelegitimacy of provincial concerns regardingtheir jurisdiction over the generation andtransmission of electricity in Canada. One wayof responding to such legitimate concernswould be to revisit the recommendations onregulatory institutions incorporated into theLougheed government’s 1978 position paper

on constitutional change. There, inrecognition of the profound impact that manyfederal regulatory boards may have onprovincial development, Albertarecommended that forty percent of themembers of designated federal boards andagencies be appointed by provincialgovernments. The procedures for theseprovincial appointments would be decided bythe Premiers’ Conference.169 Institutionalchanges of this sort respect the legitimacy ofthe interests that both levels of governmentwould have in this particular policy issue.

These sorts of complementary measuresneed not come just in the form of institutionalchange. They also may be found in policies.For example, Alberta’s Environment MinisterLorne Taylor objected to internationalemissions trading because Canadian funds willgo to Russia or Ukraine and will not be usedto reduce emissions in Canada. Perhaps hewould favour, as earlier ProgressiveConservative administrations did, makinginvestments in other provinces. Today, the goalwould be to invest in projects that wouldreduce GHG emissions. An interprovincialtransmission grid across Western Canadamight be a good “made-in-Canada” GHGemissions reduction candidate for Alberta toinvest in.

169 Alberta, Harmony in Diversity: A New Federalism forCanada, (October 1978), 12.

168 Bernard Crick, “A Final Footnote to Rally Those WhoGrudge the Price,” In Defence of Politics, 4th ed., (London:Weidenfeld and Nicolson, 1992). Reprinted in Thomas M.J.Bateman, Manuel Mertin, and David M. Thomas (ed.),Braving the New World: Readings in Contemporary Politics,(Scarborough: Nelson Canada, 1995).


In this study we have considered theevolution of the Kyoto Protocol, a rangeof policies that could be taken to

implement the Protocol, and the extent towhich several key political institutions - theWorld Trade Organization, the NorthAmerican Free Trade Agreement, andCanadian federalism - may constrain efforts toimplement Kyoto. A few features of theanalysis should be underlined here. First,several very significant consequences of theKyoto Protocol for a Canadianimplementation strategy have receivedinsufficient recognition in the debate overratifying the Protocol. Too little attention hasbeen paid to how carbon sinks credits and theflexibility mechanisms (such as internationalemissions trading) secured at Bonn andMarrakech have lowered the bar Canada musthurdle in order to meet its Kyotocommitment. They mean that while Canadamust make substantial cuts in its domesticGHG emissions these cuts are not nearly asdraconian as those who demonize Kyotowould have Canadians believe. The public’sunderstanding of Kyoto’s impact also has beenpoisoned by the failure to acknowledge thatthe type of environmental regulations Kyotomight require may actually improve, notdestroy, the competitiveness of Canadianindustry. Despite the best efforts oforganizations such as the Pembina Institutethis perspective has not received theconsideration it deserves.

Second, there is the issue of what theratification and implementation of Kyoto willaccomplish. Here, Kyoto’s critics certainly areright to argue that, with the refusal of theUnited States to ratify the Protocol, the

agreement cannot make much of acontribution to reducing the level ofgreenhouse gases in the Earth’s atmosphereduring the 2008-2012 commitment period.Yet, in making this conclusion the criticsunderestimate the value of Kyoto as aninternational institution and may overestimatehow easy it will be for them to find a moreacceptable substitute for this agreement.Securing this international agreement,immediate substantive impact aside, was initself an important, hard-won,accomplishment. Through the Protocol theworld now has rules and mechanisms foraddressing the threat posed to futuregenerations by greenhouse gases.Furthermore, the critics of Kyoto seemoblivious to a point that may be inferred frommentioning the importance of sinks andflexibility mechanisms to this agreement - theKyoto Protocol has traveled a great distance toinsure that market mechanisms are welcomedin its structure. Countries such as Canada andthe United States that sought thesemechanisms should think twice beforeassuming that, if Kyoto dies, its eventualsuccessor will treat these policy preferencesmore generously.

Third, just as CEO’s will dismiss theearlier arguments about competitiveness,many Greens likely will blanch at thesuggestion that the World Trade Organizationis not necessarily a straitjacket preventingcountries from implementing many of theenvironmental measures Kyoto could require.Yet, this is the message I feel has to be takenfrom the decisions made by the WTO’sAppellate Body in the Gasoline Standards,Shrimp/Turtle, and Asbestos cases. The

C o n c l u s i o n


Appellate Body, to its credit, has paid muchmore than lip service to Article XX’sprovisions regarding the protection of health/life and resource conservation. This is not tosay that the WTO should not strengthen itsenvironmental sensitivity. It should. Rather, itis to point out that the organization’senvironmental record is not as bleak as someGreen rhetoric would have the public believe.

Fourth, NAFTA is more constraining bycomparison. Chapter Six’s energy provisionsregarding export taxes and proportionalaccess prevent Canadian governments fromintroducing measures that could assist a GHGemissions reduction plan. Questions alsoremain about whether environmentalregulations could fall under the expropriationand compensation article in Chapter Eleven.Legitimate environmental regulations needmore certain protection than the language ofChapter Eleven currently affords them.

Fifth, federalism promises to affect at leastthe pace and perhaps the substance ofimplementing Kyoto if the federal governmentratifies the Protocol. Yet, here I believe thelikely terrain for federal-provincial conflict -provincial natural resource powers versusfederal treaty/criminal law/residual powers -does not favour the provinces. Provinces havea legitimate interest in the development andmanagement of natural resources but thisinterest will be better pursued over aconference table than in a courtroom.


R e c o m m e n d a t i o n s

1. Strengthen the WTO’s acceptance of legitimate environmental measures. Following thesentiment of the RIIA/IISD seminar on the relationship between the Kyoto Protocol and theWTO, establish a Working Group in the Doha round of WTO negotiations that wouldrecommend changes to the WTO that would maximize the organization’s contribution tosustainable development.

2. Negotiate the addition of the United Nations Framework Convention on Climate Change andthe Kyoto Protocol to NAFTA Article 104 - “Relation to Environmental and ConservationAgreements.” This Article stipulates that the trade obligations outlined in the environmentaland conservation agreements enumerated in this article take precedence over NAFTA.

3. Negotiate a clarification to Chapter Eleven of NAFTA to insure that legitimate environmentalregulations (regulations that are not disguised efforts at protectionism) cannot be challenged.

4. Renegotiate Article 605 of NAFTA given the possibility that implementing Kyoto will increasefurther the proportional access claim to Canadian oil and gas resources the United States maybe able to make in the future.

5. Amend the National Energy Board Act to insist that public hearings be held in regards to allapplications to export electricity or to construct international power lines. Give the Board theauthority to reject electricity export and international power line applications (subject toappeal to the federal cabinet). Alter the makeup of the National Energy Board to insure thatprovinces appoint forty per cent of its members. Alternatively, vest these powers andresponsibilities in a new Canadian Electricity Board.


11045 Saskatchewan Drive,Edmonton, Alberta

T6G 2E1Phone: (780) 492-858

Email: [email protected]: www.ualberta.ca/parkland

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