Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue 18 - Evidence, May 10, 2007
OTTAWA, Thursday, May 10, 2007
The Standing Senate Committee on Energy, the Environment and Natural Resources, to which was referred Bill C-
288, to ensure Canada meets its global climate change obligations under the Kyoto Protocol, met this day at 8:35 a.m.
to give consideration to the bill.
Senator Tommy Banks (Chairman) in the chair.
The Chairman: Good morning, ladies and gentlemen. We have the pleasure of welcoming you to a meeting of the
Standing Senate Committee on Energy, the Environment, and Natural Resources, which is considering Bill C-288,
having to do with the implementation of the Kyoto Protocol.
My name is Senator Tommy Banks, and I have the honour to chair this committee. I would like to introduce to you
the members of the committee here with us this morning before we proceed. Senator Ethel Cochrane, from
Newfoundland, is the vice-chair of our committee; Senator David Angus represents Quebec; Senator David Tkachuk
represents Saskatchewan; Senator Mira Spivak represents Manitoba; Senator Raymond Lavigne is from Quebec;
Senator Grant Mitchell is from Alberta; Senator Lorna Milne is from Ontario; Senator Willie Adams is from Nunavut;
and Senator Elaine McCoy represents Alberta.
Appearing before us this morning are Mr. Andrei Marcu, who is the Executive Director of the International
Emissions Trading Association, and Mr. Ian Carter, who is in the Ottawa office of that association. We are here to be
educated and informed about matters having to do with international emissions trading.
Andrei Marcu, Executive Director, International Emissions Trading Association: Thank you very much for allowing
me to appear before the committee. I appreciate the opportunity. As a Canadian, I am proud to be invited here.
International Emissions Trading Association, IETA, is a non-profit business organization that is dedicated to
ensuring that the objectives of the United Nations Framework Convention on Climate Change, UNFCCC, and
ultimately climate protection, are met through the establishment of effective global systems for trading in greenhouse
gas emissions, GHG, by businesses in an economically efficient manner while maintaining societal equity and
IETA's membership is currently 153 companies; 51 per cent of these are organizations such as financial institutions,
brokerage houses, banks, legal firms and consulting companies and the other 49 per cent are emitters. The emitters are
companies that are either currently regulated under some regime somewhere in the world, probably in Europe, or
companies that have a high expectation that they will be regulated because they are emitters.
They emit globally in the order of 2.5 billion tonnes; more than the combined emissions of Germany and Canada.
These are people that have been involved in promoting emissions trading, not as a matter of charity or pure theoretical
interest, but as a matter of risk management for themselves.
Effective policy to reduce greenhouse gas emissions must be based on three essential elements: carbon pricing,
technological development and other policies and measures targeting the removal of barriers to behavioural change.
Leaving out any of these elements will significantly increase the costs of action.
To reduce greenhouse gas emissions with the lowest possible social cost, it is fundamentally important to set a price
for greenhouse gases. A price signal is inherently more efficient than any command through a regulatory approach.
Putting an appropriate price on carbon means people are faced with the environmental cost of their consumption. This
will lead individuals and businesses to switch away from high emissions goods and services and to invest in low carbon
alternatives, often at comparatively low substitution costs.
Experience with the EU Emissions Trading Scheme, EU ETS, market demonstrates clear correlation between short-
term energy demand and the carbon market with the resulting temporary reduction in demand and induced fuel
An MIT-FEEM study — that is a joint study between the Massachusetts Institute of Technology and a leading
sustainable development research centre based in Italy — of the impact of phase 1 of the EU ETS, which is between
2005 and 2007, shows real reductions of 80 million tonnes of emissions in the pilot phase, notwithstanding the limited
scarcity that has applied. The real transformative capacity of carbon pricing comes into play in the long term, as it
informs the investment cycle and drives capital toward low emissions technologies.
Canada's government is free to choose to use or not use international emissions trading mechanisms for complying
with Kyoto. Sovereign compliance and the compliance units to be used are a purely political choice. IETA is concerned
with the matter of corporate compliance with GHG regulations, less so with sovereign compliance. However, to
exclude access to international credits from calculations of the cost of Kyoto compliance must inevitably increase the
cost to a nation and to the corporate community asked to shoulder its share of the burden.
Given Canada's position, whatever targets the government will choose — long-term, short-term, meeting Kyoto —
Canadian businesses must have access to the flexibility of an emissions trading system coupled with domestic and
international offset. To do otherwise would put them at a disadvantage with their global competitors that have access
to instruments, including less costly international offsets. They must be provided with the flexibility to choose between
``make or buy'' options for reductions, protecting economically critical sectors.
In this regard, the Canadian government has placed Canadian industry in a difficult situation over the course of the
last five years. It remains impossible today for Canadian business to make capital investments informed by a price for
carbon. This is a critical obstacle to the success of Canadian climate change policy. Climate change cannot be
addressed without a significant realignment of capital spending, and in the absence of policy certainty, that will not
happen. The debate over the nature and difficulty of targets is secondary — the real success of the U.S. Clean Air Act
lies in the market's ability to drive over-compliance. In Europe, the use of a pilot phase importantly has allowed the
formation of experience and institutions. By contrast, Canadian business has been asked to assess the viability of
abatement targets without knowledge of the compliance possibilities available to them.
Canada must move to establish a regulatory GHG market with sufficient scarcity to allow a functional market to
exist. However, the Canadian economy lacks the diversity and size to provide the Canadian carbon market with a
ready supply of low cost reductions driven by differential cost of abatement. Canadian manufacturing has made
significant strides in improving its carbon efficiency. Canada will remain an energy exporter for the foreseeable future.
Fossil fuels will be a critical part of our economy for at least the next generation. The world cannot make an overnight
transition to a non-carbon energy economy. As such, it is essential to the liquidity of a Canadian carbon market that
credit from abatement outside the capped sectors be permitted, including those from outside Canada.
The experience over the last two years has shown that there is a substantial supply of low cost abatements
throughout the world and that the Clean Development Mechanism, CDM, market is capable of seeking them out and
exploiting them aggressively. The supply of project-based reduction credits continues to expand as the CDM matures
as an institution. We are on the cusp of seeing uncertain demand becoming the primary determinant of the availability
In the last 12 months, the global market has continued to grow dramatically, increasing from U.S.$2.4 billion in
project-based credits in 2005 to U.S.$4.8 billion in 2006, and the pipeline continues to expand dramatically. However,
it has also demonstrated a greater depth than in the initial stages. While critics have fastened onto the industrial gas
projects, the reality is that these extremely low cost abatement opportunities are gone. In 2006, over 25 per cent of
CDM credits came from clean energy projects, such as energy efficiency, fuel switching, biomass, hydro and wind, up
from 11 per cent in 2005.
As of the end of March, there were 1,866 projects at various stages of the project pipeline, in theory capable of
producing of 1.9 billion metric tonnes of abatement. This pipeline has continued to grow dramatically as we approach
the Kyoto commitment period. The market has been challenged to locate and exploit abatement opportunities, and it
continues to exceed expectations.
While the pipeline of CDM and Joint Implementation, JI, projects continues to grow, investment is switching
toward projects for the post-2012 period, as the supply of credits in the pipeline is now sufficient to clear demand in the
Kyoto system, excluding Canada. This must inevitably begin to affect the pipeline of projects for delivery in the 2008-
12 time frame.
Market analysts now routinely exclude potential Canadian demand from consideration, meaning that it is now
abundantly clear that there will be sufficient project-based credits to allow the Kyoto system to balance without
requiring the sale of AAUs, Assigned Amount Units, between parties to the Kyoto Protocol. The entire discussion of
``hot air'' is moot, and it is the Clean Development Mechanism that has rendered it so, before the first year of the
Kyoto commitment period.
The delay in the developing the necessary institutions within the country has meant that Canada, an early leader,
has fallen behind and allowed other countries to secure the lowest cost abatement credits. Nonetheless, there remains a
large pool of credits in the secondary market and potential credits from projects in development, at a price below the
social cost of abatement in Canada.
Access to low cost abatement credits is essential to allow Canada's economy to continue to grow while reshaping
our asset base toward low emissions possibilities. Many industries are far more able to sustain the low costs of credit
purchases than they are able to locate internal abatement possibilities in the short term.
Canada will remain an energy exporter for the foreseeable future. The world cannot make an overnight transition to
a non-carbon energy economy. Canadian energy exporters cannot, in a global energy market, compete by exporting
energy while retaining the responsibility for the carbon footprint at a domestic-only cost.
IETA's concern is to ensure that business is able to utilize flexible mechanisms for corporate compliance with GHG
reduction policies that preserve competitiveness. However, it must be made clear that project-based reductions, or
offsets, represent real and permanent reductions in GHG emissions. Regardless of any targets that Canada chooses to
meet, it is essential that Canadian businesses have access to international markets.
Governments should not determine the optimal path for corporate compliance with a greenhouse gas constraint.
The ``make versus buy'' decision should be left to the private sector facing the constraint.
On this score, it is fundamental that project-based reduction credits from the CDM and JI be permitted for
compliance. These credits are a critical element in setting the necessary global price for carbon. They also provide a
framework for catalyzing the implementation of clean technology in developing countries where per capita GHG
emissions have not warranted inclusion under a cap.
These units are produced project by project and are third-party-verified by accredited and internationally reputable
verifiers. IETA cannot accept the characterization of this credit as in any way lacking environmental integrity.
Canada's energy sector is essentially an export business, and it does not make sense to compel GHG abatements
corresponding to energy exports to be found exclusively in Canada.
In this regard, the recent decision to arbitrarily restrict certain classes of CDM credits in Canada, based on types of
projects, using an as yet unclear logic or principle, is damaging to market certainty. Further, it places Canada in a
position of unilaterally passing judgment on the outcome of a rigorous multinational process. We disagree with such
an approach, whether implemented in Canada or elsewhere.
The Canadian government should move as quickly as possible to develop the institutions necessary to allow
Canadian corporations to acquire international credits and bring them into the country for compliance. Principally,
this requires eligibility under Article 17 of the Kyoto Protocol. The six conditions for eligibility are that the country be
a party to the Kyoto Protocol, have a calculated Assigned Amount, a national system in place for estimating emissions
and removal, a national registry in place for tracking Assigned Amounts, submission of the most recent required
emissions inventory, and accurate accounting of Assigned Amount and submission of information. Critically,
Canadian business has no clear timeline on the delivery of a national registry at this time.
That concludes my prepared remarks. IETA is an international organization headquartered in Geneva. We also
have offices in Brussels and Ottawa. We have had an office here for a couple of years now. We are opening an office
next month in Washington. However, IETA has been very much Canadian led over its six years of existence. Our first
chairman was Bob Page from TransAlta. I have been executive director and president for the last five and a half years.
My current chairman is Dan Gagnier, who is no longer with Alcan, but he has a long and distinguished career in the
public and private sector in Canada. IETA is an organization that, while international, has a strong Canadian
component to it.
The Chairman: Before going to questions, I believe we all followed what you said except for one acronym, and that is
AAU. What is that?
Mr. Marcu: That is Assigned Amount Unit. Under the Kyoto Protocol, each country is assigned a number of tonnes
of emissions, or Assigned Amount Units. They are compared to a baseline of 1990. These are amounts that have been
negotiated under the Kyoto Protocol. They are found in the annex to the Kyoto Protocol.
In the same way that a company in Canada would be allocated a certain number of emissions permits in a year, in
the international system, as a result of the Kyoto negotiations, every country has a certain reduction or increase from
1999 limits, which gives the amount of emissions they are allowed to have in the period of 2008-12.
The Chairman: That number has already been determined?
Mr. Marcu: The number was determined when the Kyoto Protocol was struck, yes.
Senator Lavigne: I have a question of privilege to ask. Why is your paper not provided in French? Canada is
bilingual and we must have our documents in French and English.
Mr. Marcu: I apologize for that. I was invited to appear a few days before the main event we hold every year in
Cologne, where we have 3,000 people from around the world, which was last week. We prepared as best we could. We
are aware of the fact that documents must be bilingual. We provided our paper as quickly as we could. The slides are
prepared in both English and French. I apologize for having my remarks only in English.
The Chairman: They are in the process of being translated. We will have the remarks as quickly as possible. We
began the process as soon as we received them.
Senator Lavigne: Thank you.
Senator Cochrane: I want to go to your third paragraph, where you say that an effective policy to reduce greenhouse
gas emissions ``must be based on three essential elements: carbon pricing, technological development and other policies
and measures targeting the removal of barriers to behavioural change.'' Could you elaborate on those three elements?
Mr. Marcu: As an organization, we realize that climate change is a complex issue to address, and there are various
sectors of the economy that are best addressed in different ways.
Emissions trading and carbon pricing is a necessary but not sufficient way of addressing climate change. We are
faced, at this point, with a movement to move to a low-carbon economy at a predetermined pace. I am not a scientist,
but the Intergovernmental Panel on Climate Change, IPCC, indicates there is urgency in the matter. If we set the price
of carbon to achieve the reduction we want, it will be a high price. As such, there needs to be a price for carbon that
would promote the deployment and development of technologies, but there needs to be other measures as well.
For instance, carbon capture and storage is at an early stage. In order to make it viable, there will obviously be a
need for development of a technological program. Public and private cooperation must take place in order for this to
become viable technology. The price of carbon should promote the deployment of that technology versus other
technologies. The price of carbon is an important and necessary, but not sufficient, element in combating climate
Second, there are different measures that must be targeted at what is most effective economically and
environmentally for each sector. For instance, we believe emissions trading is appropriate for large sources but not
for ground transportation. It would be difficult to deploy. For appliances, we will need standards; to have emissions
trading for a refrigerator is not something that anyone would envisage.
There needs to be a tool box including emissions trading, and carbon price is a critical and essential part of that, but
many other elements are involved.
Senator Cochrane: How do we set an appropriate price for carbon?
Mr. Marcu: Emissions trading does not reduce anything. It is a market instrument to set the price for carbon. We
have demand and supply. Limits are put on how much corporations and countries can emit. In our case, we are
concerned about corporations as opposed to countries. Some corporations will over-comply and some will under-
comply. Those organizations that are under the cap will have an incentive to reduce even further because they can
monetize. They can make those reductions develop in the marketplace.
Those companies that are emitting more than allowed under the cap. determined by regulation. will have an
incentive to make a decision whether to reduce emissions in their own organization or whether to purchase from
someone for whom it is cheaper to reduce emissions. It is purely a business decision. For example, you have your own
printing presses, as many large corporations had in the old days, or you outsource. It is simply a way to set the price. It
does not itself produce reduction; it just gives a price indication of what is, for the total economy, the most effective
way to reduce emissions.
In the case of greenhouse gases, because they are global gases — emissions anywhere have the same effect on the
environment — they will give a price signal on where it is most effective globally to reduce, whether it is most effective
to reduce in Alberta or at an Ontario Power Generation, OPG, plant in Ontario or a plant in Indonesia.
Senator Cochrane: To develop the policy to achieve this, we have this standard and we must look at storage, et
cetera. How long do you feel it will take to set up something such as this?
Mr. Marcu: Setting up a system for emissions trading — I am sorry to say this, because it is my job — is really not
rocket science. I might make it sound that way, but it is actually a very simple endeavour.
The system has been set up and operational in the U.S. under the Clean Air Act for sulphur dioxide for a number of
years, and is very successfully. The Europeans have set up a system in about two and a half years. It is by now a
relatively straightforward process. Most of the decisions are political: how to allocate and whether to have banking for
one period to another, and things of that nature. However, in terms of having registries and such, they are now
Senator Cochrane: Would you say it would take two and a half years to set something up?
Mr. Marcu: Yes, we also have the benefit of Europe having gone beyond the first period of setting it up. I would say
there is nothing we could not do within a year to a year and a half. There are a number of political decisions to be
made, but technically it is very doable.
Senator Cochrane: The bill says that within 60 days after this act comes into force, we should be prepared to set up a
climate change plan that includes everything here and continues to page 5. Do you feel we could prepare a climate
change plan within 60 days?
Mr. Marcu: Is this to pass a plan? Frankly, I am not familiar with the processes you go through in the Senate and
the House. In terms of a plan, I have not taken part in Canadian roundtables. Most of the debates and most of answers
we know; it is a matter of decisions. Once we have those decisions to actually develop a plan, I believe it is feasible.
Deploying the plan is a matter of the resources we put at the disposal of the various departments in the government. To
develop a plan, we know the elements of a plan if we were to choose it.
Senator Mitchell: It is very timely, and you address the issue that is at the core of our debate here. People have this
concern that trading credits or buying credits could result in ``buying hot air.'' How does one know when they get a
credit, that it is real? Clearly under the CDM there are processes to do that, and organizations such as yours have
processes to confirm their validity. Natsource is an international marketing agency that has an obligation to its clients
to ensure credits are real. Could you give us an indication of how exactly the audit process is undertaken, so that when
an organization or an individual buys a credit it is really responsible for reducing carbon emissions?
Mr. Marcu: If we take the example of a Canadian or European emissions trading market, there will be companies
that will receive a cap, and they will be allowed to emit 1 million tonnes a year, for arguments sake. They have to return
whatever they emit at the end of the year. If they are given 1 million credits and they emit 1.1 million, they then have to
return 1.1 million credits. They get the extra 0.1 million credits either from another enterprise that has been issued a
paper and who has emitted less. This is a paper issued by the state, so it is valid. It has been issued to either to
TransAlta or OPG, for example. If you issue it as the government of Canada, then it must be good.
The other option is to go into the international offset market. The international offset market is reducing emissions
project by project from a baseline. I am thinking of a project that I did years ago. Let us say that you go into a power
plant in Jordan with your money and see that the plant is operating in a certain way, so you offer to spend your money
to improve the efficiency of this plant from the baseline. You provide $1 million and find out you are creating half a
million tonnes in reductions. You are paying them $2 per tonne of reductions, so they will give you this amount as an
How do you know this is real? It is a very strict process under the auspices of the UN Framework Convention on
Climate Change and the supervision of the regulatory body, the Clean Development Mechanism Board. This board
has 20 people nominated by a number of countries, including Canada. The committee does not go project by project; it
accredits and verifies. These are companies that have been doing verification, are experts and have gone through a
rigorous accreditation process; companies such as Société Général de Surveillance, Det Norske Veritas, TUV in
Germany, First Environment in U.S. and others. Their people will go on the ground and have been doing verification
in anything you care to name over the last 100 years. They have been specifically accredited and have been determined
to have the expertise to verify greenhouse gas reductions. There are spot checks on these people, and they are liable for
what they have accredited. They have an open-ended liability. It is not very appealing to many of them. It is a process
that is open to public comment for up to 60 days. It is a process where we sometimes say that this is too
environmentally credible. I am glad it is, because there are people raising issues about the credibility of the process. It is
not credible to question the environmental credibility of these things. They are painfully environmentally green.
Senator Mitchell: No one is able to buy hot air. Is this hot air Russian controversy just spin to distract people from
what is really occurring that is proper?
Mr. Marcu: We are living in the era of sound bites. I am not good with sound bites. I am fascinated how they catch
and become common currency. Hot air is a term referring to specific types of assets. It is narrowly defined. There are
two types of compliance: One is sovereign compliance, countries under the Kyoto Protocol including Canada, Japan,
Germany and so on, and the other is company compliance under the EU Emissions Trading Scheme, or maybe it could
be a Canadian domestic trading scheme, which does not exist yet.
AAUs, hot air, are the surplus of side amount units that have resulted from the collapse of Eastern European
economies following the collapse of communism. Therefore, Russia and certain economies that have much heavy
industry, which collapsed as a result of the split of the Soviet Union by them moving away to more economical forms
of production, and as a result of that, based on the 1990 levels, the level of emissions dropped dramatically. That is
what is called ``hot air.'' If you were Russian, you would take heavy debate when using that term. They will say to you
— and, these are not my words but the words of the Russian negotiator — ``We have paid for these miserable AAUs in
economic and social costs for the last ten years.'' AAUs are a very specific class of assets, and I will clarify: A company,
whether European, Canadian or Japanese, cannot use AAUs because these are Kyoto units that can only be used by
countries. If you are RWE Solutions in Germany or the Lafarge Group in France, you cannot buy this stuff.
Senator Mitchell: You commented in your presentation that ``the recent decision to arbitrarily restrict certain classes
of CDM credits in Canada, based on types of projects, using an as yet unclear logic or principles, is damaging to
market certainty.'' Could you elaborate which decision that is and identify which classes are being excluded and
explain the unclear logic?
Mr. Marcu: Senator, it is clear that under the Clean Development Mechanisms there are 13 different classes of
projects, some of them are energy efficiency, some are biomass, renewable energy, forestry and it is unclear which ones
will be allowed and which will not be allowed. In the European Union — and we have protested this bitterly — there
are two classes of assets that have not been allowed, one is Land Use, Land-Use Change and Forestry, LULUCF,
projects, which excludes all of Africa, because in Sub-Saharan Africa there is not a great deal of energy consumption.
Therefore, that leaves Africa out of the CDM loop, which is very unfortunate. The other is large dams over 20
This is a further restriction from the agreement under the Kyoto Protocol. This is not a restriction imposed by the
Kyoto Protocol but, in the case of the EU, by the EU. We understand it is likely that the minister will make a decision
on what classes of assets will not be allowed in the Canadian system. Having signed on to an international agreement,
Canada has the sovereign right to restrict what it wants, but that sets a poor precedent. I made this statement in the
European parliament as well.
Senator Mitchell: Canadian companies should be able to participate in projects wherever the most efficient way of
reducing carbon can be found so that their investment can be most productive. Is that right?
Mr. Marcu: Yes. There are two ways to look at it. One is that Canadian companies competing in the global
marketplace for other products, whether aluminum, steel or paper, do not have access to cheaper emissions reductions
from the non-developing countries, while the counterparts in Norway and France and other places do have access to
these things. When we include production costs in the mix — the cost of carbon is one — we then lose some
competitive advantage in that case.
Senator Mitchell: Earlier, you mentioned Mr. Robert Page, TransAlta Professor of Environmental Management
and Sustainability, who presented to the committee and who has been involved with an organization called BIOCAP
Canada Foundation, with which you are likely familiar. BIOCAP's focus, among other things, has been to develop a
research network with a practical application to find ways for forestry operations and agricultural operations to
develop carbon reductions through biomass, which they could then trade. However, the government has cut its funding
from $2.5 million per year to zero. Could you elaborate a bit on the opportunities for our agricultural economy to
develop carbon credits and tradable credits that they could sell to enhance revenues to the agricultural economy?
Mr. Marcu: I cannot comment on BIOCAP, because I am not familiar with the exact status of their funding, and it
is not my place to do so. I would comment on the fact that agricultural sequestration is highly important and low-
carbon technology and methodologies have an important place in the future. We have been asked by the Government
of Singapore to work with them because they want to make Singapore a centre for emission reductions and low-carbon
technology. The U.K. government has spent GBP £0.5 billion to make London what it is today — the centre of global
trade and expertise on carbon. The U.K. government has not done this for philanthropic reasons but rather for
building a strategic advantage in establishing knowledge on the critical mass. In Canada, we were at one time very well
placed and advanced in dealing with these matters. Unfortunately, because of the stops and goes over the last number
of years, that has been lost, to a large degree. Now, there is a great opportunity for Canada to become a leader in a
number of areas of technology that can be either exported or employed at home.
There can be projects that reduce emissions either in Mali or in Manitoba because agriculture occurs in both places,
and they will benefit. If we would prefer to have people invest their money in Canada, rather than in pig farms in Chile,
it is important to maintain the opportunity for Canadians to have that investment.
Senator Milne: Mr. Marcu, I want you to clearly understand that anyone who comes before a committee in the
Senate, a private individual or a citizen, can make their presentation to that committee in the language of their choice.
You are not required to present in French if French is not an easy language for you to deal with. It is a courtesy for you
to provide something in French, and you have done so with your slides. Anyone from government who appears before
the committee must provide their material to the committee in both languages. We must be able to hear you in both
languages, and that is why we provide instantaneous translation. You do not have to worry about that.
I am confused about some of the terms you used in your excellent presentation. You talked about limited scarcity
and the MIT-FEEM study of the impact showing real reductions of 80 million tonnes, ``notwithstanding the limited
scarcity that has applied.'' What do you mean?
Mr. Marcu: I would be extremely pleased to give this all in French, but I do not have enough practice in French.
By that phrase, I mean that this is a regulatory market, not a natural market for products such as sardines, which
have a natural demand. The market is created by government regulation or by self-regulation, as is the case of Japan.
As such, in order to have a market, there has to be a shortage of the goods. If there is an abundance, then the market is
no good and the price goes down.
There are two phases in the EU ETS in Europe. The first phase, 2005-07, was conceived as a pilot phase. This has
not been implemented, but it is to cover 15,000 installations for 50 per cent of carbon dioxide emissions in Europe. In
the initial pilot phase, they allocated to installations in Europe a certain number of emissions allowances. That amount
of those allowances was supposed to be lower than what they actually emitted in such a way as to force people to
reduce or to force people to trade, otherwise there would be no purpose to the entire exercise. The main issue of a
trading scheme is to deliver emission reductions — to force people to reduce emissions. The cap must come down
In the case of Europe, in the first period of 2005-07, they did not have historical verified emissions. Thus, the
allocation was done on less than rigorous information. They had some historical data, some of which was verified, and
found that the allocation was relatively generous. The result was that the price went down to a level of 1 euro per
tonne. However, within that context, MIT-FEEM did a survey whereby they asked different institutions whether or
not they had taken action to reduce greenhouse gas emissions. The result was a figure of about 80 million to 100
million tonnes of reductions having been done in any event, simply because there was a cap on the price of carbon,
which went up to 30 euros per tonne and then went down again. That is normal on an environmental scale in the first
year. We need to ensure scarcity in an emission trading scheme. In this second phase, the allocation currently taking
place in Europe for the next Kyoto period of 2008-12, the scarcity is quite considerable. There is verified data for 2005,
so they know what they are allocating for next year. The price of carbon for this second phase, for 2008-12, is 19 euros
per tonne, which is a considerable amount. Certainly, it will trigger a great deal of investment and much thought about
what we will do about it.
Senator Milne: You went on to say that ``Canada must move to establish a regulatory GHG market with sufficient
scarcity to allow a functional market to exist.'' How will this apply? You say the low hanging fruit has already been
taken up by countries that were into greenhouse gas trading earlier. Is there still sufficient scarcity to allow a functional
market to exist? Will Canada be able to go into it now?
Mr. Marcu: There are two sides: the demand side and the supply side. The scarcity would apply to the demand side.
I spent 18 years of my life at Ontario Hydro, so I can talk about that.
At the beginning of the year the government will allocate a power plant an emissions allowance of 100,000 tonnes. If
they think that their emissions will be 90,000 tonnes, then the allocation should not be 100,000 tonnes; it should be
80,000 tonnes, otherwise, there is no inducement to reduce or buy from somewhere else. We do need allocation of
allowances to each installation that is less than what we foresee they will be emitting.
There is also the supply side, where we go out in the world and buy credits to fill up that 10,000 tonnes gap. The
issue people have raised is whether there is enough supply to fill the gap in Europe, Japan and Canada.
For the first part of the answer, the Minister of the Environment, or whoever is in charge of the regulatory system,
must allocate less in order to force reduction. The second part is the question of whether there is enough for us to buy.
People have already purchased a fair amount, and my answer is — I have tried to outline this in some of the graphs
that I have here — that there is a substantial amount of supply out there that is responding to market demand.
Senator Milne: If Canada came up with a plan to go to a market-based greenhouse gas trading system, as you
outlined it, do you feel that it could come up with a plan in 60 days and perhaps be in operation within a year or a year
and a half?
Mr. Marcu: I would like to add something to that. I am not an expert in the process of passing legislation in Canada,
so when I refer to time, I am responding to the amount of time I believe it would take to get it done. There are political
processes and public processes that need to be observed, and I cannot comment on that. I would maybe like to correct
the first answer.
The graph that we handed out that shows in red what we think is the demand and what we think is the supply of
credits in the world right now, based on the information from the World Bank, from the UN and using our own
conservative estimates for discounting the project pipeline, because we want to be conservative. When I tell you
something, I want to be comfortable that what I have said can happen, and based on that, I would say that currently in
the Kyoto period this project, if you had to take full Canadian demand in, would be short by about 600 million tonnes.
That includes the whole Canadian demand, considering that everything will be purchased. That includes the current
pipeline of projects available.
The Clean Development Mechanism has shown an incredible amount of capability to respond to demand, and if we
look at some of the other graphs, we will see the amount — this comes from an IETA and World Bank market report
just issued from our meeting in Cologne — of increase of credit production worldwide for the last number of years.
The next graph shows an increase in the number of projects at different stages and the estimation of the number of
credits that would be produced. We discounted those numbers by another 30 per cent; we tried to be conservative. My
belief is that the market has responded so far to the demand that has existed.
The market has, to a large degree, until now, discounted Canadian demand. It had been an unknown, and of course
there were political statements that indicated Canada would not purchase either corporate or sovereign. The market
will only supply as much as is demanded. This is based on the number we see here, filling the gap of about 600 million
tonnes with projects that are to be emerging in the world over the next year or so and the large amounts of money we
see floating into the projects.
Only yesterday, Citigroup announced an investment of U.S. $30 billion for climate change. Not all of it will go into
credit production, but substantial amounts will. Large companies are putting in substantial amounts of money —
Morgan Stanley is putting $3 billion into this. These are amounts of money that we could only dream about when we
started. If someone had $100 million four years ago, they were an important person. That amount is not much today;
we are talking about people with billions of dollars.
The Chairman: In respect of that graph, could you confirm what CERs are?
Mr. Marcu: Certified emission reductions are the product of the Clean Development Mechanism.
Senator Spivak: One of the difficulties in looking at this whole area is misinformation and information not clearly
understood. Manitoba Hydro is already in the Chicago-based system, and British Columbia is considering joining up
with California. Right now Manitoba Hydro is selling; I do not know who is buying. Will those count for Canada's
Kyoto submissions being that the United States is not a Kyoto country?
It has been suggested that the reason for not going into emissions trading is that we want companies to reduce their
emissions here in Canada; we do not want them buying hot air from Russia. I believe it is a legitimate concern if true.
What sort of a cap in a system for Canada and what sort of price for carbon would be needed — you have already
answered this slightly — to ensure that the price of carbon is high enough so that it is cheaper to reduce our emissions
than to sell? What sort of tension do we need to make this truly meaningful so that Canadian companies actually
reduce their emissions?
In regard to the question Senator Cochrane raised, we have a system in place, so we know what each company is
emitting. We know that. That has been in place for some time.
Mr. Marcu: The Chicago Climate Exchange is a voluntary system. It is not a regulatory system set by authorities. It
is basically an agreement between a number of companies that have gathered together around the Chicago Climate
Exchange and agreed to a certain number of voluntary limits, an increasing limit every year. Obviously, it is not only
Americans. They come from south of the border and from Canada and so on.
Whatever happens in the Chicago Climate Exchange, emissions would not count for that. In California, their system
is bound to start in 2012. That is the end of the Kyoto Protocol as we know it. As such, anything done in connection
with the California trading system will also not count in meeting a Kyoto commitment that the government may or
may not want to observe.
In terms of reductions, companies that will be regulated under a cap system in Canada — whatever form the cap
may take — are companies that make economic decisions everyday. When one goes into senior management, one
makes asset allocation decisions everyday. Those asset allocation decisions are based on many factors. Carbon will be
another factor that will come into the mix. By and large, those that survive are competent to do so or they do not
survive in business. As such, I believe they should be allowed to decide whether they want to make reductions in their
own operation or feel that, for whatever reason, it is cheaper for them as an economic judgment to purchase those
reductions from somebody else.
They may make the decision that, in the short term, they will buy from somebody else, because their capital stock
turnover takes longer, and they will make those changes in the long term. One of the fallacies of the argument that
emissions trading is not delivered in Europe is the fact that emissions trading has been related to large, stationary
sources — essentially power plants, cement plants. I do not know much about cement, but I know a little about power.
The capital turnover for a power company is not two years. A power plant has a lifetime of 25 to 30 years. Anybody
who suggests that any power company can actually make structural changes and change its assets in a two-year time
frame is not being realistic or is not familiar with the power industry.
They will look at operational modalities and try to reduce based on that, which is what I did when I worked in
Ontario Hydro. They will change the dispatch order of plants. When we start putting in the price of coal, gas,
maintenance, operation and carbon, we come up with another pecking order in the way we dispatch our plants. These
are some of the decisions that will lead to short-term reductions.
In the SO2 — sulphur dioxide — market in the U.S., the U.S. utilities, which have been very successful, have not
rushed to build scrubbers. They knew they had to build scrubbers, but a scrubber is not something that can be built the
first day. Essentially, they have switched to low sulphur coal from the West and are getting into the process of building
scrubbers as a longer-term solution. This process that has tied them up until the buying of low sulphur credits from
other utilities or places that comply with the regulations, until they can implement certain provisions. It will be left up
to individual companies to make economic decisions as to whether they want to do this or postpone.
Senator Spivak: Market signals are the only way we can go. All this time, for some inexplicable reason, companies
have not had to factor in the cost of carbon. They now must do that, and that is part of the economic mix. There is no
way of avoiding that. It is an extra cost. They adjust to rising costs of energy and other things. They will now have to
adjust to the real costs of carbon, and perhaps water.
Mr. Marcu: Anybody who tells you that introducing a constraint of carbon does not have a cost is not being
truthful. Introducing a new constraint on economy will have a cost. Emissions trading does not eliminate that cost. It
will try to minimize and optimize the societal impact of such a constraint. If the price should drop to zero, that means
we have solved the problem and do not have a cost anymore. That is wonderful. Someone has come up with two sticks
in a water bottle, and we do not have a problem.
IETA does not have a price. I am not allowed to give indications of price, because it could possibly influence the
market. I will say the market will deliver what it delivers. We are concerned that it shows success in reducing emissions.
When we impose an emission trading system, we do not create it so a number of my members can make money trading,
which is wonderful, but rather to reduce emissions, and if it does not, it has failed.
Senator Angus: Welcome. I understand this is not your first time in Ottawa talking about Bill C-288. Is that right?
Mr. Marcu: I have appeared in front of a number of committees in the last few months. I appeared before the
Senator Angus: In November of 2006, yes. In any event, we appreciate your appearance today. You mentioned the
various offices of your association. Which one are you based in?
Mr. Marcu: I would love to answer that question. My wife would like to know that answer. Frankly, for the
purposes of my contract with the association, I am supposedly based in Toronto. My wife is in Toronto, my house is in
Toronto, my sons are in Montreal at McGill, and the main office of the association is in Geneva. It is a Swiss, non-
profit association with the main office in Geneva, offices in Ottawa, Brussels and, within the next few weeks, in
Senator Angus: That is interesting. Are you a Canadian citizen?
Mr. Marcu: Very much so.
Senator Angus: Are you the director general of this Swiss-based company?
Mr. Marcu: I am the president, yes.
Senator Angus: I do not know what the main office is.
Mr. Marcu: It is in Geneva.
Senator Angus: Where are the most employees?
Mr. Marcu: In Geneva.
Senator Angus: How many are in Toronto?
Mr. Marcu: We have one person in Toronto and one person in Ottawa. Mr. Carter is in Ottawa.
Senator Angus: Is he an officer of the association?
Mr. Marcu: He is an employee of the association.
Senator Angus: You mentioned it is a non-profit organization and is not made up of sovereign nations or
governments, but what we call NGOs — non-governmental organizations. It is private sector membership. Is that
Mr. Marcu: You have to be a business in order to belong to this association, yes.
Senator Angus: There are 151 members at the moment?
Mr. Marcu: There are 153 members.
Senator Angus: Are many Canadian businesses members?
Mr. Marcu: We had similar questions in the U.S. and in Europe. The question was whether CEMEX is a Spanish
company or Mexican company? There are quite a few Canadian companies. We tried to count them. I believe we have
25 to 30 Canadian companies. Do you consider Shell Canada to be a Canadian company?
Senator Angus: Yes, I would. I believe you mentioned that Alcan is one of the members?
Mr. Marcu: Alcan is the chairman of IETA.
Senator Angus: Mr. Gagnier is your current volunteer chairman?
Senator Spivak: He is not a volunteer.
Senator Angus: He is paid for it?
Mr. Marcu: He has been elected. It is a non-paid position.
Senator Angus: That is what I mean by volunteer. The reason I am asking this is to make a distinction. You
indicated that you have brokers, financial institutions, intermediaries and the like, 51 per cent, but may we take it that
these other members are emitters?
Mr. Marcu: Yes.
Senator Angus: There are 25 to 30 Canadian emitters in the group. When you give evidence about this particular
piece of legislation, you are doing that on behalf of all your members. Is that correct?
Mr. Marcu: If I did that, I would soon be out of a job. We have serious governance in this organization, and the
governance says that the way we proceed is that when we have a position paper, that paper must go to a working
group, in principle the Canadian working group. If I feel there is nothing new in that position or new policy
development that affects the organization overall, I have the authority to proceed with that position. However, if I feel
that position implies new ground for the association globally, then I will take it to the board of IETA. In the case of
this testimony, I do not believe there is anything in here that has not been presented at previous presentations in front
of various groups. This has been scrubbed with the Canadian working group very thoroughly. I have not had any
dissent from anybody in the Canadian working group. They had the opportunity to express themselves if they wanted.
Senator Angus: I understand this document has been presented in other places in Canadian Parliament for purposes
other than Bill C-288.
Mr. Marcu: I am saying there is nothing in here that represents new policy for the International Emissions Trading
Association. I am confident that while this has not been circulated to the whole group, it has been circulated to the
leadership of our group. There is nothing in here that would be contested by anybody in the Canadian working group.
If you are referring to the Canadian working group of IETA, this has been fully exposed and is supported by the
Canadian membership of IETA.
Senator Angus: I do not believe there is any magic or complexity in my question. Some of your members have
appeared before this committee to help us in our review of this legislation. That is what we are all doing here. Our job is
to see if this is an appropriate piece of legislation. It has already received approval in principle in two levels of our
parliamentary system, but we are here to give it sober second thought.
I believe TransAlta is a member of your association. They have told us that the bill is inappropriate. They do not
feel it makes sense; there are better ways to go. You are here to help us with Bill C-288 and, of course, in the process
being very helpful in enabling us to understand how an international emissions trading system works. For that, I am
certainly grateful, because I do not find it as simple as you suggest it is.
I have to ask you this question, and I hope you will take it the way it is meant. It is meant in good faith. I take it you
are here to assist us on Bill C-288. I am taking that for granted. Therefore, I have to ask these questions.
Do you think that this bill is the best course of action for Canada to take at this stage, given the resources available
to this nation, this government?
Mr. Marcu: I will answer the question the way I can, and I am not competent to decide what the Government of
Canada should or should not do.
Senator Angus: All your members are out there listening to your answer.
Mr. Marcu: I hope they are up in Calgary. I am sure they must be by now.
My answer to you is very simple: I am the president of the International Emissions Trading Association. I can
answer questions related to the functioning of the market and availability of credits. You can decide whether this fits
and makes commercial and economic sense for Canada to do. This is a decision that does not belong to the
International Emissions Trading Association. It would be improper of me as a Canadian or a Swiss-based organization
to express anything in that direction. TransAlta may do so.
Senator Angus: That is a fair answer. I am not unfamiliar with your reputation and your expertise in this matter. Are
you aware what the level of Canada's greenhouse gas emissions were in 1990?
Mr. Marcu: I do not know the exact number. I know the amount of reductions because that concerns me more.
Senator Angus: Do you know what the level is today, 2007?
Mr. Marcu: They are 34 per cent higher, in that ballpark.
Senator Angus: Senator McCoy has these numbers. Having said they were X in 1990, which I gather is a baseline
year for the purposes of the Kyoto targets for greenhouse gas emission reductions, to start now to achieve the targets
circumscribed by the years 2008 and 2012, knowing that our emissions are already 34 per cent higher today than they
were when Canada bought into this arrangement, as an expert, do you have an opinion as to whether or not it is
feasible to be forced to meet those targets in this short period of time?
Mr. Marcu: I can answer you as to whether there are enough credits out there to do it or not. Whether the
Government of Canada wishes to do this and which proportion it wishes to put the burden in certain sectors of the
economy is again a sovereign decision of the government. I can tell you what the CDM can produce, what is available,
and whether there is a pipeline project or not. You are asking me a question that I believe is improper for an
association to answer.
Senator Angus: That is a proper answer. I followed your document carefully. You read it quite well, so well that
when you left out a sentence or two, it made me wonder why you left those sentences out. I will read one in particular
here. I am sure it had to do with Senator Mitchell's acknowledgment that we should get you a cup of coffee because
you have had a long night.
You were reading along very nicely.
. . . in English, but I understand both languages.
Mr. Marcu: I'm not very familiar with the French language.
Senator Angus: I know. Your French is perfect.
On page 3 near the bottom, you said, ``Canada will remain an energy exporter for the foreseeable future.'' I hope
that is right. Then there is a sentence, ``Fossil fuels will be a critical part of our economy for at least the next
You left that sentence out. Was that a result of fatigue or is there a reason you left it out?
Mr. Marcu: I am an energy person. I got into energy because, after reading Isaac Asimov, I felt it was an extremely
important area to get into when I graduated from McGill. I left that sentence out because I felt it was repetitive. I said
that somewhere else in the speech. There was no other reason for that.
Senator Angus: Your members hope to be continuing to produce fossil fuels and make money for their shareholders.
The other part where you did not follow the text precisely was in the last two paragraphs. One or two of my other
colleagues here focused particularly on the second-to-last paragraph, where you say, ``In this regard, the recent
decision to arbitrarily restrict certain classes of CDM credits in Canada . . . .'' What recent decision are you referring to
Mr. Marcu: There is no clarity in the regulation that was issued on April 26. That is what we are referring to. There
is nothing more or less than that.
If the government wishes to have Canadian companies begin in earnest to participate in this market — and some of
them have been, such as TransAlta, which is a leader in this project and, therefore, has much knowledge as to the
process — we need clarity. Obviously, you are debating this bill, and I am not sure what other debates will follow up in
Canada on this matter. However, without clarity on whether certain classes will or will not be restricted, if I were a
CEO and somebody in my company came to me to ask for money to purchase credits, my first question would be
whether they were sure this class of asset is something that will be allowed under the Canadian regulation. CDM, in
principle, is allowed, but maybe this narrow band of assets will not be allowed. I would tell them to come back when
they were sure and we may look at it as the next agenda item on the board.
Senator Angus: You mentioned a recent decision. What recent decision, the decision by whom?
Mr. Marcu: There was an announcement on April 26 by the government.
Senator Angus: You are referring to the government's decision with respect to a plan that they call a Green Plan. Is
Mr. Marcu: Yes, and the use of CDM as part of the plan.
Senator Angus: You say that you disagree with such an approach, whether implemented in Canada or elsewhere. Do
your members all agree with that, in your view?
Mr. Marcu: I would be surprised if anybody in IETA would agree to be limited in the amount — it would be
unnatural for anybody to agree to be limited by regulation in their choice of the source of assets they can buy. Some of
them have preferences, and they are free to exercise those preferences, but I have not met any member of IETA that
would say we should not be allowed to buy this class of assets.
Senator Angus: Therefore, it is quite a narrow aspect; you are not condemning the whole plan. You are just referring
to that specific area.
Mr. Marcu: I am expressing an opinion about the fact that we need clarity about the type of assets under the CDM
that the government is intending to allow in Canada.
Senator Angus: Finally, in the last paragraph, which seems to be your conclusion, you started to paraphrase, and
you concluded it with other words.
Is there anything in this paragraph that you do not want to say to us or that you do not agree with? It speaks for
itself. I am referring to the final paragraph.
Mr. Marcu: I have no problem with any of the document. To tell you the truth, in reading it, I realized that it had
become a bit technical in the details of the eligibility of a party to trade under Article 17 of the Kyoto Protocol. I had
my doubts that this committee would be interested in going into this kind of detail, so I focused on the one element I
thought was important, to have a national registry that allows one to be eligible.
Senator Angus: That is regardless of whether this bill passes or does not pass or is part of the law of this land?
Mr. Marcu: I know that a national registry is a must in whatever effort this country wants to undertake.
Senator Adams: Where I live, we have 26 communities in Nunavut that are running on fossil fuels 365 days a year,
24 hours a day. In one of the communities, the capital of Nunavut, it costs $40,000 a day in fossil fuels to run things,
burning diesel. In one year, that one power plant cost $6 million to run on fossil fuels.
I did not see anything in your submission about providing alternate power sources, wind or water from the sea. Do
you look into those aspects, or are you only concerned about emission trading systems? Do you care about what would
be the best energy sources to use to reduce emissions? Are there higher emissions in Canada because of our colder
I was wondering how your organization works. Are you concerned with reducing emissions or the costs of power?
Right now, we are talking about building two or three coal-fired plants a day. How does your organization work —
does it only promote getting more money through trading emissions?
Mr. Marcu: I will try to answer that as best as I can.
Many people are saying that we look for a trading solution over a technological solution. I feel that shows a lack of
understanding of what the market can and cannot deliver. These are two sides of the same coin in a sense that the price
of carbon will hopefully push for the development of new technologies. In the end, there must be the development and
deployment of new technologies. Many of them are on the shelf and are just not being deployed. The price of carbon
gives them a boost to deploy.
For instance, if we look at the Clean Development Mechanism on these particular slides, it shows the cumulative
amount of money that has gone into the CDM — this obviously would not fit into your community, but I will give you
an example of the kind of thing that it can trigger — $7.8 billion has transformed itself into approximately $2.7 billion
that went into clean energy. That clean energy has leveraged $16 billion in investment. The price of carbon buys only
part of the investment; it must still be the overall investment. Carbon is only the topping in the whole situation.
When we look at the type of asset classes that have triggered investment, we will see a growing amount in clean
energy. It is quite clear that in the end, the CDM or emissions trading or offset mechanism are very interesting as they
start moving into the energy matrix of a country or a region or a community. That is what they are intended to do, and
that is what they will do. It is just a matter of working themselves through that.
Clearly, we see people investing money into new technologies and new facilities. I cannot speak for your community
because, unfortunately, I have never been there; but I am quite convinced, and facts will show, that decisions are being
coloured by the price of carbon to go to a cleaner type of energy. That will not happen overnight. It will take time, but
it is moving in this direction.
The Chairman: We are constrained by time. Senator Tkachuk is the critic of the bill, and I must allow him time for a
question. I have many other senators on the list, but we have to stop at 10:00 and go to other business.
Senator Tkachuk: Do we have other witnesses?
The Chairman: No.
Senator Tkachuk: Why not just continue on?
The Chairman: We have to deal with future business of the committee, which we have to do today before 10:30.
Senator Tkachuk: Why do we have to deal with future business today?
The Chairman: We have to deal with the question of what the committee will address in the remaining meetings
between now and the time we can reasonably expect to rise. We have a full plate of business with which we must deal
and the committee must determine what that will be before we can proceed.
Senator Angus: From 10:00 on, after Senator Tkachuk's question, it is business other than Bill C-288.
The Chairman: It includes all the bills that are before us, including Bill C-288. It is scheduling of the business of the
committee, as the notice says.
Senator Tkachuk, you are the critic, so please ask a question of the witnesses and then we will have to conclude and
go in camera.
Senator Tkachuk: I might have to ask more than one question.
The Chairman: There are other senators who have questions, and I have not yet asked a question. We are restrained
by time. According to the notice, we must deal with future business.
Senator Tkachuk: We have been through this before. We have had 55 minutes of questioning, of which 15 minutes
has been taken up by our side and by an independent, with a 20-minute presentation, and the rest of the time has been
taken up by Liberal members.
The Chairman: We go strictly by the order in which members indicated they wished to ask questions.
Senator Tkachuk: I understand that. You knew the time period and you could have given us all an opportunity.
The Chairman: The last time I did that and constrained the time that members were allowed to ask questions, I
received criticism by members, so I decided not to do it. At the beginning of this meeting, I admonished senators that
we would be in camera at 10:00 to deal with business of the committee. I leave it to senators to edit themselves. If you
wish to do so, we will undertake to make a regulation to that effect.
Senator Tkachuk, you have the floor. We must proceed quickly.
Senator Tkachuk: I want to examine the trading system itself. Is the trading system in Europe internally within the
EU or is it international in scope? Is there a separate trading system for countries or do the countries make separate
deals? If an EU country was looking for credits from Russia or China or wherever, do they buy through a trading
system? How exactly does that operate?
Mr. Marcu: I fully regret that perhaps the early hour this morning did not allow me to have used the best judgment,
having left out an interesting slide. There are indeed two levels of compliance. One is sovereign compliance. Nations
have obligations under the Kyoto Protocol, and that trade takes place under Article 17. Nations are assigned AAUs,
Assigned Amount Units. If Germany is under its cap, it can sell to Canada, and if Russia is under its cap, it can sell to
Germany. It is a sovereign decision as to whether countries buy from each other or not. The system itself is set under
the Kyoto Protocol.
Nations can also buy CERs, CDM credits created under the CDM offset mechanism, in countries that do not have
caps, developing countries, essentially. If the U.K. wants to buy credits produced in South Africa project by project,
they can do so. At the end of the Kyoto Protocol, they can apply those to their totals.
Senator Tkachuk: What do they buy? Are they buying the total amount of credits available from, say, South Africa
or Russia, or are they buying a particular credit, either an investment or something that has been created to be sold in
the marketplace by some enterprising company?
Mr. Marcu: Developing countries can only provide credits produced project by project.
Senator Tkachuk: Give me an example.
Mr. Marcu: If, for example, you cover landfill that was emitting methane and you capture that methane and run it
through a power plant, then you reduce the amount of methane going into the atmosphere and transforming to CO2.
As such, you reduce the amount of greenhouse gases because you have done this particular project. Then the U.K. can
buy the credits and use them as part of the total amount of paper they hand in to the UN at the end of the Kyoto
Senator Tkachuk: Who initiates that? Is it because the country finds out about this particular piece of land that is
emitting methane, or is it because someone else has done this and is using it for energy and, therefore, has credits to sell
in the marketplace?
Mr. Marcu: I have not heard of many projects that are initiated by countries. For example, worldwide, landfills are
usually owned by municipalities. If you are a project developer, you will go to the municipality and say: We will cover
your landfill, put the pipes in the ground, capture the methane, run it into a power plant, et cetera. We will hire a
verifier and produce a project document. We will run it through the regulatory system of the UN. The verifier will
verify emissions reductions every year. The amounts of emissions reductions that are verified every year are then
available for sale. Who will buy that? It might be the Government of Canada or Germany, or whichever country
wishes to buy it.
Senator Tkachuk: Where does that piece of paper go?
Mr. Marcu: It is an electronic piece of paper that is submitted when the emission reduction is verified and approved
by the regulatory board of the UN. It goes into a registry and is transmitted to the national registry of that country.
Senator Tkachuk: Besides that, the companies themselves are buying and selling amongst themselves on an
exchange, much like the TSX?
Mr. Marcu: No.
Senator Tkachuk: How does that work? How does Shell buy credits in the EU?
The Chairman: Unfortunately, this has to be the last question.
Senator Tkachuk: Mr. Chairman, this particular witness has been interesting. The buying and selling of emission
credits is a big part of this bill. Why would we not want to learn about this?
The Chairman: I think we are interested in learning about this, but this must be the last question. The witness is
asked to answer the question, and the meeting will then go in camera.
Senator Carney: I am asking for the compliance of my colleagues. As former federal Minister of Energy, I have an
issue to raise that has not, as I understand it, been raised.
The Chairman: I will explain again, members, that in this room, the meeting of the Social Affairs Committee begins
at 10:45. It is now 10:10. We have less than 20 minutes now. We only have 15 minutes, because we have to clear the
room in order to deal with the procedural matters with which this committee has to deal between now and the time the
Senate begins. That is what the notice said, and that is what we will do. This is the last answer to the question.
Mr. Marcu, you have the floor.
Senator Carney: You said there would be one more question.
The Chairman: No. I said that this is the last answer to the last question. I said that would be the last question.
Mr. Marcu, you have the floor to answer that question, which we ask you to do, please.
Mr. Marcu: Going back to the level of sovereign compliance, you can buy AAUs from other countries that have
been allocated or you can buy credits — CERs — and meet your reduction requirement. Jurisdictions such as the EU
have decided that they will assign the burden of meeting Kyoto compliance to different sectors.
Part of that burden of reduction is being put on four sectors. Those four sectors have 14,000 installations covered by
caps. Each sector is allocated a certain cap. If they emit above that cap, they can meet the obligation either by buying
from another company that has emitted less or they can go into the CDM market and purchase credits. They cannot
buy sovereign credits, AAUs, from other countries. That is why I said that Shell U.K. or Shell Netherlands, or Shell
Canada, for that matter, cannot possibly buy AAUs from Russia. They cannot legally do that under the Kyoto
The Chairman: Mr. Marcu and Mr. Carter, there are other questions that senators wish to ask. As we have done
with other witnesses, who have appeared before us when we have run out of time, I will ask if you can provide answers
to written questions from other senators who wish to ask questions. Would you undertake to answer such questions for
Mr. Marcu: I would be very pleased to do so. I am in Canada as much as I can be. Mr. Carter is also available here
in Ottawa, not far from here, if there is a need for that. To answer questions in writing would be a pleasure, and I am
here in Ottawa relatively often.
Senator Tkachuk: Maybe we could call Mr. Carter and the gentlemen from Toronto back as well, could we not?
The Chairman: As we have with the last three groups of witnesses, we will invite questions from senators in writing.
The last three groups of witnesses have been sent questions in writing, and we are expecting their answers soon. In fact,
we have some of them now.
Senator Carney: I want the record to show that I am not allowed to ask my question.
The Chairman: That is correct.
Senator Tkachuk: I challenge the chair. I think that you should allow Senator Carney, a privy counsellor, to ask
The Chairman: I am in the hands of the committee.
Senator Kenny: I move the adjournment of this meeting. That is not debatable.
The Chairman: That is what we are supposed to do anyway, according to the notice. I will say, for reasons which I
have clearly explained, that this part of the meeting is over now.
Senator Carney: The meeting is adjourned.
Senator Tkachuk: The meeting is adjourned, Mr. Chairman.
The Chairman: It is, and we are going in camera now —
Senator Carney: No, we are not. The meeting is adjourned.
Senator Tkachuk: You adjourned the meeting.
Senator Kenny: There has been no vote.
Senator Tkachuk: He declared it adjourned.
The Chairman: We are going with the notice, according to the meeting.
Senator Tkachuk: Mr. Chairman, you declared this meeting as adjourned, and this meeting is adjourned.
The Chairman: I said the public part of the meeting was over and we are going in camera.
Senator Carney: He said the meeting was adjourned. It is not debatable.
The Chairman: I did not call a vote on the motion. I said that the public part of the meeting was over and we are now
going in camera to deal with the procedural matters.
Senator Carney: You cannot do that.
The Chairman: That is what I said, and that is what we are doing. Clear the room.
The committee continued in camera.