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TORONTO (GlobeinvestorGOLD)—Worried that Ottawa's rush to ratify the Kyoto Protocol late last year may crimp returns from your oil-patch holdings? Don't be. Whether for good or ill, the Kyoto Protocol is a paper tiger.
The accord itself is a sham—a piece of political feel-goodery concocted by internationalist bureaucrats, with no hope whatsoever of even denting the levels of carbon dioxide, methane and other greenhouse gases spewing into the atmosphere. And Canada's "plan" for implementing that accord is equally tainted. Half-hearted, contradictory and riddled with compromises and short cuts, the federal plan virtually guarantees this country won't meet its emissions targets—a reduction to six per cent below 1990 levels by 2012—or come even close to doing so.
Alberta Premier Ralph Klein, who spearheaded the fight against ratification last fall, knows this. That's why, early in December 2002, he made a high-profile speech in New York, downplaying the impact the treaty may have on investment. He told his well-heeled audience, in blunt terms, that Ottawa doesn't intend to do anything that will harm the Canadian economy. Clearly, a quiet accord of sorts has been reached.
Also in December, the minister of national resources, Herb Dhaliwal, confirmed that Ottawa will cap industries' cost of emissions reductions at $15 a tonne, far lower than many executives had feared. And in the final week of 2002, it emerged that the automobile industry has been exempted from the treaty altogether. According to reports in The Globe and Mail, the car makers were left off the target list after prolonged and intense lobbying by Ontario Liberal MPs. This is, of course, no surprise: The auto industry is the backbone of Ontario's export-driven economy.
Initially, the business community feared it would be made to bear all the pain of ratifying Kyoto, because consumers were so obviously being given a free ride. Automobiles are a major source of greenhouse gas emissions, and so-called "light trucks" (sport utility vehicles, minivans, pickups)—accounting for just under half the market—produce 30 per cent more pollution than smaller cars. Yet Ottawa, has made no noises about a carbon tax, or gasoline surcharge, or any other measures that would ensure reduced auto use. Reduction is to be voluntary. That means it will be spotty, and immaterial in economic terms.
With both the consumer and business well-insulated from Kyoto, Ottawa will have just one logical recourse: the purchase of emissions credits in the international market. This complex mechanism boils down to this: pouring millions of Canadian tax dollars into countries such as Russia and its former Soviet satellite states, which had the foresight to let their economies implode in the 1990s, thereby dropping their emissions well below Kyoto's targets. But former finance minister Paul Martin, virtually certain to be the next Prime Minister, is on record as disapproving of the emissions purchase plan.
That leaves us with Plan D, which is to miss the targets altogether. Deputy Prime Minister John Manley helpfully pointed out late last year that there's no Kyoto disciplinary body waiting in the wings to fine anyone who doesn't measure up. If we miss, we miss.
The upshot is that the outlook for energy stocks rests on the same foundation as it always has: global energy demand. In that regard, the 2002 World Energy Outlook report makes interesting reading. It has three key conclusions. First, international demand for energy will steadily grow over the next 27 years, by an estimated 1.7 per cent a year. That increase, the Paris-based International Energy Agency says, will equal two thirds of current demand.
Second, fossil fuels will account for the vast majority of that energy, about 90 per cent. Demand for crude oil is projected to rise by 1.6 per cent a year, according to the IEA, to about 120 million barrels a day (from the current 75 million).
Third, and most important, more than 60 per cent of the increased energy demand will come from developing nations, especially in Asia. While developing countries' share of world energy will rise to 43 per cent from 30 per cent by 2030, the IEA projects, the OECD's share will drop from to 47 per cent from 58 per cent.
Developing countries, it so happens, are exempt from making any emissions reductions whatsoever in the first phase of the Protocol, which ends in 2012. And anyone who thinks China, or India, or Brazil, will suddenly turn green all over in 2012 at the cost of economic growth for their long-suffering citizens, is dreaming in technicolour.
Too long-term, you say? Well let's think short-term. In the immediate future, probably sometime in February, U.S. President George W. Bush will almost certainly send American and British troops into Iraq. This invasion will take place, not for fear of Iraqi weapons of mass destruction, but to protect America's access to energy in the face of increasing instability in Saudi Arabia. All this was made amply clear in an influential policy document, the Strategic Energy Policy Challenges for the 21st Century, commissioned by the Bush White House in the early months of its administration. The United States needs energy, and Canada has it, in spades.
Given the global demand outlook, the North American demand outlook, and the clear unwillingness of the federal Liberals to make any difficult sacrifices whatsoever to reduce our reliance on fossil fuels, does it make sense to fret that a public-relations exercise such as the Kyoto Protocol will harm the oil patch?
Michael Den Tandt joined The Globe and Mail is a member of The Globe and Mail's editorial board.