Ottawa to revamp Kyoto strategy

OTTAWA, ONTARIO - Ottawa is considering a five-year package of more than $2.4-billion in carrot-like tax incentives and subsidies as a means of convincing business and consumers to curb Canada's output of greenhouse gases under the Kyoto accord, documents obtained by The Globe and Mail indicate.

The measures - still under debate - are part of an attempt by Prime Minister Paul Martin's government to produce a more business-friendly Kyoto plan than the previous 2002 blueprint, which alienated much of corporate Canada and energy-rich provinces such as Alberta.

If approved, the goodies could appear in the upcoming 2005 budget, which is expected as early as Feb. 22.

The budget is developing a distinctly green theme because Ottawa plans to use it to unveil details of its revamped Kyoto strategy.

The Kyoto plan overhaul aims to produce a strategy with lasting economic benefits for Canada beyond 2012, when the treaty's compliance period ends.

The plan aims to develop a competitive advantage for Canada in eco-friendly technology such as renewable power and energy efficiency. Environment Canada has even quietly proposed that the new Kyoto scheme be called the "Green Economy Action Plan."

But the proposed market stimulants are meeting resistance - even though many of them were promoted in a recent, confidential "Project Green" paper authored by senior staff in the Prime Minister's Office.

The chief opponent is the Finance Department, which traditionally dislikes using the tax system for anything but revenue collection. It is said to be balking at the size and scope of the proposed incentives.

The Kyoto incentives - and their five-year cost estimates - include:

Targeted tax measures such as capital cost allowance changes that would let businesses more quickly and aggressively write off investments in co-generation plants, units that save fuel by drawing heat and power from the same source. That could cost Ottawa $483-million in foregone tax revenue, according to one internal estimate.

Allowing businesses that perform commercial building retrofits (to make buildings more energy-efficient) to more quickly write off the investment, at an estimated cost of $32-million.

Expanding tax incentives for investments in renewable technologies, such as the hydrogen and fuel cell sectors, at an estimated price tag of $74-million.

Expanding incentives to invest in a greater range of renewable power sources, including biomass, small-scale hydro and ocean power, by creating a broader Green Power Production Incentive, estimated at $55.2-million.

A "Strategic Infrastructure" investment in large-scale green efforts such as weaning provinces off coal power and underwriting electricity grid improvements and other measures to ship more clean hydro energy around Canada. It's estimated to cost $360-million.

A rebate or tax credit for 30 per cent of the purchase cost of roof-based solar energy systems, estimated to cost $79.7-million.

A 10-per-cent subsidy on the purchase price of low-power "Energy Star" rated appliances for industry and consumers, which could cost $215-million.

A $2,000 subsidy for purchases of high fuel-efficiency vehicles such as hybrid cars, which could cost $665-million.

Boosting the federal government's plan to purchase renewable power to 30 per cent by 2010 from 20 per cent by 2006, at a cost of $10.7-million.

Separate from the incentive package and its price tag, Ottawa is eyeing the creation of a climate-change investment bank, to be funded by as much as $1-billion a year and called the Green Economy Trust or Clean Energy Trust. It would encourage cities, businesses and individuals to cut greenhouse gas emissions by paying them for the measures. A Prime Minister's Office memo has suggested future year-end budget surpluses could be tapped to fund this proposal.

Ottawa's new Kyoto spending plans are expected to draw heavily on federal funds set aside for this purpose in past budgets, but not yet spent. This amounts to about $2.7-billion, including $800-million in proceeds from the sale of Ottawa's stake in Petro-Canada.

Canada signed the Kyoto treaty in December, 2002, committing itself to major cuts in greenhouse-gas emissions, believed to contribute to global warming and largely caused by burning fossil fuels.

Although Ottawa is trying to make its Kyoto plan more business-friendly, it could run afoul of corporate Canada if it takes a harder line on regulating sector-specific emission cuts instead of relying on voluntary deals. The government is considering forcing auto makers to make a 25-per-cent improvement in fuel efficiency by 2010, and compelling business emitters to meet greenhouse reduction targets.