Rational Energy Program

Background

A growing economy and population increase demand for services that use energy. As long as this energy comes from coal, oil and natural gas and is used in products where efficiency only slowly improves, greenhouse gas emissions will rise.

The challenge for Canada: increase energy efficiency and the use of renewable energy at a rate faster than the economy and population is growing. Currently Canada's greenhouse gas emissions are growing faster than the population and faster than the economy. The country's greenhouse gas emissions are also growing faster than our largest trading partner the United States. From 1990 to 1994, U.S. greenhouse gas emissions increased 4.4 per cent; Canada's 5.6 per cent. Canada's emissions growth far exceeds the OECD average of 4 per cent between 1990 and 1995, according to the World Energy Council.

Where are the increases coming from?

Energy sector - exports:

According to preliminary analysis for federal and provincial governments, emissions growth in the oil and gas industry was the single most dynamic factor in the change in Canada's total greenhouse gas emissions. Export driven output growth, increased upstream emissions of methane from both oil and gas production, and increased carbon dioxide emissions from gas stripping processes were all major contributors to the increase. Most of the increased emissions from electricity growth in Alberta and Saskatchewan was driven by increased consumption of the oil and gas industry. Emissions growth from this sector could be responsible for as much as 50 per cent of emissions growth from all sources in Canada. If the oil and gas industry were assigned emissions for their electricity consumption, 75 - 85 per cent of the growth in emissions would be attributed to the export market.

Transportation sector:

The transportation sector appears responsible for the remaining 50 per cent of emissions growth. This increase is as a result of demand growth, declines in transit share and vehicle fleet efficiency and increasing nitrous oxide emissions from three-way catalytic converters. (source: Reviewing the progress made under Canada's National Action Program on Climate Change, First draft, RFI, August 1996)

Rational Energy Program

The Rational Energy Program is a package of initiatives designed to:

• improve energy efficiency in the transportation, building and industrial sectors
• increase the use of renewable energy in the electricity sector.

Analysis of the impact of these initiatives was conducted by Natural Resources Canada; the general economy impact was completed by Informetrica Limited.

Overall development of the Rational Energy Program was co-ordinated by Sierra Club Canada in conjunction with the Climate Action Network, a coalition of non-government groups working together to mitigate climate change.

The Results

Natural Resources Canada concludes the Rational Energy Program would:

• result in secondary energy demand falling by 13 per cent by 2010, reducing carbon dioxide emissions 22 per cent relative to the reference case (that's 8 % below 1990 levels and without the use of nuclear).
  
  
• Primary coal and refined petroleum product demand declined in 2010 by about 25 per cent below their reference case levels.
  
  
• Renewables increased by 119 PJ or 19 per cent, with most of this increase attributable to the electricity measures.·In the process of achieving these greenhouse gas reductions, the Rational Energy Program would adjust the tax system:
  
  

- reduces, after the year 2000, the Goods and Services Tax (GST) to 5.5 per cent from 7 per cent

- increases taxation on carbon-based fuels (8 cents/litre of gasoline by 2010; raised in 2 cent increments in 1996, 2000, 2005 and 2010 and a carbon charge of $20/tonne of carbon in 2000 and $25/tonne in 2005

- offsets most of the revenue gains accruing to governments from higher gas and carbon taxes

- neutralizes the impacts on aggregate costs of production and prices.

• In terms of consumer prices, the carbon charge increases the average price of electricity by 2 per cent in 2010 relative to the reference case (approx. 0.12 kWh; Alberta .5 cents kWh); gasoline prices by 3 per cent (1.3 cents/litre), heating oil prices by 5 per cent (1.5 cents/litre for diesel) and natural gas pricesby 6 per cent ($10.26 cubic metre).

The Rational Energy Program is a powerful job creator

If fully implemented more than 550,000 person-years of employment could be created to the year 2000 (cumulated).

This is followed by a cumulated addition of about 1 million person-years of employment in 2001-2010.

These employment effects, and a slight reduction in overall price levels (from lower GST levels), produces a higher real disposable income per household throughout the 15 years."

Informetrica concludes that:

"Over the course of the 15 years, the Rational Energy Program by itself cannot change the size of the Canadian economy or employment, or that of any province by as much as one-year's growth.

Since the economy in 2010 can be expected to be 35 - 45 per cent larger than in 1994, variations from the Base Case of these magnitudes are close to minute (less than one-third of a year's growth at the most) in a 15-year period."

Had the Rational Energy Program been implemented beginning in 1995, the initiatives could have stabilized Canada's greenhouse gas emissions at 1990 levels by the year 2000.

Business-as-usual versus the Rational Energy Program

Buildings
Residential:

• Energy intensity per household: declines an average 1.6% per year 1994 - 2020 (historic: 0.9%). Demand flat to 2020.
  
  
• The Rational Energy Program could reduce residential energy demand 4.3 per cent by 2010.

Buildings
Commercial:

• Energy intensity decreases an average 0.8% per year (1980/90 average intensity decline: 2.0%). Commercial energy demand up 21% 1994 - 2020.
  
  
• The Rational Energy Program reduces energy demand 17.7% in 2010 with a 15.5 Mt reduction in CO2 emissions.
  
  
• Net cumulated dollar savings total $11.3 billion by 2010.

Industrial:

• Energy demand increases 60% 1994 - 2020 (energy intensity decreases 1% between 1994-2000; only 0.3% between 2000 - 2020).
  
  
• Rational Energy Program lowers industrial secondary energy demand by 195 PJ or 5.7% in 2010 and CO2 emissions 12 Mt.
  
  
• Net cumulative dollar savings are $4.8 billion by 2010.

Transportation:

• Total transportation energy demand up 32% 1994 - 2020.
  
  
• The Rational Energy program reduces transportation demand 26% by 2010.
  
  
• Carbon dioxide emissions fall by 49.7 Mt by 2010; 26 Mt comes from higher Corporate Average Fuel Economy Standards (CAFE) for vehicles.
  
  
• Net dollar savings of $4 billion for consumers by 2010.

Sierra Club of Canada
September 1996

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