2006 September Report of the Commissioner of the Environment and Sustainable Development

Managing the federal approach

1.34 Environment Canada, in collaboration with the Privy Council Office and the Treasury Board Secretariat, should ensure the development and implementation of effective governance and accountability for the climate change issue within the federal government. Key roles and responsibilities should be defined, assigned, and publicly reported; and which departments participate and how they do so should be specified. Appropriate funding, development, and implementation of mechanisms need to be established for

• overall decision making,
• ongoing interdepartmental co-ordination,
• monitoring and reporting to Parliament and to Canadians about past and future financial and non-financial performance related to climate change activities, and
• evaluation and adjustment of policies and programs for climate change.
  (1.9-1.33)

The government's response. It is correctly pointed out in this chapter that a complex issue that implicates a number of federal organizations such as climate change requires effective horizontal management, including appropriate governance and accountability mechanisms. The government agrees that roles and responsibilities should be clearly defined, processes to support decision-making and co-ordination established, results reported to Parliament and Canadians in a transparent manner, and policies and programs subjected to regular evaluation and adjustment.

In its response to Chapter 4 of the November 2005 Report of the Auditor General of Canada, the government made specific note of the central agency function in respect of horizontal initiatives. That function is to play a facilitating role in the launch of such initiatives in order to ensure that they are positioned effectively within government priorities and are established in such a way as to ensure that an integrated approach is developed. The Privy Council Office ensures that appropriate departments are involved in the Cabinet processes, that departmental leadership roles are identified, and that, where necessary, horizontal governance structures are put in place.

At the same time, the Privy Council Office and other central agencies, such as the Treasury Board Secretariat, must respect the leadership and accountability of departments to implement initiatives, such as climate change, in a manner that is consistent with their areas of responsibility and respects Treasury Board management practices. As is acknowledged in this chapter, it is the responsibility of departments and agencies to manage such initiatives.

The Government of Canada is developing a Made-in-Canada environmental agenda for reducing air pollution and greenhouse gas emissions. This approach will establish integrated and effective measures that will achieve tangible and realistic results. The recommendation of the Commissioner of the Environment and Sustainable Development on governance and accountability will be considered in developing the agenda.

The federal approach in the transportation sector

1.44 Natural Resources Canada should ensure that the model, data, and results from the 2005 memorandum of understanding with the automotive industry are independently verified and that the results of the verification are reported publicly. (1.40-1.43)

Natural Resources Canada's response. Natural Resources Canada agrees with the recommendation. The Department has initiated discussions with the vehicle industry on independent verification of the data, model, and results from the accounting model used to monitor the memorandum of understanding with the auto industry before the first report on interim goals for the 2007 model year. The intention would be to ensure that the results of that verification would be available to the public. In addition, the department and industry have already released a progress report that is supplemental to the requirements of the memorandum of understanding.

1.45 In any future voluntary agreements, Natural Resources Canada should establish requirements similar to those found in Environment Canada's 2001 Policy Framework for Environmental Performance Agreements. While the automotive industry agreement addresses many of these requirements, at a minimum, such future agreements should include

• senior-level commitment by involved parties,
• clearly identified environmental objectives,
• baseline levels measured at the beginning of the agreement,
• clear targets with timelines,
• meaningful performance measures,
• clearly defined roles and responsibilities for all parties,
• consequences for failing to meet targets and incentives for achieving them,
• periodic public reporting requirements,
• provision for regular credible verification, and
• regular evaluation of the agreement to determine progress and options for implementing corrective action, where necessary.
  (1.40-1.43)

Natural Resources Canada's response. Natural Resources Canada recognizes the requirements listed in Exhibit 1.8 of the present report and identified in Environment Canada's 2001 Policy Framework for Environmental Performance Agreements. The Department will immediately investigate options for adopting a similar policy framework for future voluntary agreements in the auto sector and for other sectors.

Addressing greenhouse gas emissions from large industrial emitters

1.54 Environment Canada should ensure that emissions reductions achieved by the Large Final Emitter System are real, measurable, and verifiable, and that the method used to calculate them is transparent to parliamentarians and the public. Environment Canada should also assess on an ongoing basis, and in a transparent and timely manner, the uncertainties and risks associated with the system and implement actions to address them. (1.46-1.53)

Environment Canada's response. The Government of Canada is developing a Made-in-Canada environmental agenda for reducing air pollution and greenhouse gas emissions. This approach will establish integrated and effective measures that will achieve tangible and realistic results. The recommendation of the Commissioner of the Environment and Sustainable Development will be considered in developing the agenda.

Emissions trading as a tool

1.86 Environment Canada will need to put mechanisms in place to ensure that the first phase of Canada's emissions trading system, including the Large Final Emitter System, works effectively. To ensure that emissions reductions are real, measurable, and verifiable, Environment Canada should

• commit sufficient resources to develop, implement, and evaluate the system;
• test and adjust monitoring, reporting, and verification systems to ensure that information reported is complete, accurate, and useful;
• ensure transparency by publishing key data, including the business-as-usual projections, that parliamentarians and the public require to assess progress against targets;
• develop a good communication strategy to fully inform all players about plans to introduce trading and to guide the players on how to participate effectively; and
• engage an independent, expert advisory panel to monitor progress on system design and implementation—the panel should report annually and publicly.

At the end of the first phase, Environment Canada should

• evaluate the systems to identify issues of concern in areas such as cost, results, and effectiveness;
• report its findings publicly;
• consult relevant players and experts about potential system adjustments; and
• adjust the emissions trading system and its components to address serious issues of concern.
  (1.61-1.85)

Environment Canada's response. The Government of Canada is developing a Made-in-Canada environmental agenda for reducing air pollution and greenhouse gas emissions. This approach will establish integrated and effective measures that will achieve tangible and realistic results. The recommendation of the Commissioner of the Environment and Sustainable Development will be considered in developing the agenda.

Sustainable Development Technology Canada

1.122 For its funded projects, Sustainable Development Technology Canada should adopt alternative approaches to reporting projected reductions in greenhouse gas emissions, using a conservative approach. In particular, SDTC should re-examine the appropriateness of its discount rate and adjust its projection to account for significant project delays. Reported projections should be accompanied by a more explicit disclaimer, and they could reflect the status of the project (approved, contracted) and/or different time horizons for projected emission reductions. Once projects have been successfully completed, and the technologies have entered the market, the Foundation should begin reporting actual reductions. (1.117-1.121)

The Foundation's response. Sustainable Development Technology Canada (SDTC) accepts the recommendation and plans to re-examine its reporting methodology for projected reductions in greenhouse gas emissions in 2007.

There is little precedent for reporting on projected reductions in greenhouse gas emissions, particularly for new technologies. In the absence of established methodologies, SDTC has drawn on findings in other markets to establish and apply a discount factor to applicant projections of 90 percent across the portfolio of investments to account for potential technological and market failures. SDTC is of the opinion that the 90 percent discount rate results in conservative projections. With SDTC's first seven projects starting their three-year reporting period, and other projects nearing completion, SDTC will be able to revisit its projections and discount rate in the coming years. In addition, SDTC fully intends to report on actual reductions reported by the applicants, once projects have been successfully completed and have entered the market.

SDTC will enhance its projections with a more explicit disclaimer in its next corporate plan, to be published in October 2006. SDTC currently reviews the contract status of approved projects on a regular basis. Based on operational experience gained over the first four years of funding, SDTC is now in a better position to anticipate project delays and determine their potential impacts. As SDTC reviews its publicly reported projections, in October 2006, it will adjust them to more explicitly account for delays, which could cause significant changes in the anticipated timing of greenhouse gas emission reductions.