July 2005 ISSUE
sustainable development
INNOVATION NEEDED FOR CANADA TO MEET KYOTO COMMITMENTS
BY KEITH DRIVER, P.ENG.
PEGG Contributor
The February 2005 launch of Project Green, the federal government’s plan for meeting its Kyoto obligations, has provided some clarity on how the Canadian policy and market environments are going to develop. All indications point to a “cap and trade” system, whereby emission reduction credits will be required by industry and government to help meet their emission reduction requirements.
Draft legislation, at least within Alberta, is anticipated in early fall. This should provide even more clarity.
At the core of Project Green is a focus on innovation, both technical and process-based. These innovations are expected to yield significant reductions in net emissions of greenhouse gases and continue the current cycle of economic growth. This reliance on innovation is stated explicitly within Project Green and reflected in some of the program targets, and research and development components of the plan.
Given this need for innovation in environmental sustainability, APEGGA members have a significant opportunity to contribute to environmental sustainability.
What is Innovation?
There are three principle types of innovation: incremental, radical and general purpose.
Projects showcasing each type of innovation can bring with them significant emission reductions. But as you move down the list, the impacts become more abrupt and disruptive to the broader market.
Improving on the emissions intensity of coal-fired power plants (defined as tonnes of CO2 emissions per MW-h produced), through gradual refinement of the processes involved, would be incremental. This innovation has a low associated risk and is not disruptive to the broader market for coal and power.
However, switching out all coal-fired plants, as is being attempted in Ontario, is a more radical innovation, has a higher associated risk and will disrupt the coal and power markets.
At the far end of the spectrum (and at the edge of the realm of feasibility), cold fusion presents a general purpose technology that would have a wide scope of improvement and influence, yet would be ultimately disruptive to previous technologies and related industries.
In order to meet Canada’s ambitious targets under the Kyoto Protocol, all three types of innovation will be required.
Where Will Innovation Occur?
Initial market conditions suggest that there is going to be a limited supply of domestic emission reduction offset credits for the market. Whether the limits on supply will extend into the international markets remains unknown. Either or both of these limitations on the supply of emission reduction credits will provide a driver for innovation as the resulting emission reduction offset credits from these projects will receive a competitive value from the marketplace.
Assessing where this innovation will come from is less about segmenting markets to find niches that offer particular opportunities than it is about broadening the focus to look at the wider range of opportunities within individual market sectors and across sectors. Innovation is expected to come from across the economy as the opportunity for realizing value is as real in all sectors.
The breakdown of the overall emissions for greenhouse gases in Canada provides an illustration of the breadth of opportunity for innovation. See chart. Innovations that yield emission reduction credits in any of the areas covered by the inventory could be eligible for credits, which could be sold into the market.
The regulatory focus on where emission reductions will come from has been put on the large final emitters, Canada’s largest industrial sources of greenhouse gas emissions. However, this group of industrial organizations only represents about 50 per cent of the country’s overall emissions.
That means the opportunity for innovation within other industrial sectors is great as well. These other sectors, such as agriculture, forestry and transportation, will not have regulatory requirements, so they are well positioned to be able to sell any emission reductions into the regulated market.
Further, some of the large final emitters will be able to go beyond their regulated requirement for emission reductions through internal innovations and be in a position to sell into the rest of the market.
When is This Innovation Required?
Innovation does not often fit into a prescribed timetable. However, with the impending compliance period for the Kyoto Protocol set as 2008 through 2012, this puts pressure on the rapid commercialization of innovations.
This may not represent a time crunch for innovations that are currently moving forward or are incremental improvements on existing technologies. However, for more radical forms of innovation and those now in a pre-commercialization stage, this may present an added driver for accelerating the project development cycle.
Further, it is not just the project development cycle that will dictate the time to bring emission reduction credits to market. During the pre-commercialization phase, work can also begin on formally establishing the emission reduction potential for the project. This can include developing protocol documents (based on the new Draft International Standard ISO 14064), documenting design processes, and evaluating baseline conditions.
What Role Can We Play?
There is an important role for APEGGA members of all disciplines in the initiation, incubation and commercialization of innovation around climate change. It starts by including the greenhouse gas emissions or emission reductions in the design analysis for projects, and in seeking both simple and more radical opportunities to modify designs to enhance the greenhouse gas components of the projects.
As the market develops, the impacts of emission reductions will represent a quantifiable value for inclusion in a projects’ economic analysis.
Innovation around climate change is also another driver for cross-sectoral cooperation. For example, geological sequestration, either as a component of an enhanced oil recovery project or acid gas injection, requires the cooperative efforts of engineers, geologists and geophysicists. There are also opportunities for engineers from different disciplines — and not just environment — to work together on these types of projects.
It goes beyond engineering. Cooperative efforts between engineers and foresters or agrologists can open up innovation in forestry and agriculture. Architects and engineers can work together to improve the energy efficiency of buildings.
Innovations around climate change are likely to find avid domestic and international markets as demand for emission reduction credits grows. This demand will be fostered by impending legislation and the resulting markets for the emission reduction credits.
New technologies and processes that reduce greenhouse gas emissions will have a new economic driver to push their commercialization, providing further incentive for investment in this area. APEGGA members of all disciplines may soon find the consideration of greenhouse gas emissions impacting their business.
Keith Driver, P.Eng., is vice-president of operations with Baseline Emissions Management Inc., an environmental credit marketing firm in Calgary. He works with project developers to help capture the full value of the associated greenhouse gas emission reductions and renewable energy components of their projects. Mr. Driver is also a contributing author for the bi-monthly newsletter in sight. It provides updates on climate change policy and market environments.