Based on our research into potential air pollutant reductions the NRTEE makes the following observations:

• Reducing NOx and SOx emissions by up to 50% by 2050 is achievable with a relatively modest emissions price signal. However, with PM and VOCs, high process level emissions make these deep reductions very costly.
  
• To achieve reductions in the order of 50% in PM, the research indicates that the only option to attain deep emission reductions is to reduce industrial output in some sectors, notably oil sands and mining. This is because major portions of reductions are process related with no known mitigation actions. Reducing output is a very high cost option for reducing emissions, and leads us to conclude that reductions of PM in the order of 50% are prohibitively expensive.
  
• For VOCs, targeted regulations may be required given the large number of very small sources and the high process level emissions for which control technologies are not effective.
  
• Achieving very deep reductions beyond 50% requires a much higher price signal. For example, the emissions prices required to reach the very deep target for both NOx and SOx are about six to ten times greater than the price required to reach the deep target. This suggests that the marginal costs of reducing NOx and SOx emissions will increase substantially if policy makers wish to reduce these air pollutant emissions by 80%.

The research suggests that the sectoral implications of significant, long-term emission reductions are not uniformly distributed. The transportation sector is responsible for a large portion of the reductions of NOx, PM10 and VOC emissions. However, these reductions are largely the result of regulations set to be implemented in the near future, and therefore will occur regardless of (and not because of) the emissions prices.

The allocation of the remaining emissions reductions is highly dependent upon the air pollutant in question. In general, the sectors that contribute the most to reductions had high emission rates in 2005 and lower marginal costs of abatement. For example, reductions in SOx emissions are highly concentrated in the electricity generation sector, which contributes 26% of the 2005 levels assumed in the model, and has a relatively low marginal cost of abatement. In some sectors, the emissions price is insufficient to cause a reduction in emissions from 2005 to 2050. For example, the petroleum crude extraction industry experiences an increase in SOx emissions from 2005 to 2050 when the national -50% price is implemented, simply because overall activity increases almost five-fold. In these cases, the emissions price is not large enough to offset the emission effects of increased output from the sector.

An Integrated Approach

Industrial emissions of GHGs and air pollutants each account for approximately 50% of Canada's total air emissions and share many common sources. Therefore it makes sense to explore the possibility of addressing both sources in an integrated regulatory approach.

The first finding of this assessment is that an integrated approach lowers the prices associated with emission reductions. Specifically, the research shows that the GHG price necessary to hit the -65% target is significantly lower when implemented along with air pollutant prices, than when the GHG price is implemented alone (Figure 8). The air pollutant prices encourage investment in higher efficiency and lower emissions technologies and processes, and therefore the GHG prices do not have to be as strong to hit the target. This finding confirms that the GHG co-pollutant reduction experienced with air pollutant pricing effectively reduces the final GHG price needed to reach the target.

Many actions that reduce GHG emissions also reduce air pollutant emissions. For example, climate change policies focused on improved energy efficiency also will lower air pollutants associated with producing energy, thereby improving local air quality. The use of CCS eliminates most SOx and PM emissions associated with combustion. Fuel switching from coal to natural gas will decrease air pollutant emissions. Similarly, policies targeting air pollutants, especially SOx, encourage fuel switching from relatively sulphur-intense (and GHG-intense) coal to less sulphur-intense (and GHG-intense) natural gas and electricity.

Figure 8: Comparison between the GHG prices required to reach the -65% GHG target when the GHG price is implemented alone, or in conjunction with air pollutant prices

The second key finding of this analysis was that an integrated approach will likely result in co-benefits related to air pollutant reductions. For example, our research shows that the SOx price that attains a 50% reduction when implemented alone triggers a reduction of 83% when implemented in conjunction with the GHG and other air pollutant emissions charges.

In conclusion, the NRTEE research suggests that there are significant opportunities to reduce GHG and air pollutant emissions in an integrated approach. The application of relatively inexpensive air pollutant emission reduction actions, induced by emissions pricing, may significantly reduce the GHG emission price necessary to achieve deep targets, while reaping the co-benefits of lower local air pollution.