Towards a GHG Reduction Strategy for Ontario: Industrial Competitiveness, Investment, Innovation, & Growth September 2010 Canadian Manufacturers & Exporters

Ontario: Economic Growth & GHG Emissions

GHG Emission Reductions: Performance & Goals Canadian Manufacturers & Exporters Average Annual Growth RatesOntarioCanada GDP Growth ( )2.6%2.7% GHG Emissions ( )0.5%1.2% Emissions/Output ( )-2.1%-1.4% GDP Growth Target ( )3.0% GHG Emissions ( )-2.3%-1.7% Emissions/Output ( )-5.2%-4.6%

The Challenge In order to achieve Ontario’s target of reducing GHG emissions to 15% below 1990 levels by 2020: –Ontario needs to reduce emissions by 21.4% from 2008 levels. –Ontario needs to accelerate its rate of technological progress in reducing emissions per unit of output by a factor of 2.5X. Canadian Manufacturers & Exporters

Ontario: Manufacturing Growth & Emissions

Ontario Manufacturing Performance Canadian Manufacturers & Exporters Average Annual Growth Rates Target Range Manufacturing Production 4.5%-2.0% Stabilize at 2008 Level 21.4% Lower than % GHG Emissions-1.9%-0.1% Stabilize at 2008 Level 21.4% Lower than % -2.3% Emissions/Output-5.8%2.0% Stabilize at 2008 Level 21.4% Lower than % -5.2% Capital Investment5.6%-0.6% Stabilize at 2008 Level 21.4% Lower than % 5.0%

Capital Investment Drives Emission Reductions in Ontario Manufacturing

Ontario Manufacturing Emission Reductions Between 1990 and 2000: –Ontario manufacturers cut GHG emissions by 18% –Manufacturing production increased by 53% –Emissions per unit of output fell by 47% Sources of emission reductions: –35% from improved energy efficiency –65% from changes in industrial processes Emissions from manufacturing: –28.4% of provincial total in 1990 –20.4% in 2000 –21.2% in 2008 Canadian Manufacturers & Exporters

Ontario Manufacturing Companies that produce things = A $225 billion business ($300 billion in 2005) –15% of Ontario’s GDP –12% of workforce = 785,000 Ontarians Every dollar of output in manufacturing drives $3.25 of total economic activity A highly diversified sector Manufacturing accounts for 80% of Ontario’s exports Highly integrated with the US market –Approximately 60% of Ontario production is exported into or through the United States –About 50% of manufacturing inputs are imported from the United States 75% of business sector R&D 85% of new product commercialization A leader in GHG emission reduction (19% reduction since 1990) Canadian Manufacturers & Exporters

Jobs Depend on Manufacturing

Competitiveness Issues Need to boost productivity to ensure business competitiveness as the basis of a manufacturing strategy – this is also needed to ensure economic growth, good jobs, and a high standard of living for Ontarians. Manufacturing recovering from deep recession (sales down 30% in 2009) – sustainable recovery still uncertain. Need to reverse declining rate of capital investment in the face of deteriorating production, financial, & investment performance. Intense competition for investment, product mandates, and market share as market power shifting to Asia and other emerging industrial economies. Highly integrated in North American & global supply chains. Inability to pass along costs to customers/consumers Increasing costs of regulatory compliance, energy, transportation erode cash flow and investment performance. Canadian Manufacturers & Exporters

Pre-Requisites for GHG Reductions In manufacturing, improvements in emission intensity performance and GHG emission reductions will continue to be driven by: –Certainty with respect to regulatory and investment conditions. –Investment in new and upgraded facilities, machinery and equipment –Process and product innovation to improve energy efficiency and replace or upgrade industrial processes –Productivity enhancement to achieve the ROI necessary for investment –Customer demand requiring integrated Canadian, North American, and global approaches to product development and process improvement –Practical outcomes that manufacturers can achieve at a competitive rate of return on investment Canadian Manufacturers & Exporters

Towards a Strategy for GHG Emission Reductions Goal: Accelerate the rate of technological progress in reducing emissions in Ontario by a factor of 2.5X. In manufacturing, accelerate average annual rate of capital investment to 5% over the next decade. Pre-Conditions for Success: –Policy certainty with clear and consistent priorities –Regulatory goals consistent with GHG emission reductions –Fiscal and regulatory policies that encourage capital investment and productivity improvement –Consistent regulatory framework across North America Canadian Manufacturers & Exporters

Industry Recommendations Prioritize and align regulatory goals with competitiveness objectives Encourage emission reductions and productivity improvement by aligning fiscal and regulatory measures to encourage investment and capital turnover One Ministry to take the lead on regulation Simple, efficient compliance requirements – Count Carbon once Reasonable, practical, and achievable emission reduction targets No conflicting priorities or regulatory requirements No competitiveness gaps - Consistent North American approach Regular consultations with industry on performance & progress – Quarterly meetings & Cabinet office liaison Canadian Manufacturers & Exporters