Final Environmental Assessment of the Canada-European Union Comprehensive Economic and Trade Agreement

I. Introduction

In May 2009, Canadian and European Union (EU) leaders launched negotiations towards a Comprehensive Economic and Trade Agreement (CETA) between Canada and the EU, a decision based on the October 2008 Canada-EU Joint Study, “Assessing the Costs and Benefits of a Closer EU-Canada Economic Partnership”^{Footnote 1} (the “Joint Study”), with the scope defined in the March 2009 Canada-European Union Joint Report: “Towards a Comprehensive Economic Agreement”^{Footnote 2}. Negotiations ended in September 2014, and on February 29, 2016, Canada’s Minister of International Trade and the European Commissioner for Trade announced the completion of the legal review of CETA. As part of the legal review, Canada and the EU agreed on modifications related to investment protection and investment dispute resolution provisions. CETA was signed on October 30, 2016, with Canada and the EU also adopting a joint interpretative instrument providing a binding interpretation of CETA's provisions on specific issues.

These efforts have led to Canada’s most ambitious trade initiative, broader in scope and deeper in ambition than the North American Free Trade Agreement (NAFTA). Fostering closer economic relations with the EU through CETA will significantly enhance Canada’s global competitive advantage, as well as establish a strong rules-based trading system that forms the foundation for economic growth and development. Once implemented, CETA will provide a wide range of benefits and opportunities for Canadians, covering all sectors and aspects of trade between Canada and the 28 European Union Member States. CETA will create new opportunities on both sides of the Atlantic, promoting growth and supporting more Canadian and European jobs through trade and investment.

Canada is committed to achieving a mutually reinforcing relationship between trade and the environment. To this end, CETA is a landmark initiative that seeks to ensure our country’s prosperity in a progressive and responsible manner. There exists a strong correlation between open markets, economic development, and enhanced environmental protection. Liberalized trade and efficiently regulated markets lead to economic growth and development. In turn, public support for measures to protect the environment generally increases as incomes rise, and wealthier countries are better able to implement effective environmental policies than poorer countries. Open markets also help to foster the development of new environmentally friendly technologies, while liberalized trade and investment help to facilitate the conditions for technology transfer.

Canada’s broad environmental objectives in negotiating trade agreements are: 1) to preserve Canada’s ability to protect the environment; 2) to promote mutually supportive trade and environment objectives; 3) to improve the allocative efficiency of resources with the aim of generating positive environmental impacts; 4) to strengthen environmental governance; and 5) to support efforts to address international environmental challenges that affect Canada’s environment, economy, and health. (Further information on Canada’s commitment to sustainability can be found in the Federal Sustainable Development Strategy for Canada at www.fsds-sfdd.ca.)

In order to ensure that Canada’s environmental quality is strengthened through liberalized trade, Canada and the EU have committed to trade-related environmental provisions in appropriate sections of CETA. Notably, the Agreement contains individual chapters specific to the environment and to sustainable development.

II. The Environmental Assessment (EA) Process

The Government of Canada has committed to conducting Environmental Assessments of all trade negotiations through a process that requires interdepartmental collaboration and public consultations. This process focuses on the likely economic effects of trade negotiations, as well as their likely environmental impacts in Canada. The 2001 “Framework for the Environmental Assessment of Trade Negotiations”^{Footnote 3} (the “Framework”) details this process, and was developed in response to the Cabinet Directive on Environmental Assessment of Policy, Plan and Program Proposals^{Footnote 4}. Detailed guidance for applying the Framework is contained in the Handbook for the Environmental Assessment of Trade Negotiations^{Footnote 5} (the “Handbook”). The Framework provides a process and methodology for conducting the Environmental Assessment (EA) of a trade negotiation. It is intentionally flexible so that it can be applied on a case-by-case basis according to the nature of the agreement.

The Framework provides for three phases of assessment:

• (1) Initial Environmental Assessment: a preliminary examination to identify potential key issues and environmental effects resulting from a trade negotiation, as well as providing an opportunity to reflect on environmental considerations while negotiations are ongoing.
• (2) Draft Environmental Assessment: if required, builds on the findings of the Initial Environmental Assessment and provides detailed analysis of those issues.
• (3) Final Environmental Assessment: takes place after the conclusion of the negotiations.

At the conclusion of each phase of an Environmental Assessment, a public report is issued along with a request for comments. In the event that an Initial Environmental Assessment finds little likelihood of significant environmental impact occurring as a result of an Agreement, a Draft Environmental Assessment is not required.

In the case of the CETA negotiations, a Draft EA was not carried out as the Initial EA anticipated only minor environment impacts on Canada. Accordingly, environmental considerations continue to be integrated into ongoing discussions and a Final EA must still be completed.

Assessment Methodology

The Framework provides a four-stage analytical methodology for conducting the Initial, Draft, and Final Environmental Assessments. Guidance on how to conduct each stage of the analysis is outlined in the Handbook.

1. Identification of the economic effect of the Agreement to be negotiated – This stage identifies the trade liberalization activity of the Agreement under negotiation. It examines the potential areas the Agreement may include, the changes or new trade activity that could result from these areas, and the overall economic relevance to Canada.
2. Identification of likely environmental impact of such changes – Once the economic effects of the proposed trade Agreement have been assessed, the likely environmental impacts of such changes are approximated. Consideration is given to potential positive and negative impacts.
3. Assessment of the significance of the identified likely environmental impacts – The identified likely environmental impacts are then assessed for their significance. The Framework outlines various criteria in determining significance, to be used as appropriate, including frequency, duration, permanency, geographical scope and magnitude, level of risk, irreversibility of the impacts, and possible synergies among the impacts. This study uses the following scale in relation to the criteria outlined above to describe significance: none, minor, moderate, high and extreme.
4. Identification of enhancement/mitigation options to inform the negotiations –The Initial EA is intended to identify, in a preliminary fashion, the possible policy options or actions that might be required to mitigate the potential negative impacts and/or to enhance the potential positive impacts that may result from the proposed Agreement.

Scope of the Environmental Assessment Process for the CETA Negotiations

The primary purpose of the Initial EA is to identify the main environmental issues likely to arise as a result of a proposed agreement. This assessment focuses on potential economic and environmental impacts in Canada by exploring the links between the environment and liberalized trade. This assessment considers the effects of new trade and investment in Canada that may result directly from a free trade agreement, as well as potential impacts on the Canadian environment. As such, the Initial EA estimates possible environmental impacts using informed judgment based on any potential changes in economic activity brought about as a result of an agreement, once implemented.

An Initial EA of the CETA negotiations was completed in early 2012. An interdepartmental EA committee was established with officials responsible for each negotiating area. This EA committee was established to draft and review the CETA Initial EA. The process was also open to other government departments and agencies, including provincial and territorial governments, and the Environmental Assessment Advisory Group (EAAG) comprised of individuals from academia, business and non-governmental organizations (NGOs). Public input was also sought on the Initial EA, which was made available on the Global Affairs Canada website, through the invitation of comments from the public.

Canadian officials responsible for each negotiating area were made aware of the findings of the Initial EA, which served to inform the negotiations. This collaborative approach facilitated the development of a more comprehensive assessment.

This Final EA updates the findings of the Initial EA and builds on the previous analyses conducted on the potential environmental impacts of CETA. It incorporates information gathered through consultations.

III. Conclusions of the Initial EA

The Initial EA encompassed both qualitative and quantitative analyses to inform negotiators and the Canadian public of the potential economic and environmental impacts of the Agreement in Canada. The analyses concluded that significant environmental impacts are unlikely as a result of CETA.

For further information, please see the following link to the Initial EA report: Canada-European Union: Comprehensive Economic and Trade Agreement (CETA) Negotiations.

IV. Results of the Consultations Process

The CETA EA process involved consultations with the Canadian public, provincial and territorial governments, as well as the non-governmental Environmental Assessment Advisory Group (EAAG).

Provincial and Territorial Governments

The continued support and commitment from all provinces and territories were essential to the successful negotiation of a high-quality, ambitious agreement with the EU. Federal, provincial and territorial representatives worked well together during the negotiating rounds, and collaborated closely on all issues of interest to provinces and territories.

The environmental assessment of the Canada-EU CETA negotiations included consultations with provincial and territorial governments. Comments received from provincial and territorial governments on the Initial EA concentrated on areas of provincial and territorial jurisdiction related to the environment. These were documented, circulated to negotiators, and considered in the final report.

Consultations with the External Advisory Group

Consultations on the Initial EA were also undertaken with the non-governmental Environmental Assessment Advisory Group (EAAG). The EAAG comprises experts drawn from academic, non-governmental organizations, and the business sector who provide advice in their individual capacity on the EA reports and process. At the conclusion of each assessment phase, the reports are shared with the EAAG for initial feedback before being released for public comment. The Initial EA report of the CETA negotiations was shared with the EAAG, and a face-to-face meeting of the EAAG was held in Ottawa to discuss the assessment. Canadian CETA negotiators, including the Chief and Deputy Chief negotiators, participated in the meeting to benefit from the views expressed by EAAG members. During the meeting, EAAG members discussed how the qualitative and quantitative analyses in the draft Initial EA report could be further strengthened, offered comments on how to refine the focus and value of the report, and brainstormed more general ideas on how the assessment process for trade negotiations could be improved. In the days following the meeting, EAAG members provided written comments on key aspects of the assessment as appropriate. These consultations with the EAAG were valuable in broadening the views of officials involved, and contributed meaningfully to a strengthened Initial EA report.

Consultations with Canadians

Following consultations with the Federal/Provincial/Territorial Committee on Trade and the Environmental Assessment Advisory Group (EAAG), an Initial EA of the CETA negotiations was released on the Global Affairs Canada website in February 2012.

On February 25, 2012, a notice requesting public comments on the initial assessment was posted in the Canada Gazette encouraging the public to visit the departmental web link for the published Initial EA report. Public comments on the Initial EA report were welcomed over a 60-day period, ending April 25, 2012.

All public comments received were circulated to Canada’s lead negotiators for CETA and served to inform negotiations. An overview of comments received in response to the Initial EA of CETA is provided below:

• concerns regarding the government’s approach to the quantitative analysis contained in the initial report;
• consideration of whether or not CETA will affect the ability of Canadian governments to enact environmental regulations;
• questions about the EA process and the timing of public consultations within the negotiation process; and
• specific areas of the negotiations such as: national treatment, general exceptions, technical barriers to trade, subsidies, environment, sustainable development, expropriation, investor-state dispute settlement, government procurement, and services.

Those comments have been addressed in the Final EA.

V. Current Overview of the Economic Relationship between Canada and the European Union

Composed of 28 Member States with a total population of over 509 million people and a gross domestic product (GDP) of nearly $21 trillion in 2015, the EU is the world’s largest foreign investor and trader, and second largest single market. It is Canada's second largest trading partner for both goods and services. In 2015, Canadian goods and services exports to the EU totalled $56.5 billion. Imports of goods and services from the EU amounted to $77.2 billion. Eleven of Canada’s twenty-one priority markets for investment attraction are located in the EU. The EU accounted for $241.9 billion in known foreign direct investment stocks in Canada at the end of 2015, representing 31.5% of these stocks. The same year, the stock of known Canadian direct investment in the EU was valued at $210.3 billion, representing roughly one-fifth of total Canadian direct investment abroad. Key sectors of interest to Canadian companies in the EU include: information and communications technologies, aerospace and defence, life sciences, agriculture and agri-food, and environmental products, services and technologies.

Canada has a number of existing agreements with the EU. Chief among those is the Canada-EU Strategic Partnership Agreement (SPA), an agreement that will facilitate existing and future cooperation with the EU on key foreign policy and related issues, including: international peace and security, counter-terrorism, the promotion of human rights and nuclear non-proliferation, clean energy, environment and climate change, migration and peaceful pluralism, sustainable development, and innovation.

A bilateral Veterinary Agreement has been in place with the EU since 1998. Cooperation under this agreement has helped to find constructive solutions to managing animal health issues, while ensuring high standards of protection of public health. In December 2009, Canada and the EU signed a historic Air Transport Agreement. The Agreement, negotiated under Canada’s Blue Sky Policy, provides flexibility for airlines to offer more convenient air services and lower fares for the benefit of travellers, shippers, as well as the tourism and business sectors.

Canada and the EU are committed to enhancing cooperation through regular High Level Dialogues (HLD) in the fields of Energy, Climate Change and the Environment. During the last HLD on Energy, which took place on September 21, 2016, Canada and the EU committed to develop a “Canada-EU Energy Action Plan” which would identify and track tangible cooperative activities in a number of energy-related areas.

Canada and the EU are also engaging in science and technology cooperation at many levels and across public and private sector boundaries. The 1996 Canada-EU Agreement for Scientific and Technological Cooperation provides access for Canadian and EU nationals to each other’s programs on a self-funded basis. Canada and the EU have also signed an implementing arrangement to facilitate the collaboration of Canadian researchers with European research teams funded by the European Research Council. The EU is furthermore a major player in global science and technology cooperation through programs such as Horizon 2020, which is expected to invest approximately €77 billion ($113.0 billion) in research and development by 2020, with an explicit intent to facilitate increased international cooperation. Canadian collaboration with the EU is particularly strong in the areas of information and communications technology and agriculture. Progress is also being made in health research; other promising areas include functional foods, energy efficiency technologies, and bio-energy.

In addition, Canada has a number of bilateral economic agreements with several European Union Member States covering a broad range of economic issues. For example, tax agreements protect consumers and businesses from double taxation. Foreign Investment Promotion and Protection Agreements (FIPAs) protect Canadian investors doing business abroad and encourage investment and growth in Canadian business. These agreements reduce impediments to investment and allow Canadians to take advantage of opportunities in the European market and conversely encourage Europeans to invest in the Canadian market. As well, international social security agreements^{Footnote 6} eliminate cases where workers might have to contribute to the social security system of the other country for the same work, as well as coordinate the pension programs of two countries where a person has lived or worked.

VI. Updated Qualitative Analysis of Environmental Impacts

Overview of Qualitative Findings

The qualitative analysis is divided below into two sections: a general overview of all areas, and a detailed analysis of four key issue areas.

The General Overview of All Qualitative Issue-Areas provides a summary of the 30 chapters and three Protocols negotiated in the Agreement and their potential environmental impact. Following the General Overview, a more detailed analysis is undertaken of potential environmental impacts in four key issue areas (Trade in Goods, Trade in Services, Government Procurement, and Investment), the significance of potential impacts in these areas, and opportunities for mitigation and enhancement.

CETA preserves Canada’s ability to adopt and apply its own laws and regulations that regulate economic activity in the public interest in order to achieve legitimate public policy objectives related to areas such as public health, social services, public education, safety, and the environment. Accordingly, CETA’s implementation will not impact Canada’s ability to maintain its robust environmental management framework.

Canada’s policy is to negotiate environment provisions that aim to ensure that liberalized trade and the protection and conservation of the environment are mutually reinforcing. CETA includes provisions on maintaining high levels of environmental protection, effectively enforcing environmental laws, and not waiving or derogating from such laws to promote trade or investment; on ensuring transparency and public participation; and establishing a framework for cooperation in areas of mutual interest.

For the purpose of this EA, “environment” refers to the components of the Earth, including land, water, air, including all layers of the atmosphere, all organic and inorganic matter and living organisms and the interacting natural systems that include components of the foregoing. This section is intended to highlight the anticipated incremental environmental impacts in Canada as a result of CETA.

General Overview of All Qualitative Issue-Areas

Limitations of the Qualitative Assessment

This Final Environmental Assessment is an exercise which attempts to determine whether significant environmental impacts are likely to occur as the result of CETA. The qualitative assessment of potential environmental impacts is not an exhaustive examination of sectors of the economy or environmental issues. Instead, it is intended to provide an overview of the potential impacts of the trade agreement. As a result, several cautionary notes are required concerning the interpretation of the reported environmental impacts.

• The purpose of this assessment is not to assess the environmental impact of economic growth, but rather of the economic activity and trade policy changes potentially resulting as a direct result of the CETA negotiations. There are many macro- and microeconomic forces at play that influence the pattern and flow of trade. The actual economic effects of the CETA negotiations will also depend on how various economic actors, producers, and consumers react to the new trade policy environment.
• This analysis focuses on the overall impacts for Canada. It does not focus on the distributional impacts by province/territory and/or region. Although the net impacts might be positive, certain regions may be affected differently.
• Measures taken to protect the environment may cause other unintended effects on society that have not been considered in this assessment due to their complexity to predict. For example, changed behaviour may offset part of the environmental gain, a phenomenon that has variously been labelled the “take-back” or “rebound” effect (e.g. gains from energy efficiency can be subsequently negated by increases in energy use).

A. Trade in Goods

A1. Overview

This section analyzes in greater detail the economic opportunities, potential environmental impacts, and mitigation/enhancement options available in five non-agricultural sectors that would benefit from increased exports to the EU under CETA: metals, industrial manufacturing (electronic equipment, machinery and equipment, motor vehicles and parts), chemical products, forestry products, and fish and seafood products.

The analysis is then repeated for the agricultural sectors likely to experience major export gains: beef and pork, grains, oils and oilseeds, pulses and special crops, fruits and vegetables, and maple products.

Finally, the significance of the potential environmental impacts as a result of these possible changes to Canada’s trade in goods under CETA is assessed.

A2. Anticipated Economic and Environmental Effects

As noted in the Joint Study, tariffs on goods traded between the EU and Canada are on average low, principally as a result of the progressive lowering of tariffs at the multilateral level. On a trade-weighted basis, Canadian goods entering the EU market faced an average tariff of 2.2% in 2007 while EU goods entering the Canadian market faced a comparable tariff of 3.5%.

Despite these low tariff levels, in both cases a number of sectors still face significant levels of tariff protection, including a number of agriculture and food sectors, textiles and apparel, and the automotive sector. In this respect, the Joint Study indicates that the liberalization of trade in goods and services will bring significant benefits to the EU and to Canada. The Initial Environmental Assessment found that the gains derived from the elimination of all tariffs on bilaterally-traded goods would represent 25% of the total economic gains for the EU and 33.3% for Canada.

The largest trade gains resulting from CETA are expected in sectors in which current trade is high and significant tariff barriers exist. In addition to tariff elimination, CETA includes provisions to facilitate increased cooperation with the EU to make trade more efficient, for example through trade facilitating measures, customs procedures designed to provide certainty and transparency, and effective origin verification procedures. Rules of origin that are transparent, predictable, and consistent in application will ensure that the tariff elimination benefits negotiated under CETA accrue to manufacturers, producers, and exporters of both Parties.

Non-Agricultural Goods

Canadian Non-Agricultural Exports to the EU

Over the 2013-2015 period, Canadian non-agricultural exports to the EU averaged $34.6 billion. Canadian non-agricultural exports that are likely to benefit from tariff elimination include: minerals and metals, industrial manufacturing (electronic equipment, machinery and equipment, and motor vehicles and parts), chemical products, forestry products, and fish and seafood products.

The resulting production and trade increases may affect the environment through increases in resource utilization, production processes, waste, and other areas that are further explored below. Opportunities for mitigation of negative impacts are also examined, as increases in production would occur in facilities operating under Canadian legislation and regulation. Canada’s strong regulatory framework ensures that industrial and commercial practices are developed in accordance with sustainable development principles and environmental stewardship. Canadian policies and regulations focused on sustainable development are a critical element of the country’s broader regulatory framework at the federal, provincial, and territorial levels of government.

In a horizontal sense, increased trade in non-agricultural goods may create more generalized effects related to the transportation industry, which plays a key role in linking local production to exit ports for shipment to markets abroad, especially in a country as geographically dispersed as Canada. Growth in trade with the EU may result in additional transportation demands, particularly in the rail and shipping sectors (this is also addressed in the section on trade in services).

Gradual increases in Canadian incomes as a result of CETA may translate into increases in the consumption of goods, which could generally lead to impacts on the environment through higher resource utilization and waste production. Although it is not possible to measure or quantify these impacts at this time, potential increases in consumption are indirectly considered below.

Minerals and Metals

Opportunities: 20% of Canada’s minerals and metals exports are destined to the EU. Canadian exports of minerals and metals to the EU averaged $17.8 billion annually between 2013 and 2015. Key exports include gold, nickel, diamonds, aluminum, and iron ore. While the vast majority of minerals and metals already enter the EU tariff free, Canada’s top dutiable metal exports to the EU in this period included: aluminum products ($497 million; average duty of 6.8%); iron and steel products ($122 million; average duty of 3.2%); and non-ferrous metals such as titanium and cobalt ($52 million; average duty of 4.4%). All EU tariffs on Canadian originating minerals and metals will be immediately eliminated upon entry into force of CETA.

Mine production in Canada is driven by global commodity prices. The right market conditions, consistent or increased demand for raw materials from EU Member States, as well as gains associated with CETA could contribute to an expansion of existing mining operations, restarting of production at mine sites that are currently out of operation, or opening of new mines.

Potential Environmental Impacts: An increase in mine development and the production of Canada’s minerals and metals due to growing demand and improved commodity prices could have a two-tiered impact on the environment.

First, an increase in mine development or mine expansions could increase land disturbance and have potential adverse environmental effects in localized areas. Mine development and increased production could result in further environmental impacts due to the construction of electrical transmission lines and roads, expanded port facilities and transportation activity, including the transport of ore concentrate by road and rail in southern Canada and marine shipping in the Arctic. Environmental effects include increases in the use of land and water bodies for mining and the management of mine tailings and waste rock, increases in greenhouse gas (GHG) emissions and potentially, localized changes in wildlife habitat and in water quality and quantity.

Second, an increase in refinery or steel production for metals produced in Canada could result in increased GHG emissions and energy consumption.

Impact Mitigation: In Canada, the Government recognizes that strong environmental policies are needed to develop the country’s natural resources and to transport them to international markets. The mining industry has also committed to practices and standards to ensure the safe and sustainable development of Canada’s mineral resources. Serious environmental incidents at operating mines are rare and the construction, operation, closure, and reclamation of mines are subject to strict provincial and territorial regulatory requirements along with federal requirements , related to fish and fish habitat protection, wildlife and wildlife habitat protection, uranium mines and the control of metal mine effluent.

Almost all mine development proposals are subject to rigorous environmental impact assessment processes, which inform decisions on project approval, project design, regulatory processes, and environmental impact management. In southern Canada, most mine proposals are reviewed by harmonized federal and provincial environment assessment processes. In the North, all mine proposals are subject to environmental and socio-economic impact review or environmental assessments conducted by co-management boards under federal legislation.

Federal and provincial initiatives to increase public confidence in environmental assessment processes, to develop more protective standards for mine effluent control and tailings storage facilities, and to set limits on GHG emissions, will help ensure that any expansion of mineral development and production activities will proceed with the necessary project planning and impact mitigation measures to minimize environmental impacts.

Should there be an increase in export activity as a result of CETA, this would not have a significant negative effect on Canada’s environment as the federal, provincial, and territorial regulatory systems are sufficient to ensure that new and expanded mine development and mineral production will be carried out in an environmentally responsible manner.

Industrial Manufacturing

Opportunities:

• Electronic Equipment: Canadian exports of electronic equipment to the EU averaged $1.7 billion annually between 2013 and 2015. Canada’s top dutiable electronic equipment exports to the EU in this period included: television and video cameras ($55 million; average duty of 6.1%); electric distribution panels and boards ($52 million; average duty of 2.1%); electrical machines and apparatus ($42 million; average duty of 3.7%); electrical signaling apparatus ($29 million; average duty of 2.2%); and electrical accumulators ($23 million; average duty of 2.9%). The EU was Canada’s second largest export destination for electronic products, accounting for 9.8% of Canada’s total electronic equipment exports. All EU tariffs on Canadian originating electronic equipment will be immediately eliminated upon entry into force of CETA.
• Machinery and Equipment: Canadian exports of machinery and equipment to the EU averaged $2 billion annually between 2013 and 2015. Canada’s top dutiable machinery and equipment exports to the EU included: transmission shafts, bearing housings, gears, flywheels and pulleys ($154 million; average duty of 3.8%); gas turbines ($238 million; duty of 4.1%); and parts of gas turbines ($119 million; average duty of 4.1%). The EU was Canada’s second largest machinery export market, accounting for 7.2% of Canada’s machinery exports. All EU tariffs on Canadian originating machinery and equipment will be immediately eliminated upon entry into force of CETA.
• Motor Vehicles and Parts: Canadian exports of motor vehicles and parts to the EU averaged $450.5 million annually between 2013 and 2015. Canada’s top dutiable automotive goods exports to the EU included: light vehicles ($150 million: duty of 10%); parts and accessories for transport vehicle body assembly ($86 million; duty of 4.5%); miscellaneous motor vehicle parts and accessories ($47 million; average duty of 3.8%); and parts for gearboxes of transport vehicles ($24 million; duty of 3.5%). The EU was Canada’s fourth largest motor vehicles and parts export market, accounting for 0.6% of Canada’s exports for this sector. All EU tariffs on Canadian originating auto parts will be immediately eliminated upon entry into force of CETA, while all EU tariffs on Canadian originating motor vehicles will be eliminated within 7 years after the entry into force of CETA.

Potential Environmental Impacts: Industrial manufacturing represents an area where increased production could have environmental impacts. Increased demand stemming from trade liberalization would likely result in greater Canadian exports to the EU and potentially increased production in Canada. Greater production of electronic machinery, motor vehicles, machinery and equipment and related goods would increase the demand for inputs, including key raw materials such as metals, chemicals and plastics. This could lead to environmental impacts in the areas of hazardous waste, water usage, and the depletion of non-renewable resources. Additionally, increased industrial production and manufacturing could contribute to increased air pollution, waste, greenhouse gas emissions, and energy use. Conversely, positive impacts may occur by improving access to environmental goods and technologies that advance the objectives of sustainable development in certain industries.

Mitigation/Enhancement: The regulatory framework governing environmental impacts from industrial manufacturing includes the Canadian Environmental Protection Act, 1999 (CEPA) and its regulations. A key aspect of CEPA is the prevention and management of risks posed by toxic and other harmful substances, including those that result from industrial manufacturing. Under CEPA, manufacturing facilities may also be required to disclose their emissions of selected pollutants through various programs such as the National Pollutant Release Inventory (NPRI) and Environment and Climate Change Canada’s Greenhouse Gas Emissions Reporting Program. Pollutant emissions to water resulting from industrial manufacturing are also subject to the Fisheries Act, which prohibits not only the deposit of deleterious substances in water frequented by fish, but also activities that result in serious harm to fish that are part of a commercial, recreational, or Aboriginal fishery, unless authorized.

An increase in industrial manufacturing of electronic equipment typically leads to an increase in electronic waste (e-waste). In 2004, the Canadian Council of Ministers of the Environment (CCME), a council composed of environment ministers from the federal, provincial, and territorial governments, adopted 12 principles for the proper management of e-waste. The principles focus on life cycle management, which places the responsibility for e-waste primarily with the producers, with the costs to be borne by producers and users. The list of products to be included in any regulatory regime encompasses not only what is considered to be IT-related equipment, but also a full range of household devices.

Management of e-waste is generally regulated by the provinces and territories. E-waste that is considered hazardous must be managed according to applicable provincial and territorial hazardous waste regulations. Municipalities may also be involved in the management or disposal of e-waste generated by households. Several provinces are implementing e-waste management programs. These programs focus on collection, disposal, recycling, take-back, recovery, reprocessing, and treatment.

Chemical Products

Opportunities: Canadian exports of chemical products to the EU averaged $818 million annually between 2013 and 2015. Canada’s top dutiable chemical product exports to the EU included: catalytic preparations ($41 million; duty of 6.5%); prepared binders for moulds or cores ($41 million; duty of 6.3%); enzymes ($24 million; duty of 6.3%); and nucleic acids and their salts ($24 million; average duty of 6.5%). The EU was Canada’s second largest chemical products export market, accounting for 9.9% of Canada’s chemical products exports. All EU tariffs on Canadian originating chemical products will be immediately eliminated upon entry into force of CETA. Canada’s chemicals sector is research and development (R&D) intensive, technology and innovation driven, and is well positioned to benefit from CETA, particularly in emerging industries linked to biotechnology, nanomaterials, and green chemistry.

Potential Environmental Impacts: Increased trade in chemicals (or products containing chemicals) with a foreign jurisdiction could lead to pressures on the environment through, inter alia, increases in energy consumption, higher demand for primary and other intermediate inputs needed for the production of chemicals, and higher levels of air emissions and hazardous waste. In addition, substances of concern contained in imported finished products could enter Canada in a greater quantity. Nevertheless, Canada has legislative mechanisms to mitigate and minimize potential negative environmental impacts from chemical manufacturing, as well as use and disposal, which are linked to greater Canada-EU trade. The increased trade in chemicals resulting from greater access to the European market is not expected to yield new environmental challenges that could not be addressed under existing legislative structures.

Mitigation / Enhancement: The Government of Canada has a number of laws and a regulatory framework that protect human health and the environment from the risks of harmful chemicals and/or products. The primary legal authority for assessing and managing harmful chemical substances is the Canadian Environmental Protection Act, 1999^{Footnote 7}. Other legislation which may be used includes the Canada Consumer Products Safety Act^{Footnote 8}, the Food and Drugs Act^{Footnote 9}, the Pest Control Products Act^{Footnote 10}, and the Fisheries Act^{Footnote 11}. The Government of Canada’s Chemicals Management Plan (CMP)^{Footnote 12} is aimed at reducing the risks posed by chemicals to Canadians and their environment. Under the CMP, managing the risks of chemicals is done by using the “best placed act” initiative to ensure that the most appropriate authorities and suite of legislative, regulatory, and other tools available under these various acts are used to protect human health and the environment from hazardous chemicals. The CMP, launched in 2006, is jointly managed by Environment and Climate Change Canada and Health Canada in order to:

• take rapid action on chemicals;
• integrate chemical management activities across the government; and
• provide predictability for business and engender public trust through transparent work plans.

The CMP takes action to minimize and/or eliminate risks posed by harmful chemical substances to the environment and human health using a risk-based approach that relies on science, assessment, and effective monitoring to inform risk management decisions regarding chemicals of concern.

Environment and Climate Change Canada and Health Canada have signed a Memorandum of Understanding (MoU) with the European Chemicals Agency^{Footnote 13} outlining a number of areas for technical co-operation. The overall objective of the MoU is to share knowledge, information, and exchange experiences and best practices on matters of mutual interest relating to the management of chemical substances.

Forest Products

Opportunities: Canadian exports of forest products to the EU averaged $1.3 billion annually between 2013 and 2015. Canada’s top dutiable forest products exports to the EU included plywood made of sheets of wood ($10 million; duty of 7%); fibreboard ($7 million; duty of 7%); oriented strand-board ($4 million; duty of 7%); sheets for veneering ($2 million; duty of 4%). The EU was Canada’s fourth largest forest products export market, accounting for 3.5% of Canada’s exports for this sector. All EU tariffs on Canadian originating forest products will be immediately eliminated upon entry into force of CETA.

Potential Environmental Impacts: An extensive framework of federal, provincial and territorial laws, regulations and policies enforces and guides sustainable forest management practices in Canada. These are important tools given that 94% of the country’s forests are on public land—that is owned and managed by the provincial, territorial, and federal governments.

In Canada, determining and regulating the amount of wood that can be harvested is central to sustainable forest management strategies. Provincial governments regulate harvest levels on provincial Crown lands by specifying an allowable annual cut (AAC), which is the annual level of harvest allowed on a particular area over a specified number of years. The AAC levels are based on the sustainable growth rate of the forest. The goal is to maintain biological diversity while considering economic and social factors. ^{Footnote 14}

As the AAC is calculated for provincial Crown lands, Canada calculates the sustainable wood supply for the entire country by adding the AAC for provincial Crown lands to potential harvest for federal and private lands. The sustainable wood supply is the estimated volume of timber that can be harvested from an area while meeting environmental, economic, and social objectives. Total sustainable wood supply increased by 1.5% in 2014 to 227 million cubic meters (m³). The total volume of timber harvested in 2014 from all jurisdictions (provincial Crown, territorial, private, and federal lands) remained relatively stable at about 148 m³—well below the level of harvest deemed to be sustainable^{Footnote 15}. Tracking harvest volume allows forest managers to determine whether they comply with regulated amounts. Canada’s governments have rigorous programs dedicated to inspections, compliance, and enforcement of forest legislation.

CETA will not lead to an increase in timber harvests above the AAC levels set by governments, nor will it alter landscapes and natural habitats. At the same time, exports of forest products to the EU are expected to increase. As such, CETA is expected to lead to a shift in the composition of export markets, wherein a greater share of forest exports goes to the EU instead of other markets. CETA is also expected to lead to an increase in price that would improve the terms of trade for Canadian forest products. The export potential is not a factor in the determination of harvesting levels. Therefore, CETA may lead to an increase in forest product exports to the EU without putting pressure on Canadian harvesting levels.

Pulp and paper products currently enter the EU market duty free. CETA is therefore not expected to increase Canadian exports of these products and the associated air and effluent emissions generated by the industry. The products that are currently subject to EU tariffs are value-added wood products (fiberboard, particle board, oriented strand board, and veneer). The elimination of these tariffs under CETA could lead to increased exports and production of those products. The wood products industry as a whole is generating less air and water pollution than the pulp and paper industry. Moreover, the secondary transformation of wood products does not generate effluent emissions and has a negligible contribution to GHG emissions. However, the production processes behind these products often generate some particulate matter and volatile organic compound emissions. Overall, the environmental impact from the potential increase in the production of secondary wood products is expected to be negligible.

Mitigation / Enhancement: Government policies and programs that regulate the production of wood and forest products are a shared responsibility between federal and provincial governments, guided by the concept of sustainable forest management. At all levels of government, forest policies within this framework ensure that forests are managed in accordance with sustainable development principles. Canada’s commercial forest resources are largely managed by the provinces using forest management tenure agreements that strictly regulate harvesting, silviculture, and forestry practices. These policies further provide for regulatory and audit mechanisms based on sustainable development practices to ensure that timber is not harvested at rates exceeding a forest’s capacity to regenerate. As part of sustainable forest management, less than 0.5% of the managed forest is harvested in any given year in Canada. In addition, forests harvested on public lands are required to be successfully regenerated.

Fish and Seafood Products:

Opportunities: Canadian exports of fish and seafood products to the EU averaged $656 million annually between 2013 and 2015. Canada’s top dutiable fish and seafood exports to the EU included: shrimps and prawns ($248 million; duty of 20%); live lobster ($73 million; duty of 8%); shrimps and prawns in airtight containers ($58 million; average duty of 20%); and scallops ($52 million; average duty of 8%). The EU was Canada’s third largest export destination for fish and seafood, accounting for 9.5% of Canada’s fish and seafood exports. The vast majority of EU tariffs on Canadian originating fish and seafood will be immediately eliminated upon entry into force of CETA, while all remaining EU tariffs will be fully eliminated within 7 years after the Agreement’s entry into force.

Potential Environmental Impacts:

Wild Capture Fisheries

Canada’s wild capture fish stocks are managed based on science and ecosystems considerations. Controls are in place to limit the amount of fishing, with the use of a total allowable catch and effort limitations as the predominant control mechanisms. These controls are complemented by restrictions on vessels and fishing gear, fishing seasons, catch composition (e.g. size and age of fish) as well as impacts on other species, their habitat, and ecosystems. Fisheries and Oceans Canada (DFO) develops and implements Integrated Fisheries Management Plans for many fisheries, which integrate conservation, management, and scientific objectives for the stock, and detail the measures required to conserve and manage the fishery. Controls are subject to enforcement and prosecution.

Aquaculture

The federal, provincial, and territorial governments share jurisdiction over Canadian aquaculture, and have cooperatively implemented measures to ensure the environmental integrity of aquaculture operations.

New and expanded aquaculture sites in Canada are required to undergo an environmental assessment under the Canadian Environmental Assessment Act. This Act covers environmental, social, and economic effects, all phases of operation, as well as cumulative effects. The Act requires identification of mitigation and monitoring strategies to ensure that there are no significant residual negative effects.

More than 80 federal and provincial acts and regulations govern the environmental performance of this industry, ensuring that increased production would not be allowed to take place unless it had been determined to be environmentally sustainable. In addition to the provincial aquaculture acts and associated regulations which provide the tools to manage operations through licenses and leases, the Fisheries Act provides a national regulatory framework within which the federal government can execute its mandate to manage fisheries, which includes aquaculture, and to protect fish and fish habitat. For example, the Aquaculture Activities Regulations require aquaculture operators to mitigate and monitor the potential impacts to fish and fish habitat from the deposition of pesticides and drugs used for animal disease control. These and other Fisheries Act regulatory measures would prevent or mitigate the majority of negative environmental impacts that might otherwise result due to tariff elimination, which provides additional export opportunities and adds pressure to supply more aquaculture fish and fish products to the EU.

International Fisheries

Canada adheres to international instruments such as the United Nations Convention on the Law of the Sea (UNCLOS), the United Nations Fish Stocks Agreement (UNFA), and the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES). Canada is a Party to several regional fisheries management organizations (RFMOs) that regulate high seas fisheries. Collectively, these agreements serve to govern the management, conservation, and protection of fish stocks, and to mitigate potential negative environmental impacts.

With regard to fishing on the high seas, there is significant international momentum aimed at strengthening existing regional fisheries management organizations through performance reviews and broadening their mandates to include a wider range of species and ecosystem considerations. This included the strengthening of existing organizations, the creation of new ones to cover previously unregulated areas, and support for developing countries in their effort to improve domestic fisheries management and become more engaged in international fisheries governance issues. Canada has taken a lead role in the global effort to achieve international ocean governance reform, including through hosting international fora on high seas governance and influencing work in RFMOs on vulnerable marine ecosystems and management strategy evaluations to improve the overall governance of fisheries.

Mitigation / Enhancement:

As is the case for all Canada’s fisheries, species of fish exported to the EU will continue to be managed based on science and ecosystems considerations. Ecosystems and fisheries management systems, as well as federal, provincial and territorial government measures are in place to ensure the sustainability of Canada’s fisheries. These systems ensure the environmental integrity of Canada’s fisheries and aquaculture operations so that increased trade resulting from a trade agreement will have minimal environmental impact. Stock sustainability is taken into account in all decisions and federal-provincial-territorial statutory and policy instruments serve to mitigate environmental effects that might otherwise result from increased market access.

Agricultural Goods

Canadian Agricultural Exports to the EU

The EU is Canada’s second largest export destination for agriculture and agri-food with Canadian agricultural exports to the EUamounting to $3.1 billion in 2016.

Under CETA, Canadian exporters will be able to take advantage of new export opportunities in the EU market where import demand for agriculture and agri-food products is strong. CETA will provide Canadian agriculture producers and exporters with an advantage over competitors entering the EU market. Upon entry into force, almost 94% of EU agriculture tariff lines will become duty-free. Once fully implemented (seven years after entry into force), the number of EU agriculture tariff lines receiving duty-free treatment will increase to over 95%.

The improved market access opportunities in the EU under CETA cover a broad range of products, particularly for key Canadian agricultural exports such as beef, pork, grains and oilseeds, fruits and vegetables, and processed foods. Improved market access for Canadian agricultural goods into the EU is contingent not only upon tariff elimination, but also upon addressing non-tariff barriers to trade, including sanitary and phytosanitary measures and biotechnology issues.

Opportunities under CETA:

The EU is an important partner for Canada and represents Canada’s second-largest trade and investment partner, after only the US, while offering opportunity for diversification. With CETA, Canada will have guaranteed preferential access to more than 500 million consumers in the world’s largest integrated economy and the world’s largest agricultural importer, importing $ 174.8 billion worth of agriculture and agri-food products in 2016. The removal of trade barriers between Canada and the EU as a result of CETA provides significant new opportunities for growth.

Some agricultural product sectors where Canada can expect to benefit under CETA include:

• Meats: Duty-free EU quotas established for beef and veal (50,000 tonnes), pork (80,549 tonnes) and Bison (3,000 tonnes); immediate tariff elimination on processed meat products.
• Grains: Immediate tariff elimination on corn, wild rice, triticale; tariff phase-outs for durum wheat, barley, rye and oats, and a transitional EU quota for common wheat that will be duty-free and quota-free after 7 years.
• Oils and Oilseeds: Immediate tariff elimination on major Canadian exports such as soybean oil and canola oil.
• Fruits and Vegetables: Immediate tariff elimination on major Canadian exports such as frozen blueberries, other fresh and frozen berries, sweetened dried cranberries, fresh cherries and apples, and frozen potato products.
• Maple Products: Immediate tariff elimination for Canadian exports of maple syrup and maple sugar.

Potential Environmental Impacts:

Agriculture production impacts the environment as it uses natural resources such as land and water. At the same time, the environment may cause changes to agriculture and the sector must be able to respond and adapt to environmental impacts, such as climate change, on agricultural production. The Government of Canada continues to make considerable efforts to understand and mitigate the negative impacts of agriculture on the environment, to seek ways to reduce negative impacts, and to promote the sustainable use of natural resources. For example, Agriculture and Agri-Food Canada (AAFC), through Agricultural Policy Frameworks Agreements with provinces and territories, provides funding to support the implementation of on-farm actions in the form of beneficial management practices (BMPs), which can mitigate negative agricultural environmental impacts and result in improved water quality, biodiversity, and climate change adaptation.

AAFC is collaborating with provincial and territorial partners on preparing the next iteration of programming under the Next Policy Framework (NPF), scheduled to begin in 2018, which will provide a greater emphasis on climate change mitigation and adaptation, environmental sustainability and science. This is expected to further enhance the agriculture sector’s environmental performance. For example, programming available under the upcoming NPF could accelerate the agriculture sector’s ability to reduce the most significant GHG emission sources such as nitrous oxide, primarily from crop production and methane.

With any potential increased imports from the EU, Canada must maintain its vigilance regarding the prevention of potential invasive alien species and diseases that could threaten sectors that closely interact with the environment, such as the agricultural sector. Many significant pests affecting agriculture are not native to Canada – for example, 80 percent of agricultural weeds are invasive aliens – and many crops cannot be grown without protection from invasive alien species. Without protection, producers would face significant losses in crop yields, direct control costs, indirect environmental costs of chemical control, and potential devaluation and market losses from commodity contamination.

International agreements provide some protections, for example under the World Trade Organization Agreement on Sanitary and Phytosanitary Measures^{Footnote 16}, least-trade-restrictive measures can be applied to the movement of goods to prevent the entry of recognized pests that may threaten agriculture and forest crops. While measures can be applied to prevent the importation of various pests and diseases into Canada to protect agriculture and forestry, Canadian business and industry and regulators must take all reasonable measures to ensure that unwanted pests and diseases are likewise not exported from Canada to other countries. Vigilance to prevent the export of invasive alien species is essential for protecting Canada’s export markets.

It has been estimated that losses to Canada's agriculture industry in addressing the fallout caused by invasive species have been about $2.2 billion a year (2009). The costs are attributed to lower yields, increased pest control expenses, and loss of markets due to trade and transport restrictions. The Invasive Alien Species (IAS) Strategy for Canada, implemented by a number of federal departments and agencies, directs the national effort to address these issues.

At AAFC, scientists conduct IAS-related activities on a number of fronts. Research programs focus on taxonomy, systematics, collections, IAS impacts and mitigation strategies. Complementary activities include management practice assessments, field demonstrations and technology transfer. All activities undertaken at AAFC related to invasive species must be aligned with the requirements set out under all applicable trade agreements and regulatory requirements.

Mitigation / Enhancement Practices^{Footnote 17}:

Environmentally sustainable agriculture is a key component of Canada’s overarching Agricultural Policy Framework initiatives of the federal, provincial and territorial governments. Collaborative action related to environmental sustainability and climate change adaptation and mitigation improves the sector’s ability to manage risks, enhances productivity, and contributes to economic growth. It also builds public confidence in the environmental performance of the sector.

Specifically, environment and sustainable development programs under the Agricultural Policy Frameworks provide support for provincial and territorial activities aimed at supporting the Canadian agriculture, agri-food and agri-based sector and its businesses to assess and respond to priority environmental risks and manage the natural resource base sustainably.

AAFC invests in sustainable agriculture by supporting direct on-farm action, in particular environmental risk assessment and the implementation of beneficial management practices, and undertaking innovative research and development activities that contribute to the sustainable growth of the sector.

Research and development activities include increasing resource and input use efficiency (water, land, nutrients, etc.), developing new crop varieties, enhancing crop yields, and developing beneficial management practices and technologies. These investments help decouple growth in production from a corresponding increase in risk to agriculture resources and the surrounding environment. AAFC also works in close collaboration with Natural Resources Canada and Environment and Climate Change Canada in making investments that make our resource sectors world leaders in the use and development of clean and sustainable technology processes.

AAFC-specific programming also plays a significant role in ensuring business continuity through the Business Risk Management (BRM) suite of programs. These programs can enhance the sector’s resilience to environment-based risks, such as pests, drought, or flooding, and to its increasing competition for limited natural resources (e.g., water) from other sectors. For example producers participating in AgriInvest may be able make more strategic decisions based on the long-term outlook rather than short term cash flow needs. This would allow producers more scope to diversify their crops and use farming practices such as crop rotation, that have beneficial impacts on soil quality and the environment. Programs are also designed to minimize and mitigate impacts and risks to the environment by: maintaining or improving the quality of soil, water, air, and biodiversity; ensuring long-term health and sustainability of natural resources used for agricultural production; and supporting the long-term economic and environmental viability of the agriculture sector.

Innovation initiatives that AAFC is directly involved with include: support for the sector’s ability to capture emerging economic opportunities such as clean energy; collaboration with conservation organizations that provide financial compensation for voluntary on-farm activities; and assisting the sector in maintaining access to and opening new markets in response to growing demands by buyers for sustainable product attributes.

Since jurisdiction over agriculture and natural resources in Canada is shared with provincial and territorial governments, programs and policies are based on partnerships between both levels of government. By considering the wide variety of environmental and socio-economic conditions across Canada, farm-level programs are uniquely tailored and delivered by provincial and territorial agencies.

Performance Measurement and Reporting^{Footnote 18}:

The expected result of the various initiatives and programs in place is to have the Canadian agriculture and agri-food sector continue to take actions that minimize environmental risks and use inputs efficiently. The increase in the number of developed and implemented environmental farm plans that identify risks and risk-mitigation activities, and proven environmental beneficial management practices, such as farmyard-runoff controls and erosion-controls structures, will demonstrate the agriculture and agri-food sector’s commitment to improving long-term environmental and sustainable agricultural practice.

A3. Significance of Potential Environmental Impacts

Non-Agricultural Goods

For non-agricultural goods, as noted in previous sections, certain potential environmental impacts might result from trade liberalization under CETA for goods such as minerals and metals, industrial manufacturing, chemical products, forestry products, and fish and seafood products. Growth in each of these sectors could result in increased demand for raw materials and resources. Increases in non-agricultural goods production for export could also cause higher energy consumption, and increased emissions to the environment. These impacts are expected to be manageable for several reasons. First, increases in production would occur under Canada’s regulatory framework with well-established federal, provincial, and territorial environmental oversight regimes that would address ensuing negative environmental impacts. In particular, legal frameworks requiring environmental impact assessments of new developments will help to mitigate impacts of projects in several sectors. Second, cooperation between Canada and the EU on regulatory issues, in resource areas, and elsewhere, could lead to improved implementation and oversight of environmental measures.

Agricultural Goods

The overall levels of environmental risk for water, soil, air, and biodiversity are not expected to change significantly as a result of the liberalization of agricultural trade between Canada and the EU. In considering the potential threat posed by invasive pests and diseases as a result of increased trade with the EU, it will be important for Canada to maintain vigilance in this area. Moreover, there are several mitigation measures and programs currently in place managed by several government departments, as well as provinces and territories that would address potential negative environmental impacts in the areas discussed above, while enhancing positive environmental impacts.

Any increase in demand on agricultural supply is likely to increase pressure on agricultural land and natural resources. As long as sustainable practices are incorporated into agricultural activities, and Canada continues to recognize and promote the broad environmental objectives set out in the introduction of this assessment, environmental effects should be minimal or effectively mitigated through established programs and frameworks.

Given the above considerations, no significant negative environmental effects are expected as a result of increased trade in agriculture and agri-food goods with the EU.

B. Trade in Services

B1. Overview

The EU is the world’s largest services exporter, accounting for 24.9% of global exports of commercial services^{Footnote 19} in 2015. Current EU services trade is concentrated towards other industrialised economies. The United States is the EU’s main partner in terms of both exports and imports, followed by Switzerland, China, Norway, Japan, Russia and Canada. The EU is Canada’s second largest partner for trade in services with two-way trade amounting to $41.4 billion in 2015.

Provisions of the Cross-Border Trade in Services (CBTS) chapter form the foundation for the liberalization of services trade under CETA. The chapter contains key obligations in relation to non-discriminatory treatment and services market access. Importantly, Canada and the EU have adopted the obligations through a “negative list” approach. That is, all services are covered by the obligations of the chapter unless explicitly indicated otherwise in the scope or in the Annexes of reservations.

Services market liberalization under the CBTS chapter is complemented by commitments in other related areas of the agreement. Provisions in the Temporary Entry and Stay of Natural Persons for Business Purposes chapter address barriers at the border for business persons. Commitments under the Domestic Regulation chapter address licensing and qualification procedures and requirements that affect services suppliers. The Mutual Recognition of Professional Qualifications chapter establishes a framework to support the ability of Canadian and EU professionals to have their qualifications recognized in both jurisdictions. Sector-specific provisions are also established in stand-alone chapters on Financial Services and Telecommunications. The Electronic Commerce chapter includes provisions to facilitate digital trade, including in relation to goods and services trade. Together, these chapters work in concert to ensure broad-based liberalization for services trade between Canada and the EU.

Note that CETA does not prevent Parties from regulating services-related activities for the purposes of environmental protection. CETA specifies that nothing in the Agreement shall be construed to prevent the adoption or enforcement by a Party of measures necessary to protect human, animal or plant life or health, so long as such measures are not applied in a manner constituting a means of arbitrary or unjustifiable discrimination, or a disguised restriction on trade.

B2. Anticipated Economic Effects

While studies have shown that there are substantial positive benefits to services liberalization, it remains difficult to assess the economic impact of services provisions in trade agreements such as CETA. This is due to the fact that services-related commitments in trade agreements are not easily quantified, since they usually pertain to increased transparency or regulatory certainty. In addition, the value of services trade is difficult to measure, as not all commercial services are recorded as they cross the border. For example, the movement of persons associated with services trade is captured in business travel statistics, but these records are not industry-specific and thus difficult to attribute to increases or decreases in specific service sectors.

Notwithstanding these difficulties, the Joint Study projected that the liberalization of trade in services would contribute substantially to the GDP gains under CETA (50% of total gains for the EU, and 45.5% of gains for Canada). Total EU goods and services exports to Canada are estimated to rise by 24.3%, while Canadian exports to the EU are predicted to increase by 20.6%. In services trade, the EU’s exports to Canada are expected to increase by 13.1% and Canada’s exports to the EU by 14.2%. In addition, the study shows potential for improvement in a wide range of areas, from labour mobility including temporary entry for business persons, to environment, to regulatory cooperation, and science and technology. Canada can be expected to gain from increased access to innovations, state-of-the-art technologies and best practices that will contribute to enhancing productivity, and which may also increase environmental performance.

B3. Potential Environmental Impacts

Services are important components of global value chains and are increasingly integrated in the production of complex goods. As such, the environmental impacts resulting from increased services trade under CETA would likely be indirect (i.e. felt through the resulting increased trade in goods). Where trade in services may be conducted virtually (i.e. where there is no physical component, such as with legal advice), increased economic activity resulting from CETA would not be expected to have significant negative environmental impact.

In sectors such as environmental services and telecommunications services, positive environmental impacts can be anticipated as new and more environmentally sustainable goods and services are adopted. For example, environmental services include services such as refuse disposal services, sanitation and similar services, noise abatement services, nature and landscape protection services, other environmental protection services, which are environmentally friendly. As well, telecommunication services could facilitate the digital delivery of services to reduce resource use.

This may also be the case in the areas of professional, scientific, and technological services, where Canada can be expected to gain from access to innovations, state-of-the-art and “green” technologies and best practices that will contribute to enhancing productivity in Canada.

Overall, although the effect of services provisions in CETA on the environment is difficult to assess qualitatively or quantitatively, it is reasonable to predict that negative impacts will be small and offset by innovations and further development in the use of environmental and telecommunications technologies.

B4. Significance of Potential Environmental Impacts

As the potential environmental impact is expected to be small, there is no special significance to note.

B5. Mitigation / Enhancement

Services sectors tend to be heavily regulated. Governments at different levels, as well as professional associations that have been delegated self-regulating authority, have implemented and maintained regulations governing the provision of services. Generally, such regulations establish and maintain a legal framework to serve various public-policy purposes, including the protection of the environment. As noted in the overview section, CETA does not prevent the regulation of services-related activities for the purposes of environmental protection.

With respect to specific service sectors, changes and improvements in procedures, equipment, and technology lessen possible impacts, as do environmental legislation and industry awareness of environmental issues. For example, in the oil and gas sector, changes in procedures and technology include: using directional and horizontal well drilling that reduces the number of roads, power lines, and pipelines required for a site, as well as using low–impact seismic technologies in environmentally sensitive terrain. New procedures and technologies can also help prevent potential accidents which could have serious environmental impacts.

In the tourism sector, environmental damage can be limited by controlling access to ecologically-sensitive sites and limiting the number of visitors in certain areas based on capacity to accommodate, and without pollution, loss of wildlife habitat, or other damage. With respect to transport services, there is an extensive range of environmental guidelines, codes of practice, and international standards in place to reduce environmental impacts. In the construction sector, there is a wide range of environmental protection guidelines, tools, and techniques applicable to engineering works. These include facility design and site selection measures, energy conservation measures, and on-site measures to control soil erosion, manage wastes, and control pollutants. For example, the Super E®^{Footnote 20} strategic initiative is a new housing standard which utilizes state of the art construction techniques that promote energy conservation, environmentally responsible construction, and healthy housing.

Private sector mitigation options include paper conservation within the office, greater use of cross-border trade facilitating means (i.e. the internet/email, fax, teleconference, and videoconference), recycling of various materials, and corporate policies on “sustainable procurement.”  While these activities are within the scope of the private sector, government policy can also lead in the adoption of such practices, specifically through the implementation of environmentally responsible government procurement strategies.

C. Government Procurement

C1. Overview

Government purchases of goods and services account for significant levels of total economic activity in both Canada and the EU. The EU’s overall government procurement market is estimated at approximately $3.3 trillion per year^{Footnote 21}. Expanding access to this market for Canadian businesses constituted a key objective for Canada in the negotiation of CETA.

As Parties to the World Trade Organization (WTO) Agreement on Government Procurement (GPA), Canada and the EU have already committed to rules regarding non-discrimination, impartiality, and transparency in their procurement activities. However, these rules apply to limited procurement activities of governments in Canada and the EU. CETA builds upon those commitments by opening up competition to a much wider range of government procurement activities.

Under CETA’s Government Procurement chapter, both the EU and Canada have committed a wide range of contracting entities (e.g. central, sub-central and municipal government entities, Crown corporations, etc.) to ensuring that their procurement activities, above certain monetary values, are conducted in a non-discriminatory, impartial, transparent, and accountable manner.

This means that in CETA, Canadian suppliers have, for the first time, guaranteed access to opportunities to supply their goods and services to EU regional and local governments, as well as to a wide range of entities operating in the public utilities sector. The Government Procurement chapter also builds on Canada’s own GPA commitments, in particular with respect to providing EU suppliers with guaranteed and secure access to sub-central procurement opportunities (e.g. provincial/territorial government enterprises, municipalities, academic institutions, schools, hospitals, etc.).

The Agreement does not automatically apply to all government procurement in Canada and in the EU. Coverage is set out in the annexes of the Agreement, which list the entities that the Parties have agreed will be subject to the procedural rules and market access obligations of the Government Procurement chapter. The annexes are organized to separately identify the entities at the central government level and sub-central government level (i.e. provinces, territories and municipalities). The applicable contract-value thresholds (i.e. the contract value at which point the obligation is triggered) are found for each group in the corresponding annexes. Other annexes list the goods, services, and construction services to which the non-discrimination principle applies.

Under the Government Procurement chapter, Canada has also agreed to establish an electronic single point of access (SPA) for tender notices. The SPA, which will be similar in function to an electronic single point of access already maintained by the EU, will allow suppliers to quickly retrieve information about all government procurement opportunities in Canada covered under the Agreement. Given the technical complexity of developing such a system, Canada has five years from the entry into force of CETA to fully implement the SPA.

C2. Anticipated Economic Effects

Government procurement markets represent a significant proportion of national incomes. The Treasury Board of Canada Secretariat estimates the average annual value of contracts awarded by federal government departments and agencies is $17 billion, based on ten years of contracting data. This figure does not include some federal entities, such as Crown Corporations, for which data are unavailable.

The Organization for Economic Co-operation and Development (OECD) estimated Canada’s total government procurement market equal to 32.8% of total government expenditures in 2013^{Footnote 22}. This places Canadian procurement levels at between $129 billion - $163 billion in 2013. Additionally, according to the OECD, sub-central government procurement accounted for 87.4% and federal procurement accounted for the remaining 12.6% of total procurement spending in 2013.

C3. Potential Environmental Impacts

Overall, increased liberalization of government procurement is not expected to significantly impact the environment. Although increases in the transportation of goods may negatively impact the environment, these impacts may be offset by a slight positive impact associated with the procurement of efficient technologies that are procured by governments benefitting from increased competition and wider options. Furthermore, government procurement tends to follow strict guidelines and policies with respect to environmental stewardship, and these policies will remain in place with or without CETA.

C4. Mitigation / Enhancement

Environmental impacts as a result of increased government procurement under the Agreement are expected to be largely mitigated by the use of green procurement practices in both Canada and the EU. In dealing with government procurement, the federal government, as well as the provinces and territories, are committed to take into account the need to restore, maintain, and enhance the environment^{Footnote 23}. Canada will retain its ability to develop and implement green procurement policies, and Canada and the EU may benefit from further cooperation in areas such as sustainable procurement. In this respect, the low-carbon government goal of the 2016-2019 Federal Sustainable Development Strategy (FSDS) will help to ensure that federal government procurement meets environmental standards.

The federal government is a significant purchaser in Canada. As such, its activities impact the national economy and can influence both the price and the availability of goods and services, including construction services, in the marketplace. Through the increased promotion of environmental sustainability, and by integrating the application of environmental performance considerations in its procurement process, the federal government is in a position to influence the demand for environmentally preferable goods and services and the ability of industry to respond to the escalating use of environmental standards in global markets.

The federal government has established a Policy on Green Procurement^{Footnote 24}. As part of its ongoing commitment to improve the environment and the quality of life for Canadians, the government’s Policy on Green Procurement seeks to reduce the environmental impacts of government operations and promote environmental stewardship by integrating environmental considerations through the procurement process, from planning to final disposal.

The policy also supports the federal government in targeting specific environmental outcomes where procurement can effectively be used to mitigate the environmental impacts.

D. Investment

D1. Overview

As outlined in the Joint Study and the Initial Environmental Assessment, investment is a significant component of the economic relationship between Canada and the EU. The EU is Canada’s second largest source of foreign direct investment, while Canada is the EU’s fourth largest source of foreign direct investment. Both economies have large inflows and outflows of foreign direct investment.

The Canadian and EU economies are generally open to foreign direct investment. Investment occurs within a framework of rules established by the respective regulatory regimes of each Party as well as international commitments respecting the establishment of a commercial presence in Canada or the EU. Foreign affiliate sales are the most important component of the Canada-EU investment relationship. They now rival the volume of cross-border trade in goods and substantially exceed that of cross-border trade in services.

A number of factors can impede investment flows. These range from specific and formal regulatory restrictions that limit foreign participation in specific sectors through foreign equity caps and citizenship and residency requirements for directors, to burdensome regulatory regimes that make it difficult for foreign workers to obtain visas and work and residency permits. There exists sufficient potential to advance Canadian investment interests by removing or disciplining these impediments.

D2. Anticipated Economic Effects

Quantifying the economic impact of investment liberalization in the context of CETA raises two data issues:

• quantifying the scope of current barriers to foreign direct investment embodied in national economic regulatory frameworks; and
• determining the extent to which such barriers can be reduced through further liberalization.

Despite the difficulties in quantifying the economic impacts of increased EU investment in Canada, the Joint Study showed important benefits for both sides in pursuing a closer economic partnership. There is currently a large amount of EU investment in Canada and CETA will offer the potential to further facilitate such investments. However, while the existence of such investment provisions will be a positive factor in decisions on whether to invest in the territory of the other Party, it will be but one of many.

Investment in the Canadian market offers EU investors access to the NAFTA market of 448 million consumers, simple and straight-forward procedures, and an attractive business climate. Although statistics quantifying increased European investment as a result of CETA are currently unavailable, based on current European investment and its growth in Canada over the past decade, one can expect investment in key areas of European interest such as financial services, manufacturing, real estate, business services, and energy. Other provisions within CETA may also support increased investment from the EU in less direct ways, as improved temporary entry, services liberalization, and other areas may be attractive to investors.

D3. Potential Environmental Impacts

The likelihood and significance of the environmental impacts that could stem from the anticipated economic effects of the Agreement will depend on the degree of increase in investment, the sectors of the investment, and the measures in place to protect the environment.

Investment plays an important role in the establishment of global value chains which facilitate the modern global economy. As such, international commerce very frequently involves extensive intra-firm trade in goods and service within multinational corporations. This is combined with international sourcing of components and services and the international movement of business executives and technical experts as well as capital. The kinds of environmental impacts that could arise from this increasingly integrated global economy could include effects on air and water pollution, as well as land and biodiversity conservation.

However, increased investment between Canada and the EU may also facilitate positive impacts due to the exchange of greener and more efficient technologies and business practices.

D4. Significance of Potential Environmental Impacts

The EU accounts for 31.4%^{Footnote 25} of all foreign direct investment in Canada. Consequently, relatively small shifts in investment from Europe as a result of CETA could be significant in terms of the overall level of investment in Canada. While it would be difficult to separate the effects of an eventual agreement from those resulting from generally increased foreign interest in investment in Canada, CETA is not expected to substantially change the already largely open Canadian investment regime. Therefore, any environmental impact of increased investment directly attributable to CETA is estimated to be minor.

D5. Mitigation / Enhancement

CETA’s Investment chapter maintains Canada’s right to regulate in the public interest in sectors such as health, public education, social services, and culture, as well as its right to protect the Canadian environment. In the event that the Agreement results in increased EU investment in Canada, potential environmental impacts will be mitigated by existing laws and regulations which govern domestic and foreign investments alike.

During the legal review of CETA, Canada and the EU agreed to add more clarity to the Parties’ right to regulate in the public interest. A provision was added in the CETA Investment chapter that reaffirms a government’s right to regulate for legitimate policy objectives (e.g. for the protection of health or the environment). This provision, which mirrors text in the preamble of CETA, was included in the Investment chapter for greater assurance of its relevance to investment protection obligations. The Investment chapter also establishes an enforcement mechanism by which investment disputes can be resolved in a transparent, independent, and fair manner.

Although Canada’s already largely open investment regime means that increased investment directly attributable to CETA is expected to be minor, it is useful to discuss how environmental impacts resulting from potential increased investment could be mitigated, specifically in the most environmentally intensive sectors of mining and oil and gas.

The different provincial, territorial, and federal regulatory processes ensure that potential impacts on the environment of investments in mining and oil and gas projects are mitigated. As well, changes and improvements in procedures, equipment, and technology, as well as environmental legislation and industry awareness of environmental issues, lessen possible negative impacts. Some examples of changes in procedures and technology include:

• provinces and territories have an environmental assessment regulatory process for mining, oil and gas projects;
• at the federal level, the Canadian Environmental Assessment Act (CEAA)^{Footnote 26}, sets the conditions for which a project would require a federal EA;
• taking special precautions during the drilling of critical sour gas wells;
• using equipment such as vapour recovery to reduce environmental impact;
• using directional and horizontal well drilling that reduces the number of roads, power lines, and pipelines needed for a site;
• recycling the water used in the drilling and processing of oil sands and mineral processing;
• using low-impact seismic technologies in environmentally sensitive terrain to reduce GHG emissions from energy use during exploration;
• using best practices to reduce benzene emissions and the impact on the air quality in the toll refining services industry;
• providing services on oil and gas fields to reduce the quantity of odours, extract elemental sulphur (and thus reduce emissions of sulphur dioxide), while using the recovered vapour on a commercial basis;
• implementing ores sorting, segregation and advanced mineral processing practices to minimize the volume of mining waste requiring management;
• using a holistic approach to mineral resource development such as environmental ore deposit models;
• implementing prediction techniques to minimize acid generation from mining waste;
• promoting environmental effects monitoring as an assessment and decision-making tool to protect aquatic ecosystems;
• implementing energy saving measures into mineral resource development operations; and
• implementing green mining technologies and practices.

There are many other examples of responses to environmental concerns. The Canadian oil and gas industry is aware that it shares the land and water (in the case of offshore exploration) with many stakeholders (e.g. forestry, fishing, and recreational users) and therefore invests heavily in programs and technology that help to reduce its environmental footprint. Many national associations have signed memorandums of understanding with Natural Resources Canada regarding climate change. Moreover, government-led initiatives that seek to promote the sustainable development of resources, as well as laws that bind foreign investments to the same environmental regulations that govern domestic investors, will mitigate potential environmental impacts.

E. Conclusion of the Qualitative Analysis

In this analysis, the Government provided a qualitative overview of the negotiated chapters in CETA and their potential environmental impacts. This was followed by a more detailed analysis of four key issue areas where a greater likelihood of environmental impacts is anticipated: trade in goods, trade in services, government procurement, and investment. Within these areas, anticipated economic effects as a result of CETA were considered, and the potential environmental impacts and their significance were further explored. Policy frameworks, regulations, and other options for mitigation of potentially negative impacts and enhancement of positive impacts were discussed, and these were considered in anticipating overall environmental impacts of the Agreement.

In conclusion, the qualitative analysis of this Final Environmental Assessment indicates that the Canada-EU CETA is unlikely to lead to significant environmental impacts in Canada.

VII. Updated Quantitative Analysis of Environmental Impacts

Economic and Environmental Modelling

A. The overall economic impact

The quantitative economic assessment was carried out by the Office of the Chief Economist at Global Affairs Canada to assess the economic impact of CETA on the Canadian and EU economies. The results of the economic assessment are used as the basis to assess the environmental impact of the Agreement in Canada.

The economic impact assessment of CETA is based on simulations with a dynamic computable general equilibrium (CGE) model of global trade. This model follows the structure of the Global Trade Analysis Project (GTAP) model developed and supported by Purdue University, USA^{Footnote 27}.

To simulate the economic impact of CETA, this analysis compares the economic performance of all CETA members under a baseline scenario (prior to implementation of the Agreement) and a post-liberalization scenario (following implementation of the Agreement). The net effect of the Agreement can thus be quantified as the difference between the baseline and post-liberalization scenario expressed in terms of changes in GDP, exports, and imports. This approach ensures that all other macroeconomic forces impacting on the economy, such as macroeconomic fluctuations, employment changes, exchange rate shifts, and technological developments stay the same for both baseline and the post-liberalization scenarios, thus isolating the effects of the implementation of CETA.

The database used for the simulation is the GTAP database version 9. For the purpose of this study, the GTAP database has been aggregated into 35 economies and regions, which include: Canada, Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxemburg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, UK, China, Japan, Korea, Mexico, USA, and the Rest of the World. In other words, it models the effect of the Agreement between Canada and each individual EU member, rather than modelling the EU as a whole group. This approach minimises the aggregation bias, and is expected to give rise to more accurate estimates.

This analysis differs from the Joint Economic Study, which was completed in 2008 prior to the launch of the CETA negotiations. The 2008 study involved educated guesses on potential changes from the Agreement, whereas the current economic assessment is to assess the economic impact of CETA based on the final negotiation outcomes. To this end, several changes have been made to bring the model setup in line with the final negotiation outcomes:

1. 1) The Most-Favoured Nation (MFN) rates in the GTAP database have been updated to the 2015 level for both Canada and the EU, whereas the previous analysis used the tariff data in 2007 and assumed the successful conclusion of the WTO Doha Round Negotiations The MFN rates are then compared to the actual tariff concessions under CETA, which requires a careful interpretation. The tariff shock file used in the model is built upon from the Harmonized System (HS) at the 8-digit level^{Footnote 28}, weighted by the average of the three most recent years of trade data (2013-2015).
2. 2) Like many other contemporary free trade agreements (FTAs) that incorporate complex duties and product-specific schemes of duty elimination in the case of sensitive products, CETA also contains many specific schemes of duty elimination, mostly agricultural products.
   1. In the case of dairy products, the design of the implementation of the Agreement is still unknown. For instance, for the allocation of import quota between products for consumption purposes and products for production purposes, no HS lines have been assigned for the new market access. Thus, it is difficult to assess the full impact of the new market access quota. In the absence of the information of quota allocation, this analysis is only able to assess the potential gains of within-quota tariff eliminations. The results may thus underestimate the potential gains in the sector.
   2. In a case of wheat, Canada has effectively had duty-free access for high-quality and durum wheat, but Canada faces a tariff-rate quota (TRQ) for low- and medium-quality common wheat. However, the TRQ for low- and medium-quality common wheat is only transitional; there will be no longer any TRQ 7 years after the implementation of CETA. Therefore, no TRQ intervention is necessary to model the wheat sector.
   3. In many cases such as sweet corn and assembled vehicles, the projected Canadian export gains are well under the quota limits agreed under CETA. Under these circumstances, we rely on the economic model to gauge the sector gains, rather than using the quota limits.
3. 3) On services, since the main effect of CETA in services sectors is not to liberalize the already relatively open cross-border trade regimes, but rather to bind the existing level of openness, no liberalization shock is applied to cross-border services trade. Instead, the analysis focuses on the potential gains achieved by binding applied levels of services sector protection. Binding protection enables predictability of the trade policy regime and reduces uncertainty for business, which in turn positively affects trade and investment flows. The services binding shocks for this modelling exercise are prepared based on comparisons between commitments under WTO General Agreement on Trade in Services (GATS) and  commitments under CETA using the OECD’s Services Trade Restrictiveness Index (STRI). This difference measures the gap between the applied policies and the maximum trade restrictiveness allowed by the GATS (in reference to the difference between the bound and applied tariffs or the water).^{Footnote 29}

Finally, CETA is a 21st century comprehensive trade agreement, encompassing a broader range of trade policy issues than any of Canada’s previous trade agreements. It sets new international standards on issues such as government procurement, intellectual property rights, non-tariff barriers and the environment. Some, but not all, of these issues can be evaluated by the model. Thus, in addition to tariff reduction and tariff elimination, this analysis models the effects of liberalization in TRQ and services trade, and new market access under Canada’s supply-management regime. Due to the limitations of the model, the study does not include the analysis of the impact of liberalization and enhanced economic cooperation in other areas such as government procurement, intellectual property rights, regulatory coherence, labour and environment. As such, there could be some under- or over-estimation of the size of gains for Canada and EU members.

A1. Gross Domestic Product (GDP) impacts

The modelling analysis concludes that liberalization through CETA would boost Canada’s GDP gains by $8.6 billion (US$6.5 billion) or a 0.26 percent net increase from the baseline (in the absence of CETA) in 2040. The gains for the EU members would be $9.4 billion (US$7.1 billion).

Canada’s gains come essentially from two sources: expanded trade due to the elimination and reduction of both domestic and foreign protections for the covered products, and productivity enhancement arising from increased certainty and saving in trade costs in services.

A2. Trade impacts

As a result of the implementation of CETA, Canada’s exports to EU28 countries would increase by $6.1 billion (US$4.6 billion) or 5.4%, while imports of covered products from EU28 countries would increase by $11.0 billion (US$8.3 billion) or 9.5%. Canada’s imports are mostly increasing in the following sectors: business services, motor vehicles & parts and processed foods. Canada’s exports are expected to be increasing the most in the following sectors: chemical products, processed foods and transport equipment.

A3. Output Impact

The prospective shift in the trade pattern under CETA would give rise to a reallocation of resources across sectors in the economy according to each country’s comparative advantages and specialization. It is those changes in output at the sector level that will serve as the basis for CETA’s environmental impact assessment presented below. Overall, as a result of the implementation of CETA, the production of merchandise and services in Canada would increase by $12.9 billion (US$9.7 billion) or 0.33% (See Annex Table 1).

B. Overview of Quantitative Findings of Environmental Assessment

The quantitative environmental assessment was undertaken based on the estimated economic impacts from the CGE modelling. Specifically, the estimated output changes from the CGE-based economic analysis are linked to Statistics Canada’s Canadian System of Environmental and Resources Accounts^{Footnote 30} and Environment and Climate Change Canada’s National GHG Inventory^{Footnote 31} to track the environmental change in Canada resulting from increasing trade and economic activities under CETA.

The analysis examines the three environmental indicators: greenhouse gas (GHG) emission, energy use and water use. Each indicator is further decomposed into scale, composition and technical effects. The scale effect reflects environmental changes resulting from an expansion in economic activities holding the existing economic structure constant; the composition effect reflects environmental changes arising from changes in economic structure; and the technical effect represents on-going progress of environmental quality in Canada owing to the adoption of new environmental technologies and a better enforcement of environmental regulations, which are independent of the implementation of CETA.

According to the Office of the Chief Economist’s economic assessment, CETA would boost Canada’s GDP (net value added) by 0.26 percent or $8.6 billion from the projected baseline in 2040. This expansion of economic activities is expected to generate new demand for Canada’s natural capital, which would lead to impacts on the environment in Canada.

The environmental assessment of CETA concludes that the implementation of CETA would marginally increase Canada’s GHG emission, energy and water uses. Overall, GHG emissions would increase by 1,423 (kt) via the scale and composition effects. Compared to Canada’s annual greenhouse gas emissions of 768,238 kt of CO₂ equivalent in 2014, the increase in emissions represents 0.185 percent of total greenhouse gas emissions in Canada in that year. Further, during the implementation period of the Agreement, progress in adopting new environmental technologies and better enforcement of environmental regulations captured by the technical effect is expected to reduce the GHG emissions by 155 kt. As a result, the net increase in GHG emissions would only be 1,267 kilo tonnes, or 0.165 percent of current GHG emissions in Canada in 2014.

Total energy consumption is expected to increase by 23,086 terajoules (TJ) via the scale and composition effects, which represents 0.194 percent of Canada’s energy use of 11,888,438 TJ in 2014. Total energy usage under CETA would be further reduced by 804 TJ via the technical effect. Thus, the net increase in energy usage under CETA would be 22,282TJ, or 0.187 percent of total energy usage.

The water use estimation is based on selected sector information only (due to the limited availability of data). The estimation shows that water use is expected to increase by 104.1 million m³ via the scale and composition effects, which represent 0.275 percent of Canada’s total water use of 37,910.8 million m³ in 2013. The technical effect for water use is not available due to a lack of projected data for future years.

Overall, the analysis finds that the net impact of increased trade and production activities under CETA on Canada’s environment would be characterized by minor increases in GHG emissions, energy and water uses. Further, these increases are significantly smaller than the corresponding increase in production output, indicating a shift toward a more favourable Canadian industry composition in terms of emissions and energy and water uses under this agreement. There is little likelihood of any significant environmental impacts on Canada as a result of CETA.

C. Framework for the Quantitative Assessment

The assessment is carried out based on the estimated economic impact from the CGE model. The estimated output changes from the economic model are linked to the data from Statistics Canada’s Canadian System of Environment and Resources Accounts and Environment and Climate Change Canada’s National GHG Inventory to track the environmental changes in Canada resulting from expanding trade and economic cooperation under CETA.

C1.The Environmental Indicators^{Footnote 32}

The environmental indicators used for the analysis include GHG emission, fossil fuel energy use and water use. With respect to GHG emission, the analysis considers both the 2014 level and direct intensity of 3 main GHGs: carbon dioxide (CO₂), methane (CH₄) and nitrous oxide (N₂O). The measured level of emissions is in kilo tonnes of carbon dioxide equivalent (kt CO₂ eq.) and the intensity is measured in kilo tonnesof carbon dioxide equivalent per million dollars of production output (kt CO₂ eq./$1,000,000). The emission sources consist of 16 different fuel types: coal, natural gas, motor gasoline, diesel, aviation fuel, light fuel oil (including kerosene), heavy fuel oil, refinery fuel gas, coke oven gas, liquefied petroleum gases (including natural gas liquids), electricity, coke, steam, wood, and spent pulping liquor.

Concerning energy uses, the analysis is based on both the 2014 level and direct intensity of energy uses associated with the use and production of coal, natural gas, motor gasoline, diesel, aviation fuel, light fuel oil (including kerosene), heavy fuel oil, refinery fuel gas, coke oven gas, liquefied petroleum gases (including natural gas liquids), electricity, coke, steam, wood, and spent pulping liquor. Energy has been measured in terajoules (TJ), and the intensity is measured in terajoules per million dollars of production output (TJ/$1,000,000).

On water use, the base information is the volume of water use in 2013, and based on selected sector information only (due to the limited availability of data). The water use is measured in thousands of cubic metres. Water use intensity is measured in cubic metres per dollar of production output with the latest data available in 2013.

C2. Evaluation Methods

Three separate mechanisms are utilized to assess how change in trade policy could affect the level of emissions and the uses of energy and water in the economy: scale, composition and technical effects.

The scale effect measures the impact of an expansion of economic activity as a result of the Agreement on total emission as well as water and energy uses, assuming that the nature of that activity remains unchanged.

The composition effect captures the changes in emissions and depletion of resources resulting from shifts in the structure of the economy due to trade policy changes. When trade is liberalized, sectors with comparative advantages expand, while activities in the sectors with comparative disadvantages shrink. The net effect of structural change on the levels of emissions and water and energy uses depends on whether emission-intensive, water-intensive, and energy-intensive activities expand or contract. Thus, the composition effect on the environment in Canada resulting from trade policy changes is ambiguous and can only be assessed empirically.

Finally, the technical effect is measured because production output may not be produced by exactly the same methods subsequent to trade liberalization as it was prior to liberalization. In order to be fully assessed, the environmental impact of CETA needs to be examined not only on the basis of the environmental technologies and regulations in existence, but also on the basis of the technological evolution that will have occurred during the implementation of the Agreement. For example, emissions per unit of production output can decrease for the following reasons:

• higher energy prices induce an adoption of energy efficiency and conservation measures;
• new capital formation during CETA’s implementation period would result in a lower emission level than the existing capital stock as new capital is typically cleaner and more efficient than existing capital stock;
• increased trade will also facilitate the transfer of modern and clean technologies among trading partners, which will reduce the cost of such technologies and increase their availability. This would help to reduce harmful emissions and improve energy and water conservation; and
• the development of more stringent pollution standards and greater enforcement of existing anti-pollution laws and regulations may also lead to better environmental outcomes.

Overall, the net impact of CETA on the environment is determined by the three competing mechanisms with each having its own unique value: the scale effect (negative impact), the composition effect (ambiguous impact), and the technical effect (positive impact). The scale and technical effects tend to work in opposite directions, while the composition effect depends on whether emission-intensive sectors expand. The overall impact of trade will depend on the magnitude of each of these three effects.

C3. Limitations on Economic and Environmental Modelling

The modelling results should be considered in the context of both the advantages and limitations of the model. Several cautionary notes are provided concerning the interpretation of the reported environmental impacts.

Quantitative assessment of the environmental impact of CETA is undertaken based the estimated economic impact. Consequently, the environmental assessment conducted in this analysis inherits the same limitations of economic modelling.

First, while the economic modeling analysis is a useful estimation tool, all economic models, by definition, represent a simplification of reality and rely on numerous assumptions. Therefore, the results presented should be viewed as complementing the qualitative analysis of benefits from CETA that are presented elsewhere.

Second, the economic assessment presented in this current analysis is best understood as estimates of the potential economic impacts of CETA, not as forecasts of the actual results. It isolates the trade policy impact by netting out all other macroeconomic influences such as economic growth and exchange rate fluctuations.

Third, the economic model utilized in this analysis captures only the expansion of trade in products already traded in the bilateral relationship, and cannot predict the creation of trade in new product areas.

With respect to the environmental modelling, there are some cautionary notes concerning the interpretation of estimation results.

First, the analysis provides an assessment of an environmental impact resulting from increasing economic activities under the implementation of CETA, but it fails to capture direct emissions in Canadian households resulting from changes in the consumption pattern as the analysis models the changes in the production pattern only.

Second, this study separates economic modelling from environmental modelling. The shortfall of this approach is that it fails to take into account the change in emission intensity (emission per unit of output) that could result from the implementation of CETA. The pre- and post-CETA emission intensity may not be the same. The removal of barriers could affect firms’ choices of production inputs (domestic vs. foreign or less fuel efficient vs. more fuel-efficient), resulting in different emission intensity.

Third, the technical effect reported in this study represents the on-going progress of environmental quality in Canada independent of CETA. This technical effect is different from the feedback effect (sometimes also called “the technical effect” in environmental assessment literature) in the sense that the improvement in income as a result of CETA could translate into greater demand for environmental quality, leading to lower emission intensity. However, there is no compelling reason to believe that such a “technical effect” (or feedback effect) would be significant given the limited income gains under CETA relative to the size of the Canadian economy.

Fourth, the results of the environmental modelling reflect the impacts based on the three indicators used in the analysis, and does not capture the breadth of environmental issues that could occur as a result of CETA.

D. Results of the Environmental Assessment

This section reports the results of the environmental assessment based on the estimated output changes obtained from the economic modelling and the intensity coefficients for GHG emissions, energy uses, and water uses in Canada.

D1. Greenhouse Gas (GHG) Emissions

To determine the change of GHG emissions in Canada as a result of CETA implementation, the actual 2014 direct intensity of carbon dioxide (CO₂) equivalent is applied to the changes in Canadian output between pre- and post-CETA in 34 sectors. Annex Table 2 shows that the expansion of economic activities in Canada under CETA leads to a net increase in CO₂-equivalent emissions by 1,792 kt via the scale effect. Variations of GHG emissions at the sector level reflect the changes in economic activities under CETA and the degree of emission intensity for each sector. The sectors most affected via the scale effect are oil & gas, utilities, primary agriculture as well as paper product and publishing which together represent 66.3 percent of the total increase in emissions via a scale effect.

The composition effect is calculated by comparing the differences in GHG emissions between pre- and post-CETA holding the level of economic activity at pre-CETA level. The net composition effect of CETA is negative. By holding the level of general economic activities at the pre-CETA level, the transportation, publishing and utilities sectors are expected to have a minor increase in emissions; while the oil & gas sector is expected to have marginal decreases in emissions. This would reduce GHG emissions in Canada by 369 kt, and reduces the total GHG emissions from 1,792 kt based on the scale effect calculation to 1,423 kt.

Finally, it is important to consider the technical effect that represents ongoing progress in environmental quality in Canada resulting from an adoption of better environmental technologies, a better enforcement of environmental regulations, and increase in trade in environmentally-friendly products and technologies over the implementation period of CETA, which is independent of CETA. It is expected that the emission intensity measured by the amount of pollution generated per unit of output would decrease as a result of the technical effect. Failure to take into account the technical effect would overstate the environmental impact of CETA.

This study uses the projected GHG intensity provided by Environment and Climate Change Canada from 2015 to 2025 to determine how the technical effect could mitigate the potential negative impact of CETA on the environment in Canada.^{Footnote 33} The projected emission intensities in 2015-2025 are obtained from Environment and Climate Change Canada's Energy-Economy-Environment Model (E3MC).^{Footnote 34} By applying the projected emission intensity to the estimated output changes under CETA, GHG emissions would be reduced by 155 kt. The most significant improvements come from the sectors of utilities (-95 kt) and primary agriculture (-65 kt).

The total GHG emissions as a result of CETA could be decomposed as follows: a scale effect of 0.33 percent, a composition effect of -0.07 percent and a technical effect of -0.03 percent, resulting in a net increase in emissions of 0.23 percent (or 1,267 kt). Compared to Canada’s annual GHG emissions of 768,238 kt of CO₂ equivalent in 2014, the increase in emissions under CETA represents only 0.165 percent of total GHG emissions in Canada. Therefore, the potential negative impact arising from the implementation of CETA on Canada’s overall GHG emissions is expected to be small.

C2. Energy Use

In terms of energy use, the utilities sector has the highest terajoule (TJ) use per million dollars of production, followed by oil & gas and transportation services. The increase in economic activity resulting from CETA would increase Canada’s total energy uses as demonstrated in Annex Table 3.

The total energy uses in Canada as a result of the implementation of CETA would increase by 27,797 TJ via the scale effect. Oil and gas, electric production, transportation services and public services together represent 66 percent of the total increase in energy use via the scale effect.

As trade between Canada and EU members is liberalized under CETA, the Canadian production patterns shifts, which, in turn, would have an effect on the energy use in Canada (the composition effect). By holding the level of general economic activities at the pre-CETA level, the oil and gas sector is expected to reduce energy usage via the composition effect. The sectors that are expected to increase the energy use are chemical products and transportation services. Overall, the structural shift under CETA is favourable for energy conservation in Canada, resulting in a reduction in energy use by 4,710 TJ. This reduces the total energy use from 27,797 TJ to 23,086 TJ. The net increase in energy usage under CETA represents only 0.194 percent of Canada’s total energy usage of 11,888,438 TJ in 2014.

This analysis also uses the projected energy intensity coefficients provided by Environment and Climate Change Canada from 2015 and 2025^{Footnote 35} to determine the technical effect. The estimation shows that technological improvements in energy conservation would give rise to a decrease in energy usage of 804 TJ. Most energy savings come from utilities production (-356 TJ) and public services (-131 TJ), while oil & gas, and processed foods would be the sectors that are expected to increase energy use by 43 TJ.

Overall, energy use as a result of the implementation of CETA could be decomposed as follows: a scale effect of 0.33 percent, a composition effect of -0.06 percent and a technical effect of -0.019 percent. The total effect of CETA on Canadian energy use is relatively small, accounting for only 0.187 percent of total energy use (22,282 TJ).

C3. Water Uses

For water use, the key data sources come from Statistics Canada’s ‘Water use in Canada, by sector’ which provides measures of water uses required for per unit of economic output. Here, water uses refer to the water uses for agricultural, industrial and municipal purposes including irrigation in agriculture, rain in agriculture and forestry and hydroelectric power generation.

The increasing economic activity resulting from CETA would increase Canada’s total annual water uses by 104.1 million m³. This increase represents a 0.275 percent of Canada’s annual water uses of 37,910.8 million m³. The sectors found to be the most water-intensive were utilities and mineral products.

The total water uses for the Canadian economy would increase by 117.8 million m³ via the scale effect as a result of CETA. The sectors that are projected to have the most significant increases in water uses were utilities and paper production which together represent more than 82 percent of the total increase in water use via the scale effect.

Further, the shift in the economic structure in Canada as a result of CETA could result in lower levels of water uses. The decreased water use in utilities and paper production is resulting in a net decrease in water usage of 13,687 million m³.

The technical effect for water use could not be calculated due to the unavailability of projected intensity coefficient for water uses. The water use for the whole economy is thus characterized by a scale effect of 0.33 percent and a composition effect of -0.055 percent for a total overall increase of 0.275 percent (104.1 million m³).

D. Conclusion of the Quantitative Analysis

The analysis finds that the net impact of increased trade under CETA on Canada’s environment would be characterized by minor increases in GHG emissions, energy and water uses. Further, these increases are significantly smaller than the corresponding increase in production output, indicating a shift toward a more favourable Canadian industry composition in terms of emissions and energy and water uses under this Agreement. Overall, this quantitative assessment concludes that there is little likelihood of any significant environmental impacts on Canada as a result of CETA.

VIII. Environmental Provisions in CETA

Consistent with Canada’s usual approach towards free trade agreements, CETA includes environment provisions that reinforce the principle of mutual supportiveness of trade and environment objectives. Environmental provisions contained in CETA are extensive, and are generally more ambitious than those Canada had previously negotiated.

Key provisions relating to environment are found in the Trade and Environment chapter in CETA. These include commitments to foster high levels of environmental protection and good environmental governance in the context of trade liberalization. To this end, the chapter includes commitments for Canada and the EU to: pursue high levels of environmental protection; effectively enforce their environmental laws; not derogate from those laws to encourage trade or investment; ensure that domestic remedies are available to address violations of environmental laws; and promote public awareness and information on their respective environmental laws.

The Trade and Environment chapter also reaffirms Canada and the EU’s commitments to the Multilateral Environment Agreements (MEAs) that each have signed. Furthermore, it includes commitments to promote trade and investment in environmental goods and services as well as sustainable forestry and fisheries management. It also establishes a framework for cooperation between Canada and the EU on trade-related environmental issues of shared interest.

The Trade and Environment chapter includes a government-to-government dispute settlement mechanism allowing for consultations, followed by review and recommendations from an independent Panel of Experts as necessary. Separately, a public accountability mechanism allows for members of the public to also make submissions to either Canada or the EU related to the chapter.

The Trade and Environment chapter is complemented by commitments in other sections of CETA. Notably, the Trade and Sustainable Development chapter sets out commitments relating to sustainable development in its environmental, social, and economic aspects. Recognizing the benefit of considering trade-related environmental issues as part of an overall approach to sustainable development, it includes a number of cross-linkages to the Trade and Environment chapter, and establishes commitments for the Parties to promote trade in a way that contributes to the objectives of sustainable development. Within the Trade and Sustainable Development chapter, Canada and the EU agreed to review, monitor, and assess the impact of the implementation of CETA on sustainable development, and to establish a Committee on Trade and Sustainable Development. Canada and the EU also agreed to facilitate meetings of a joint Civil Society Forum, which will conduct a dialogue on issues related to trade and sustainable development in the context of CETA. A list of all Committees, Forums, and Dialogues created by CETA is available in Appendix C.

CETA also includes General Exceptions provisions that allow Parties to take certain measures, including environmental measures, necessary to protect human, animal and plant life or health that may be inconsistent with trade or investment obligations in CETA, so long as such measures are not discriminatory or a disguised restriction on trade.

IX. Conclusion

Undertaking Environmental Assessments is an effective way to address potential problems, protect the environment by improving overall policy coherence at the national level, and assist decision-makers in understanding the environmental implications of trade policy. This EA concludes that CETA is expected to have only minor environmental impacts in Canada. While the economic impact of the Agreement will likely be important, these will be modest relative to Canada’s overall economic activity. These conclusions are consistent with the findings of the Initial EA and are backed by a quantitative analysis which concluded that the net impact of increased bilateral trade with EU Member States on Canada’s environment would be characterized by only minor increases in GHG emissions, energy and water use.

Canada has a range of policies and programs in place to mitigate negative environmental impacts and enhance positive ones. CETA does not compromise the environmental protection measures that Canada has implemented, nor does it constrain Canada’s ability to put in place additional policies and programs in this area. Moreover, CETA does not exempt foreign service providers and foreign investors from Canadian laws and regulations.

Feedback on the Final Environmental Assessment of CETA can be submitted by email, mail, or fax to: 

E-mail: EAconsultationsEE@international.gc.ca
Mail: Canada-European Union Comprehensive Economic and Trade Agreement (CETA) Environmental Assessment
CETA Secretariat (TEU)
Foreign Affairs, Trade and Development Canada
John G. Diefenbaker building
111 Sussex Drive, Ottawa, ON, K1N 1J1

Comments received will be circulated to the EA Committee, the lead negotiator and the EA Secretariat to inform future EAs of trade negotiations and other related policy development and decision-making processes.

Appendix A: Acronyms

Appendix B: Economic and Environmental Analysis Tables