Doing Business in Canada: Climate Change

by Bennett Jones LLP
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The evolving patchwork of Canadian federal and provincial climate laws and programs has created material risks and opportunities for businesses operating in Canada. Understanding climate change policy and legislation is necessary for those considering carrying on business in Canada.

Canada’s greenhouse gas (ghg) emissions per capita are high relative to most European countries, Japan and most developing countries. However, Canada’s ghg emissions per capita are similar to those of the United States and Australia. Canada’s total reported ghg emissions were 589 megatonnes (measured in carbon dioxide equivalents or CO2e) for 1990, 740 megatonnes CO2e for 2005 and 692 megatonnes CO2e for 2010.

In December 2011, Canada gave notice of its intention to leave the Kyoto Protocol effective December 2012. However, Canada remains a party to the United Nations Framework Convention on Climate Change and has made a commitment under the 2010 Cancun Agreements to reduce its ghg emissions by 2020 to 17 percent below 2005 levels in alignment with the United States.

Domestic GHG Emissions Reporting

The federal government and Alberta require facilities emitting over 50,000 tonnes/yr of ghgs to report their emissions annually. Some provinces (e.g., British Columbia, Ontario and Québec) have lower facility reporting thresholds.

Federal Approach

The current federal government takes a sector-by-sector approach, aligned with the United States where appropriate. This has resulted in a performance standard in the transportation sector for light duty vehicle emissions, which is closely aligned with the U.S. standard, and a proposed emissions standard, again U.S.-aligned, for heavy-duty vehicles. As well, a proposed standard for coal-fired electricity generators has been published although U.S. alignment is uncertain. Upstream oil and gas, oil sands upgraders and refineries appear likely to be the next regulated Canadian sectors. A voluntary plan with a fuel efficiency target for Canada’s aviation sector is now in place.

The federal government has also made significant grants available for carbon capture and storage and clean energy projects.

Provincial Initiatives

Alberta

In 2003, Alberta enacted the Climate Change and Emissions Management Act (CCEMA) targeting a 50-percent reduction in ghg emissions intensity (emissions per dollar of gross provincial product) from 2000 by 2050. In 2007, the Specified Gas Emitters Regulation (SGER) was implemented under the CCEMA. SGER requires facilities which emitted greater than 100,000 tonnes CO2e/yr in 2000 to reduce their ghg emissions intensity by 12 percent from their 2003 to 2005 baseline. Facilities which were started up after 2000 have their obligation phased-in at two percent per annum after the first three years of operations until the 12-percent intensity reduction target is reached.

SGER uses a market mechanism approach, authorizing emissions trading in both environmental performance credits (generated when a regulated facility reduces beyond its SGER target) and offset credits (reductions produced in accordance with government-approved protocols outside of regulated facilities). As well, the SGER authorizes the use of fund credits obtained by paying $15/tonne to a government fund which is invested to produce ghg emissions reductions.

Alberta has also made up to $2 billion available to support carbon capture and storage projects.

Western Climate Initiative

California led a group of seven U.S. western states in forming the Western Climate Initiative (WCI) – a regional initiative to reduce ghg emissions in those states by 15 percent below 2005 levels by 2020. The provinces of British Columbia, Manitoba, Ontario and Québec all joined the WCI. When six U.S. states left the WCI in 2011, the WCI effectively became a California/Canadian provinces organization. The WCI includes the use of market mechanisms like emissions trading as well as a low carbon fuel standard.

Québec

While not a western province, Québec is a member of the WCI and has continued to pursue the WCI program. The province is putting in place the regulation needed to create (as of January 1, 2013) a cap-and-trade system capable of independent operation and/or of linking with California. The regulation will require industrial facilities with ghg emissions exceeding 25,000 tonnes CO2e per year to acquire and tender to the government ghg allowances and/or offsets equal to its ghg emissions.

Allowances will be auctioned (perhaps in tandem with California) although many will be issued gratis to certain industries. The aggregate allowances will be capped to produce an overall provincial emissions reduction. Up to eight percent of a facility’s emissions can be covered by offsets. In 2015, the obligations to tender allowances and offsets will extend to fossil fuel distributors for the CO2 emissions from combustion of the distributed fuel.

Québec also has a modest carbon tax on gasoline, diesel and natural gas.

British Columbia

Prior to joining the WCI, British Columbia set an ambitious target of reducing ghg emissions by 33 percent below 2007 levels by 2020. To accomplish this target, the province introduced:

  • a revenue-neutral carbon tax on combustion of fossil fuels;
  • a low carbon fuel standard regulation;
  • a requirement for the broad government sector to be carbon neutral commencing in 2011; and
  • the potential for a cap-and-trade system.

British Columbia’s carbon tax is $30/tonne from and after July 1, 2012. The “carbon neutral government” requirement resulted in the creation of the Pacific Carbon Trust, a government-owned entity that acquires approved offsets in British Columbia and sells them at $25/tonne to regulated government departments and entities. There are no current plans to implement a cap-and-trade system, with reliance placed on the other measures.

Ontario and Manitoba

Ontario has cap-and-trade authorizing legislation but has not moved to implement such an emissions reductions scheme. Instead, the province is relying on prohibition of the use of coal in the generation of electricity after 2014 and the development of renewable energy under the Green Energy Act feed-in-tariff program.

Manitoba has moved very slowly on the WCI agenda.

Saskatchewan

Saskatchewan passed the Management and Reduction of Greenhouse Gases Act (MRGGA) in 2010 but the legislation is not yet in force. The MRGGA establishes the authority and framework for provincial emissions reduction goals and investments in low-carbon technologies. The provincial target is to reduce emissions by 20 percent from 2006 levels by 2020.

Maritime Provinces

Nova Scotia has a climate change action plan and a provincial target to reduce GHG emissions by 10 percent below 1990 levels by 2020. It has also introduced a renewable electricity plan which mandates that 25 percent of electricity come from renewable sources by 2015. Given this plan, the federal government has agreed that its coal-fired electricity regulation may not need to be in force in Nova Scotia.

The other Maritime provinces - New Brunswick, Prince Edward Island, Newfoundland & Labrador - have emissions reduction plans but little relevant legislation.

Conclusion

The Canadian federal government’s sector-by-sector approach to achieving ghg emissions reductions, with its limited application to date, has resulted in provincial initiatives to fill the vacuum. While many of the provincial actions incorporate market mechanism approaches, not all do and those that do, employ a wide variety of structures. This creates a significant challenge for business and the need to keep well informed about developments at all levels.

Bennett Jones’ Climate Change Group

The Bennett Jones Climate Change Group has international experience in climate change transactions that is unparalleled in North America, and a detailed knowledge of Canadian climate change issues and policies. Consequently, our climate change lawyers are positioned at the forefront of Canadian climate change developments. We regularly advise our clients on the appropriate policies and activities to deal with the Canadian patchwork of existing and planned regulation as well as on facilitating the financing, contractual structures and projects that enable them to reduce risks from climate change regulation and take advantage of the opportunities such regulation creates.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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