Climate
change regulations and responses are changing rapidly across Canada and North
America. To keep you up to date on this quickly-evolving situation, we have
compiled a brief overview of the most significant recent developments. This
update should be read in conjunction with Bennett Jones' Key
Federal & Provincial Actions to Address Greenhouse Gas
Emissions.
Ontario/Quebec MOU Re:Provincial and Territorial Greenhouse Gas Cap and Trade Initiative
On June 2, 2008, the Premiers of Ontario and Quebec
signed a Memorandum of Understanding (the “MOU”)
in which they agreed on behalf of their governments to
collaborate on a Provincial and Territorial Greenhouse
Gas Cap and Trade Initiative (the “Initiative”).
In the MOU, Ontario and Quebec reject intensity-based
greenhouse gas emission reduction schemes in favour
of hard caps in order to provide “sufficient certainty of
real reductions”. They would put in place a regional cap
and trade system through extensive co-operation with
other provinces, territories and US and Mexican states.
The signatories promise to work co-operatively with
other jurisdictions on the design and implementation
of a greenhouse gas cap and trade system, to facilitate
linkages with other trading regimes, to provide a
collaborative forum for intergovernmental initiatives and
to harmonize greenhouse gas reporting requirements to
avoid redundancy. Other provinces and territories are
explicitly invited to sign on to the MOU.
Although the MOU sets out key elements of the
Initiative only in general terms, the proposals look starkly
different from the climate change plan of Canada's
federal government released in April, 2007 and updated
in March, 2008 (the “Federal Climate Change Plan”).
The Initiative's promise of hard caps on emission volumes
and reference to the base year of 1990 (the year used as
a base for emissions reductions targets under the Kyoto
Protocol) contrast with the Federal Climate Change
Plan's intensity-based reductions without near or
middle term hard caps and use of a 2006 base year for
target setting.
As indicated above, the Initiative places great emphasis
on inter-jurisdictional co-operation and collaboration
between provinces, states and territories and in that
respect also differs from the Federal Climate Change
Plan. Indeed several of the commitments in the MOU
relate to intergovernmental ties, work and harmonization.
While the Federal Climate Change Plan states that
the federal government “still intends to work to reach
equivalency agreements with any interested provinces
that set enforceable emission standards that are at least
as stringent as the federal standards,” and contemplates
links to emissions trading systems in the U.S. and
Mexico, it is not clear that equivalency agreements are
achievable and there is little evidence of progress to date
on U.S. or Mexican links. An equivalency agreement is
contemplated in the Canadian Environmental Protection
Act, 1999 (“CEPA”) as the pre-requisite to an order
which makes otherwise relevant federal regulations not
applicable in a province with equivalent provisions in its
laws. The proposed Initiative, if translated into provincial
law, could be ‘equivalent' to the Federal Climate Change
Plan regulations as the provincial requirements likely will
exceed the federal targets (although this is not certain).
However, the fundamental differences between hard caps
and intensity-based systems as well as the vehemency
with which the competing views are held and expressed
indicate that it will be a political challenge to reach
federal/provincial equivalency agreements of the type
contemplated in CEPA.
British Columbia Statutes
British Columbia has been active in creating a suite
of legislation to enable it to meet its greenhouse gas
reduction targets and meet commitments such as those
arising from its membership in the Western Climate
Initiative (discussed further below).
Greenhouse Gas Reduction (Cap and Trade) Act
The province is already preparing for a regional cap and
trade system by enacting the Greenhouse Gas Reduction
(Cap and Trade) Act (the “Cap and Trade Act”), which
received Royal Assent on May 29, 2008 but is not yet
in force. This legislation provides the framework for a
provincial cap and trade regime, the details of which are
to be fleshed out in regulations, and authorizes the use
of units from other systems considered acceptable to the
BC government, thus opening the way for participation
in the WCI or even the use of Kyoto Protocol-compliant
units.
Greenhouse Gas Reduction (Renewable and Low Carbon Fuel Requirements) Act
The Greenhouse Gas Reduction (Renewable and Low Carbon
Fuel Requirements) Act (the “RLCFR Act”) will enable
British Columbia to meet its commitment to adopt a
low carbon fuel standard similar to California's by (i)
requiring suppliers of gasoline and diesel fuels to ensure
that the fuel they supply contains a prescribed percentage
of renewable fuel in a given compliance period; and (ii)
requiring specified transportation fuel suppliers to meet a
prescribed carbon intensity standard in a given compliance
period (i.e. the greenhouse gas emissions attributable to
the fuel proportionate to the energy provided by the fuel
must be below a certain threshold).
The prescribed percentage of renewable fuel is not
stated in the RLCFR Act; rather it will be specified by
regulation, and is likely to be 5% pursuant to the province's
commitment in the BC Energy Plan to establish a 5%
average renewable fuel standard for diesel and gasoline
by 2010.
The RLCFR Act also provides flexibility for regulated
fuel suppliers to meet their obligations by allowing
“notional transfers” of renewable fuels and of attributable
greenhouse gas emissions, similar to the concept of
transferring carbon credits for compliance purposes.
The RLCFR Act received Royal Assent on May 1, 2008
but is not yet in force.
Greenhouse Gas Reduction (Emissions Standards) Statutes Amendment Act, 2008
This Act received Royal Assent on May 29, 2008, and
most sections are not yet in force. It amends existing
legislation to address certain commitments contained
in the Premier's 2008 throne speech and the BC
Energy Plan.
The Act includes amendments to the Environmental
Management Act:
- Requiring owners/operators of waste management
facilities (including landfills, composting
facilities and sewage treatment plants) to manage
specified greenhouse gases produced from
wastes handled at the facility, and providing
for regulations requiring the reduction of such
specified greenhouse gases or using them as an
energy source;
- Requiring the capture and sequestration of
greenhouse gases from coal-fired electricity generation
by prohibiting operators of coal-based
generating facilities from allowing emissions of
prescribed greenhouse gases from coal-based
generation to be “introduced into the environment”.
This prohibition will not apply to emissions
that are captured and sequestered; and
- Requiring new electricity generating
facilities and expansions to existing facilities to
have zero net emissions. For any emissions that
are not captured and sequestered, operators will
be required to apply offsets to net their emissions
to zero. These obligations will apply to existing
facilities as of 2016.
The Act also amends the Forest Act and Forest and Range
Practices Act. Among other things, these amendments
introduce provisions to: encourage the use of wood
residue as a potential energy source; allow for the creation
of a new form of the “license to cut” tenure to provide
access to unwanted roadside or landing timber; encourage
beetle-attacked timber to be harvested; and enable the
government to enter into forest licenses with those who
enter into binergy supply contracts with BC Hydro as
a result of a call for power.
Most details of the above legislative requirements
remain to be enacted as regulation. Of the amendments
mentioned here, only the provisions in respect of licenses
for successful applicants for binergy supply contracts
with BC Hydro are currently in force.
Greenhouse Gas Reduction (Vehicle Emissions Standards) Act
This Act will require manufacturers to ensure that the
average greenhouse gas emissions of their “vehicle fleets”
do not exceed a prescribed fleet emissions standard to be
set out in regulations. It will also allow the government
to make regulations to require larger manufacturers to
include a prescribed amount of zero emission vehicles
(“ZEV's”) in their fleets. The Act provides flexibility
by allowing manufacturers to use credits to meet fleet
greenhouse gas requirements or to achieve equivalence
with ZEV requirements. It received Royal Assent on
May 29 and is not yet in force.
Carbon Tax Act
This Act received Royal Assent on May 29, and the
majority of the Act comes into force on July 1, 2008. It
imposes the most comprehensive carbon tax in North
America to date, and will start being phased in as of July
1, 2008. The tax will apply to consumption in British
Columbia of virtually all fossil fuels, including gasoline,
diesel, natural gas, coal, propane, and home heating fuel.
The tax will start at a rate based on $10 per tonne of
associated emissions of CO2 equivalent and increase by
$5 each year to $30 per tonne by 2012.
The Carbon Tax Act allows regulations to be made in
order to avoid “double taxation” of entities that are
also subject to other legislative requirements relating
to greenhouse gas emissions. Regulations can be made
to allow exemptions or refunds in respect of emissions
from fuels or combustibles that are subject to caps under
the Cap and Trade Act and the new obligations in the
Environmental Management Act discussed above that
pertain to electricity generating facilities. Regulations can
also be made to provide for exemptions or refunds with
respect to fuels or combustibles that are used to capture
and sequester greenhouse gases.
Western Climate Initiative and Ontario
The Western Climate Initiative (“WCI”), a group of
seven U.S. states and now three Canadian provinces
(B.C., Manitoba, and Quebec as of April 18, 2008,
with Ontario as an observer) have agreed to a common
emissions reduction target and are committed to the
establishment of a regional cap and trade system. In
May, the WCI released draft design recommendations
on key elements of a regional cap and trade program that
would encompass its member jurisdictions. The WCI is
expected to complete the design of its program by the
end of August 2008. Ontario recently indicated that it is
actively exploring the possibility of joining the WCI and
has encountered only one major obstacle, that being the
California vehicle tailpipe emissions standards.
The Lieberman-Warner Climate Security Act
The U.S. Senate recently debated the Lieberman-Warner
Climate Security Act of 2008, which is the most prominent
of the proposed U.S. Senate legislative initiatives to
establish a nation-wide cap and trade regime in the
United States. The Lieberman-Warner bill would have
imposed caps on emissions in effect as of 2012, with
the aim of reducing emissions from covered facilities by
about 2% per year from 2005 emission levels. While the
bill did not come to a vote, strong support for the bill was
clear and momentum is building towards a federal cap
and trade system to be enacted in the term of the next
U.S. President.
Montreal Climate Exchange Begins Trading in CO2e Futures
The launch on the Montreal Climate Exchange on May
30, 2008 of trading of a carbon-based security was an
important event. The securities being traded are futures
contacts for the delivery of carbon credits in 2011 or
2012. The credits are to be usable in the system to be
created by Canada as suggested in the Federal Climate
Change Plan.
Bennett Jones