Canada: Taking Stock: A Recap Of 2017 Climate Change Policy Initiatives And What To Expect In 2018

As the Paris Agreement entered into force in November 2016, it marked the start of a renaissance period for climate change policy, one that represents a global paradigm shift towards a lower-carbon economy. Despite the US announcement in June 2017 that it would withdraw from the Paris Agreement, international efforts to reduce GHG emissions continue full steam ahead. COP 23 was held in Bonn, Germany in November 2017, where international climate negotiations focused on implementation of the Paris Agreement. At the end of COP 23, member parties had adopted 31 decisions dealing with a range of issues from pre-2020 implementation activities and adaptation funding, to gender action and capacity building in developing countries.

In the absence of US federal leadership on climate change, local communities in the US have stepped in to fill the void with "We Are Still In", a coalition of 2,500 local government and business leaders representing more than 127 million Americans and $6.2 trillion of the US economy. At the global level, China has asserted itself as a leader on climate change policy and has committed to fully honouring its obligations under the Paris Agreement.

In Canada, federal and provincial efforts are well underway to implement climate change policy initiatives under the Pan-Canadian Framework on Clean Growth and Climate Change, which was released in December 2016. Canada has expressed its support for more ambitious climate action by endorsing the global goal of keeping rising average temperatures to within 1.5°C above pre-industrial levels; how this ambition will translate into federal, provincial and municipal climate action remains continues to evolve. By the end of 2018, stakeholders can expect the federal carbon pricing backstop to come into force, as well as the implementation of a range of climate change policy initiatives at all levels of government.

The author's Climate Change Essentials Guide has been updated (as of January 2018) to reflect recent developments in climate change policy both in Canada and abroad, including updates on carbon pricing mechanisms and federal/provincial climate change regulatory frameworks.

Set out below is a recap of key climate change policy developments in 2017 and what stakeholders can expect in 2018. Recent developments in Canada include:

  • Federal Government sets deadline of September 1, 2018 for Provinces to submit carbon pricing plans and releases draft carbon pricing backstop legislation: In October 2016, the federal government announced that it would establish a minimum price on carbon starting at $10 per tonne of carbon dioxide equivalent (CO2e) in 2018, increasing by $10 per year until it reaches $50 per tonne of CO2e by 2022. This approach will be reviewed in 2022 to confirm the path forward, including continued increases in stringency. Under the federal plan, each province and territory will be required to implement carbon pricing in its jurisdiction in 2018, whether in the form of a carbon tax or a cap-and-trade system. If the carbon price in a jurisdiction does not meet the federal minimum price, the federal government will step in and impose a carbon price that makes up the difference and return the revenue to the province or territory. In addition, provincial and territorial goals for reducing emissions must be at least as stringent as federal targets. Canada has pledged to reduce its GHG emissions by 30% from 2005 levels (approximately 523 megatonnes (Mt)) by 2030. Currently, Canada's four biggest provinces representing more than 80% of Canada's population (Ontario, Québec, Alberta and British Columbia) have carbon pricing in place that meet the federal benchmark. In May 2017, Environment and Climate Change Canada (ECCC) released its Technical Paper on the Federal Carbon Pricing Backstop, which was followed by the Guidance on the Pan-Canadian Carbon Pollution Pricing Benchmark in August 2017. In December 2017, Supplemental Benchmark Guidance was issued and federal Environment Minister Catherine McKenna and Finance Minister Bill Morneau announced a deadline of September 1, 2018 for each province to outline how it is implementing a carbon pricing system that meets the federal standard (the federal government has requested that provinces and territories that choose the federal backstop, in whole or in part, confirm this by March 30, 2018). The federal government will then determine whether the planned systems are on track to meet the standard, or whether the federal approach should be applied in that jurisdiction. On January 15, 2018, ECCC released draft legislative proposals for public comment relating to the proposed Greenhouse Gas Pollution Pricing Act and the proposed regulatory framework for the output-based pricing system (which is designed to minimize competitiveness risks for emissions-intensive, trade-exposed industrial facilities). The comment periods for the federal carbon pricing backstop legislation and the regulatory framework end on February 12, 2018 and April 9, 2018, respectively.
  • Federal Government lowers GHG reporting threshold to 10,000 tonnes: In December 2017, ECCC published its updated requirements and step-by-step reporting instructions in advance of the 2017 reporting period under the federal Greenhouse Gas Reporting Program (GHGRP):

    In addition, (i) all facilities engaged in carbon capture, transport and geological storage (CCTS), regardless of their annual GHG emissions, will be required to submit a report covering CCTS activities for 2017 and relevant years for the period 2014 to 2016; and (ii) expanded data and methodological requirements will apply to facilities engaged in CCTS and to manufacturers of lime, cement, iron and steel, and aluminium.

  • Environment and Climate Change Canada releases Clean Fuel Standard regulatory framework: In November 2016, the federal government announced that it would commence development of a performance-based clean fuel standard (CFS) that would incent the use of a broad range of low carbon fuels, energy sources and technologies. The objective of the CFS is to achieve 30 Mt of annual reductions in GHG emissions by 2030, as part of efforts to achieve Canada's commitments under the Paris Agreement. On December 13, 2017, ECCC published a regulatory framework on the CFS, which outlines the key design elements for the CFS regulation, including its scope, regulated parties, carbon intensity approach, timing, and potential compliance options such as credit trading. Draft CFS regulations are expected to be published in late 2018.
  • Alberta transitions to Carbon Competitiveness System in January 2018: The Carbon Competitiveness Incentive Regulation (CCI Regulation) replaced the Specified Gas Emitters Regulation on Jan 1, 2018. Under the CCI Regulation, large emitters in Alberta are allowed to emit a certain amount of GHG, free of charge from the carbon levy. This approach is designed to protect industries from competitiveness impacts that could shift production to other jurisdictions. The CCI Regulation applies to facilities that emitted 100,000 tonnes or more of GHG in 2003, or a subsequent year. A facility with less than 100,000 tonnes of GHG may be eligible to opt-in to the CCI Regulation if it competes against a facility regulated under the CCI or has more than 50,000 tonnes of annual emissions, high emissions-intensity and trade-exposure (by opting in, facilities become exempt from the application of the carbon levy for fuels whose emissions are included in their site reporting). Under the updated system, a facility will receive performance credits if their greenhouse gas emissions are less than the amount freely permitted. If their emissions are above the amount freely permitted, they will be required take one or more of the following actions to bring the facility into compliance:

    • make improvements at their facility to reduce emissions intensity;
    • use emission performance credits generated at facilities that achieve more than the required reductions;
    • purchase Alberta-based carbon offset credits; or
    • contribute to Alberta's Climate Change and Emissions Management Fund.
  • Ontario finalizes Carbon Offset Regulation and looks to develop a Voluntary Carbon Offset Program: In December 2017, the Ontario government finalized a regulation (O. Reg. 539/17) to allow for the creation of offset credits for use in the cap-and-trade program. In particular, the regulation allows the provincial government to issue offset credits to individuals, companies and organizations for initiatives that reduce, avoid or remove GHG that follow an approved protocol (the first protocol is for landfill gas). Mandatory participants in the cap-and-trade program can use offset credits to help meet up to 8% of their compliance obligations. Ontario is also developing a voluntary carbon offsets program that will establish a clear set of requirements for parties that want to create carbon offsets from eligible emission reduction projects, which offsets can be traded on the voluntary market. The proposed voluntary carbon offsets program is separate and distinct from the proposed compliance offsets program and capped emitters will not be able to use voluntary carbon offset credits to meet their compliance obligations under the cap-and-trade program. In November 2017, the Ontario government posted a discussion paper on key elements of a proposed voluntary carbon offsets program to the Environmental Registry for a 46-day consultation period, which ended on January 15, 2018.
  • Saskatchewan releases Made-in-Saskatchewan Climate Change Strategy: In December 2017, the Saskatchewan government released its comprehensive climate change strategy, Prairie Resilience: A Made-in-Saskatchewan Climate Change Strategy (the Strategy). The Strategy focuses on the principles of readiness and climate resilience, curbing GHG emissions, and preparing for changing conditions such as extreme weather, drought or wildfire. Saskatchewan has decided not to sign on to the Pan-Canadian Framework on Clean Growth and Climate Change or to adopt a carbon pricing mechanism, meaning that it will be out of compliance with federal requirements once the federal carbon pricing backstop kicks in. The Strategy proposes actions in key areas, including (i) natural systems; (ii) physical infrastructure; (iii) economic sustainability; (iv) community preparedness; and (v) measuring, monitoring and reporting. Highlights of proposed initiatives include:

    • implementing a carbon offset system that recognizes emission reductions from sequestration activities, especially from soils and forests;
    • meeting the province's commitment of up to 50% electricity capacity from renewables through increasing renewable energy sources (including wind and solar) and research into energy storage services;
    • adopting the 2015 National Building Code (effective January 1, 2018);
    • implementing sector-specific output-based performance standards on facilities emitting more than 25,000 tonnes of CO2e per year, which can be met through a range of compliance options (i.e. reducing emissions intensity, purchasing emission offsets, using best performance credits, engaging in internationally transferred mitigation outcomes as provided for in the Paris Agreement, or paying into a provincial technology fund);
    • develop regulations to reduce GHG emissions from oil and gas wells and facilities using a results-based system; and
    • develop annual reporting regulations for industry to apply to (i) all emitters of more than 25,000 tonnes of CO2e annually, and (ii) a voluntary opt-in for emitters for over 10,000 tonnes of CO2e annually.
  • Manitoba releases Made-in-Manitoba Climate and Green Plan: In October 2017, Manitoba released its Made-in-Manitoba Climate and Green Plan (the Plan), which proposes a fixed carbon price of $25 per tonne of CO2e. Under the Plan, an output-based pricing approach has been proposed for large emitters in order to minimize competitiveness and carbon leakage risks to industries that are emissions-intensive and trade-exposed. This system, to be introduced in 2019, would apply carbon pricing to that portion of a facility's emissions that exceed a designated emissions-intensity performance standard for that type of facility. A facility that emits less than what is allowed under the performance standard would receive a credit (which can be banked or traded) for each tonne of surplus CO2e between the standard and the facility's actual emissions.
  • Ontario, Québec and California sign agreement to link cap-and-trade programs: On September 22, 2017, Ontario, Québec and California sign an agreement to link their carbon markets. On January 1, 2018, Ontario formally entered the Québec-California carbon market, allowing all three governments to hold joint auctions of GHG emission allowances and to harmonize regulations and reporting.
  • BC's Carbon Tax no longer revenue neutral; Carbon Tax set to increase on April 1, 2018: BC's New Democratic Party (NDP) was sworn into government in July 2017. In its Budget 2017 Update (2017/18 – 2019/20), which was released in September 2017, certain changes to the BC carbon tax were announced: (i) as of April 1, 2018, the carbon tax will increase by $5 per tonne of CO2e per year until it reaches the federal target carbon price of $50 on April 1, 2021 (one year before Ottawa's 2022 deadline). BC's carbon tax is currently set at $30 per tonne of CO2e; (ii) Part 2 of the Carbon Tax Act has been repealed, meaning that the Carbon Tax Act will no longer require that revenue measures be introduced to offset carbon tax revenues (this will allow the government to spend carbon tax revenues on emission reduction measures or other green initiatives, rather than returning carbon tax revenues to taxpayers).
  • Federal Government proposes new regulations for methane from oil and gas sector: On May 27, 2017, the federal government published the proposed Regulations Respecting Reduction in the Release of Methane and Certain Volatile Organic Compounds (Upstream Oil and Gas Sector) (the Proposed Regulations) in the Canada Gazette Part I. The Proposed Regulations are designed to meet the federal government's domestic (under the Pan-Canadian Framework on Clean Growth and Climate Change) and international commitments (under the Paris Agreement) to reduce methane emissions by 40–45% by 2025. In particular, the Proposed Regulations seek to introduce control measures (i.e. facility and equipment level standards) to reduce fugitive and venting emissions of hydrocarbons, including methane, from the oil and gas sector. Depending on the standard adopted, the Proposed Regulations would come into force on January 1, 2020 or January 1, 2023. Both Alberta and BC have also made matching commitments under their climate change strategies to reduce methane emissions in the oil and gas sector by 45% by 2025. Recent global developments include:
  • China announces National Emissions Trading Scheme: In December 2017, China approved the first phase of its emissions trading system (ETS), which will focus on the power sector. Trading will be based in Shanghai and involve 1,700 power companies, covering over 3 billion tonnes of carbon dioxide released annually, making it the world's largest program (by comparison, the European Union's ETS covers approximately 2 billion tonnes of carbon dioxide). Nine regions and cities (including Jiangsu, Fujian and seven regions where pilot schemes have taken place) will coordinate to establish the ETS. Other sectors including iron and steel, chemicals and paper-making will eventually be included in the Chinese ETS. While a timeline for the program has not yet been released, it is anticipated that the program will take at least a year to be implemented.
  • California Fine Tunes and Extends its Cap-and-Trade Program to 2030: On July 17, 2017, the California legislature passed legislation to extend the state's cap-and-trade program to 2030 (the program was originally set to expire in 2020). Bill AB 398 received broad bi-partisan support and was passed with a two-thirds majority vote, which is the threshold required to pass tax laws in California. With a super-majority vote, California's cap-and-trade program will be harder to challenge in court, thus providing policy certainty to market participants and partner jurisdictions including Québec and Ontario. AB 398 was accompanied by two bills: (1) AB 617, which seeks to address local air quality concerns by requiring increased monitoring, mandating upgrades of outdated equipment and technology, and imposing stricter penalties for noncompliance with regulations; and (2) ACA 1, which establishes the Greenhouse Gas Reduction Fund, into which all revenue from the auction or sale of allowances will be deposited (a 2/3 vote of each house will be required to appropriate the funds).
  • US Administration announces intent to withdraw from Paris Agreement: On June 1, 2017, US President Donald Trump announced his intent to withdraw the United States from the Paris Agreement. Article 28 of the Paris Agreement permits a party to withdraw by giving written notification to the Secretary-General of the United Nations, which notification may only be provided "after three years from the date on which [the Paris Agreement] entered into force for a Party." Withdrawal then takes effect upon expiry of one year from the date of receipt. The Paris Agreement entered into force for the US on November 4, 2016, meaning that the earliest the US can give written notice is three years later on November 4, 2019 and the earliest the US can leave the Paris Agreement is November 4, 2020. Until such time as the withdrawal process is complete, the US will remain a party to the Paris Agreement and is obliged under international law not to frustrate or obstruct the implementation of the accord.

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