Canada: Torys on Climate Change - September 2010

Recent Developments

North America

California and the Western Climate Initiative takes the spotlight

Regional cap-and-trade initiatives have returned to the spotlight after U.S. Senate leaders indefinitely postponed efforts to pass a comprehensive federal climate change bill. Some recent Senate proposals, such as the bill proposed by John Kerry and Joe Lieberman, would have pre-empted all regional cap-and-trade programs in the United States. Yet in the absence of federal legislation, state and provincial policymakers continue their work to implement regional programs.

Increasingly, however, these policymakers are looking to the November 2 California elections for guidance. These elections will determine the outcome of Proposition 23, a ballot proposition that would suspend implementation of AB32, California's landmark climate change legislation, until unemployment in the state drops below 5.5%, something that has rarely occurred in the last 30 years. Among other things, AB32 requires a reduction in the state's greenhouse gas (GHG) emissions to 1990 levels by 2020 – a target that has driven California's participation in the Western Climate Initiative (WCI), which aims to cap regional GHG emissions by 2012. By suspending implementation of AB32, Proposition 23 would effectively freeze California's participation in the WCI.

This would have ramifications in other WCI jurisdictions. Officially, Ontario remains committed to WCI implementation regardless of California's participation. However, many jurisdictions would be influenced if the WCI's largest member stepped away from the program. For example, New Mexico's Environmental Improvement Board is still considering whether to implement rules under the state's Air Quality Control Act that would allow for WCI participation. And New Mexico, along with Ontario, B.C. and Quebec, and California, are considered to be furthest along in WCI implementation.

In addition, some firms in WCI jurisdictions, anticipating future emissions limits, have purchased Climate Reserve Tonnes, the credits awarded under the Climate Action Reserve for voluntary emission-offset projects, anticipating that WCI jurisdictions like California may allow covered firms to use these credits for compliance purposes.

Without a compliance program in California, demand for these offset credits would likely decrease. The lead up to the November elections has therefore garnered the attention of both policymakers and market participants.


Environment Canada publishes renewable fuel content requirements

Environment Canada recently published new Renewable Fuels Regulations, which will require producers and importers to ensure that all gasoline that they produce in or import into Canada has an average annual volume of renewable fuel content of at least 5%. As a flexibility mechanism, the regulations provide for the use of tradable compliance units, which can be created through certain renewable fuel blending and related practices. The first compliance period will run from December 15, 2010 to December 31, 2012, with annual compliance periods thereafter. In 2011, Environment Canada also intends to set a 2% renewable fuel content requirement for diesel fuel and heating oil, provided that the blended fuels can be demonstrated to be technically feasible in the range of Canadian conditions.

For further information on the current regulations, please see Environment Canada's press release.


Ontario proposes amendments to GHG reporting regulations

On September 10, 2010, the Ontario Ministry of the Environment (MOE) posted for comment amendments to O. Reg. 452/09 (Greenhouse Gas Emissions Reporting) that would simplify the province's reporting requirements and align them with those adopted by the WCI. In particular, the proposed amendments would add nitrogen trifluoride to the list of reportable emissions; allow facilities to omit all emissions from biomass combustion when determining whether they exceed the province's annual reporting threshold; clarify the process by which independent third parties verify a facility's emissions; and allow the MOE Director to request emissions data from facilities that have historically reported to the federal government.

The MOE is accepting comments on the proposal until October 25, 2010. For further information, please see the regulatory proposal.

Ontario to consolidate ozone-depleting substance regulations

On September 10, 2010, the MOE proposed consolidating Ontario's five regulations governing the use, release and disposal of ozone-depleting substances (ODS) into one new regulation under the Environmental Protection Act. The new regulation would revoke and replace the existing O. Reg. 356/90 (Ozone Depleting Substances – General), O. Reg. 189/94 (Refrigerants), O. Reg. 413/94 (Halon Fire Extinguishing Equipment), O. Reg. 717/94 (Solvents) and O. Reg. 718/94 (Sterilants).

The new regulation would also harmonize the provincial ODS requirements with those in the National Action Plan for the Environmental Control of Ozone-Depleting Substances and their Halocarbon Alternatives. Notably, this harmonization would restrict the refilling of halon fire extinguishers, effectively requiring their eventual replacement.

The MOE is accepting comments on the proposal until October 25, 2010. For further information, please see the regulatory proposal.

United States

Solicitor General files brief in climate change nuisance suit

On August 24, the Solicitor General of the United States filed a brief in the U.S. Supreme Court asserting that a decision by the Second Circuit Court of Appeals to recognize a claim of public nuisance caused by the GHG emissions of six electrical utilities should be vacated and remanded for further consideration. The Solicitor General submitted the brief on behalf of the Tennessee Valley Authority, which was a defendant in the Second Circuit case, Connecticut v. American Electric Power Co. The brief contends that, as a matter of judicial self-restraint, federal courts should decline to hear cases alleging that global warming creates a common law nuisance because, without legislative guidance, courts are not well-suited to balance the various interests of the many entities, groups and sectors that are affected by climate change. The brief also asserts that the predicate for the Second Circuit's decision – that common law nuisance claims had not been displaced by U.S. Environmental Protection Agency (EPA) action – is "no longer true" because EPA has now taken action that, beginning on January 2, 2011, will phase in GHG permitting requirements for large final emitters under the Clean Air Act.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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