Canada: Climate Change @ Gowlings: December 31, 2010

Last Updated: January 13 2011

Edited by Douglas W. Clarke


  • Cancun Climate Conference Results in Progress But No Successor to Kyoto
  • Know Thy (Carbon) Self
  • British Columbia Gets Input on its Proposed Cap and Trade System
  • Saskatchewan's Climate Change Legislation
  • Québec Amends its GHG Reporting Regulations
  • Climate Change Disclosure and Staff Notice 51-333 Environmental Reporting Guidance
  • Carbon Market Watch

Cancun Climate Conference Results in Progress But No Successor to Kyoto
By Ian Richler

The global climate change talks in Cancun wrapped up on December 11, 2010 without an agreement to extend or replace the Kyoto Protocol, but with somewhat vague commitments to transfer money and technology to the developing world. It is a measure of how far expectations have fallen since Copenhagen last year that Cancun was viewed by most as a success.

Although the hard decisions on what will happen when the first Kyoto compliance period ends in 2012 were deferred to the next climate summit in Durban, South Africa next November-December, a number of "building blocks" were put in place at Cancun. These include the following:

  • The emission reduction targets adopted by developed countries at Copenhagen have been integrated into the UN framework, however they are still not legally enforceable. (Canada's commitment under the Copenhagen Accord is a 17% reduction in emissions from 2005 levels by 2020.)  The Cancun agreements urge these countries to "increase the ambition" of these targets. These countries are also to submit annual greenhouse gas inventories and biennial reports on their progress in achieving their targets.
  • Developing countries have committed to take "nationally appropriate mitigation actions" to reduce emissions, and to provide biennial progress reports. A registry will be created to match mitigation actions with finance and technology from developed countries.
  • Developing countries were encouraged to develop strategies to reduce emissions from deforestation and forest degradation ("REDD+"), and developed countries were urged to support such measures. These strategies are to conform with a number of prescribed guidelines – for example, they are to show respect for the knowledge and rights of indigenous peoples.
  • A Green Climate Fund was established to support climate change projects, programs and policies in the developing world. Half of the Fund's board members will be from developing countries and half from developed ones. In the first three years, the World Bank will act as trustee of the Fund.
  • Cancun recognized the commitment at Copenhagen for US$30 billion in "fast-start finance" to be transferred to the developing world between 2010 and 2012. In addition, developed countries agreed at Cancun to "mobilize" a further $100 billion per year by 2020 "to address the needs of developing countries", much of which is to flow through the new Green Climate Fund. However, it is not clear where this money will come from and how much of it will be from the private sector.
  • A new Technology Mechanism was established, which is meant to facilitate the transfer of technology for mitigation and adaptation to the developing world.
  • The Cancun Adaptation Framework was established, which will encourage co-operation on adaptation strategies and provide assistance to developing countries in the formulation of such strategies.
  • Several decisions of a more technical nature were made at Cancun. For example, it was decided that carbon capture and storage projects are eligible for credits under the Clean Development Mechanism.

Although Cancun was widely interpreted as regaining some of the momentum for the multilateral UN process which had been lost at Copenhagen, there is still a wide divergence of views as to what should succeed the first Kyoto compliance period after 2012. For instance, Japan took the position at Cancun that it would not support any legally binding targets after 2012 unless all the other big emitters, like China and the US, accept targets too, and reportedly insisted on the insertion of language in the final Cancun agreements that "recalled" Article 21 of the Kyoto Protocol, which essentially says that no country can be forced to take on post-2012 targets if it does not want to. Meanwhile many developing countries, which have no binding targets in the first compliance period, continue to press for an extension of Kyoto. For its part, Canada said, in a press release following the conclusion of the Cancun summit, that it "will continue to work constructively to implement the Copenhagen Accord and to complete the negotiations under the United Nations Framework Convention on Climate Change for a comprehensive, legally binding post-2012 agreement that is fair, effective and comprehensive."

Know Thy (Carbon) Self
By Douglas Clarke

As the year winds down it might be useful to scan the horizon and do a bit of an overview of what are some of the drivers that are likely to have an impact on Canadian companies' policies with respect to greenhouse gas ("GHG") emissions in the near future and why it is increasingly important for Canadian companies to know their GHG emissions footprint and to have a plan in place to begin to reduce that footprint.




The EPA has a Mandatory Reporting of Greenhouse Gases Rule1, which requires that facilities involved in certain types of activities report their annual GHG emissions no matter what the volume of those emissions. For facilities that are not automatically captured, the threshold for reporting is 25,000 tonnes per year ("tpy") Carbon Dioxide equivalent ("CO2e") from fuel combustion or certain other categories of activities. Also, suppliers of fossil fuels and certain GHGs must report their quantities supplied over a certain threshold.

In December 2009, the EPA made what is called an "endangerment finding" with respect to GHGs2. This finding requires the EPA to act to protect U.S. citizens from these gases in the atmosphere.

On May 13, 2010, as a follow-on to its December 2009 finding, the EPA issued its "Final GHG Tailoring Rule", which sets thresholds for GHG emissions from stationary sources under the Clean Air Act permitting programs3. These thresholds are to be phased in beginning on January 2, 2011 and will initially affect only companies already subject to EPA permitting requirements. For projects that are contemplating significant emissions increases (75,000tpy CO2e or more) use of Best Available Control Technology will be required.

Beginning in July 2011, Prevention of Significant Deterioration (PSD) permitting requirements will cover all new construction projects that emit at least 100,000tpy CO2e. Operating permits will also be required for sources that emit at least 100,000tpy CO2e.

Canadian companies operating in the US must be aware of EPA rulemaking in this area and that the level of obligations imposed by the EPA is going to increase over time. Unlike Canada, the lack of federal legislation has not meant an absence of development of regulatory standards for emissions of GHGs at a federal level in the U.S.


Within the Western Climate Initiative ("WCI"), the most important single participant is the state of California, which is why this state is an important driver of GHG emissions policy for Canadian provinces and by extension Canadian companies, even if they do not do business directly in California.  Although other sub-national groups exist in North America with the goal of regulating GHG emissions (i.e. Midwestern Greenhouse Gas Reduction Accord, Regional Greenhouse Gas Initiative), the WCI is the most important sub-national organisation in this area and the one that counts the greatest number of Canadian participants (four partners : British-Columbia, Manitoba, Ontario and Québec, and one observer, Saskatchewan).

Following the defeat of Proposition 23 in California during the state referendum held concurrently with the recent federal congressional mid-term elections and state level elections, which saw the election of Democrat Jerry Brown as governor, California is moving ahead with the implementation of Assembly Bill 32 and a cap and trade system to limit GHG emissions in that state. This news has been taken throughout the WCI as a signal to the other partners to complete their state or provincial programs to be able to come on line January 1, 2012. Political developments in the state of California are therefore having a direct impact on Canadian provincial politics and policy as the WCI cap and trade train begins to leave the station. See below in Peter Fairey's comments on recent developments in British-Columbia and Paul Granda's review below of a recent Québec regulatory amendment, both of which are linked to events in California through the WCI.

In California, The Greenhouse Gas (GHG) Mandatory Reporting Regulation (Regulation), which was approved by the California Air Resources Board ("CARB") in December 2007 requires facilities to report their annual GHG emissions in 2009 and every year thereafter.

CARB is currently reviewing proposed amendments to the above regulation in order to reduce the reporting level to 10,000tpy CO2e4 to support California's cap and trade system in line with the draft recommendations of the WCI. The CARB regulation incorporates by reference certain elements of the EPA's Mandatory Reporting of Greenhouse Gases Rule.

On December 16, 2010, the CARB endorsed a cap and trade regulation under Assembly Bill 32, which sets state-wide limits on GHG emissions from sources that account for 80% of California's GHG emissions5. As a result, California has now stepped out in front and it remains to be seen which of its WCI partners will follow and at what speed.

US Securities Law:

In January of 2010, the Securities and Exchange Commission ("SEC") issued a guidance on what publicly traded companies must disclose to investors in terms of material climate risks. This guidance was not a new regulation but rather an interpretive guidance to enable public companies to understand better what they needed to insert into their management discussion and analysis (MD&A) statements. The following areas were identified:

  • costs of compliance associated with pending laws and regulations;
  • impacts on business of climate change-related international accords and treaties;
  • physical impacts of changing weather on assets and operations;
  • opportunities for trading in new carbon markets;
  • changes in demand for products or services resulting from climate change impacts.

Canadian companies that are publically traded in the U.S. must comply with these requirements and they are therefore a driver of behaviour in Canada.


Environment Canada:

In Canada, the federal government requires GHG reporting for stationary sources emitting over 50,000tpy CO2e, under its GHG Emissions Reporting Program.

Currently there is no federal requirement to have a permit to emit GHGs.  However, in keeping with its strategy of adopting policy in line with that of the United States, the Canadian government has recently intimated that it may begin to regulate GHG emissions in a similar fashion as EPA, presumably in accordance with its policy of seeking shared standards. As a result, the Canadian federal government is not currently a significant driver of carbon policy for Canadian companies. If it decides to move ahead with EPA style regulation, this could change.

Canadian Provinces:

In view of the shortening window in which to prepare, the Canadian WCI partner provinces should be working on putting in place the required regulations in order to implant a cap and trade system in each province, which systems will link up under the WCI.

In British Columbia, the required reporting regulation is already in place (Reporting Regulation, B.C. Reg. 272/2009).  The regulation calls for "Reporting Operations" with emissions of over 10,000tpy CO2e to file a report to the BC government before March 31 of the following year.

British Columbia has also published a Proposed Emissions Trading Regulation and Proposed Offsets Regulation for public comments. These are discussed by Peter Fairey below.

It should be noted however that a recent Globe & Mail column reported that the "Business Council of B.C. is putting pressure on the B.C. government to reconsider its commitment to the program because it could create a "competitive disadvantage" for companies by forcing them to meet increasingly more stringent emissions targets"6. It is too early to tell what effect this type of criticism might have on the progress of the cap and trade project in British Columbia but observers should keep an eye on it to see if it spreads.

Although Alberta is not a WCI partner it is appropriate to mention Alberta as it already has a cap and trade system. It continues to be the only one of its kind in North America. It is not linked to any other system and has no short term plans to do so.

In Manitoba, other than a public consultation that closed on March 15, 2010, and the passage of The Climate Change and Emissions Reductions Act in 2008, there does not appear to be any sign of an impending roll out of reporting or other regulations to enable a cap and trade system.

In Ontario, Ontario Regulation 452/09, Greenhouse Gas Emissions Reporting, calls for the reporting of emissions of more than 25,000tpy CO2e and although currently being amended, the amendments to not call for a reduction in the reporting levels. In theory, Ontario should eventually enact further amendments to its reporting regulation to lower it to the 10,000tpy level and eventually adopt offset and emissions trading regulation like British Columbia. However, the same Globe & Mail column referred to above indicates that there is behind the scenes pressure in Ontario from business and within government not to impose emissions trading7.

In Québec, as described in more detail by Paul Granda below [Insert hyperlink], the Regulation to amend the Regulation respecting mandatory reporting of certain emissions of contaminants into the atmosphere, lowers the GHG emissions reporting threshold within the province to 10,000tpy CO2e, in line with the WCI. Previously, the reporting threshold was 50,000tpy CO2e, in line with the federal requirements. Additionally, it is widely believed that Québec's emissions trading regulation is well advanced and likely to come out in the first half of 2011. As a result, it would appear that Québec will likely be the next province after British Columbia to put forward its cap and trade rules.

Canadian Securities Laws:

In Canada, each province has its own securities laws and regulations but the Canadian Securities Administrators ("CSA") work collaboratively to try and harmonize the rules of the various jurisdictions by creating national instruments.

In October 2010, the CSA adopted Staff Notice 51-333 Environmental Reporting Guidance. See Patricia Leeson's article below [Insert hyperlink] for more details.


Increasingly, companies are becoming subject to express requirements to at least report their GHG emissions directly if not reduce them. In addition, they are being called upon to make statements as to the impact of climate change and GHG regulation on their business.

It is self evident that to make proper disclosure a company must possess self-awareness. The company must know what its own level of GHG emissions are in order to be able to accurately determine what its risks are in relation to changes that may flow from climate change.

Without an understanding its own GHG emissions, a company cannot determine accurately the applicability or not of government legislation, nor report on the potential impact of that legislation on its business. This can expose the company to the following non-exhaustive list of risks:

  • the company may fail to report emissions that it has a legal requirement to report under federal or state or provincial legal requirements;
  • the company may fail to realize that it has an projected reduction obligation under impending GHG cap & trade legislation; or
  • the company may fail to accurately disclose to investors risks associated with its GHG emissions and climate change more generally.


Self Regulation:

The best example of this is the Carbon Disclosure Project ("CDP"). The CDP is a program that seeks to incite corporations to measure their CO2e emissions and publicly report them, thereby giving investors an accurate picture of a company's emissions. It is interesting to note the level of support for the CDP among S&P 500 companies.  In 2010 up to 70% of S&P 500 companies responded to the CDP questionnaire and 59% of S&P 500 companies reported their carbon emissions to CDP. Even more impressive is the fact that overall, 70% of S&P 500 questionnaire respondents disclosed how they plan to capitalize on commercial opportunities related to climate change8. It is clear that companies that are business counter-parties to these S&P 500 corporations will increasingly be required to demonstrate self-knowledge about their own emissions so as to be able to help their S&P 500 business counter-party understand the emissions which the consummation of a business transaction may incorporate into that reporting company's "GHG emissions balance sheet".

Voluntary Reductions:

Large companies are increasingly undertaking publicly to remove GHG emissions from their supply chains.  As a result, suppliers companies must know their GHG emissions in order to be able to contribute. Based on their sheer size and buying power, certain companies such as Walmart can create a quasi-regulatory regime by requiring GHG reductions of their suppliers.

In fact, on February 25, 2010, Walmart announced a goal of cutting 20 million metric tons of GHG emissions from its global supply chain by the end of 2015. In order to achieve this goal, Wal-Mart has produced a document entitled Walmart Supplier GHG Innovation Program Guidance Document9 which summarizes Walmart's supplier GHG reduction goal and gives guidance for submitting projects to contribute to this goal.

On January 29, 2010, the US Federal Government announced it would reduce its GHG emissions by 28 percent by 2020, under Executive Order 13514 on Federal Sustainability10. As a result, the single largest consumer in the U.S. economy is now driving GHG reductions in its supply chain.

Beyond these examples, companies continue to use carbon neutrality as a marketing device (recent television adds for Hyundai vehicles and the carbon neutral declarations of the Bank of Montréal and the TD Bank are good examples).


The foregoing examples demonstrate that there is a clear movement towards the permanent inclusion of GHG emissions in the data which businesses must collect and understand. As well, there are other drivers that have an impact on Canadian companies that could easily have been mentioned, such as the existence of the European Emissions Trading System and the United Nations Framework Convention on Climate Change.

As a result of the foregoing, failure by a company to take steps to collect and understand its GHG emissions can cause the following non-exhaustive list of risks:

  • the company may be excluded from supplying existing customers as they require reporting and reduction of GHG emissions from their supply chain;
  • the company may not be able to respond competitively to requests for proposals for new business, which require inputs derived from GHG emissions data, including reduction plans; and,
  • the company may be perceived publicly as lagging behind its competitors on the issue of GHG emissions management.


1. Available at

2. Available at

3. EPA Final Rule Fact Sheet available at

4. See Proposed Amendments to the Regulation for the Mandatory Reporting of Greenhouse Gas Emissions available at

5. See California Air Resources Board gives green light to California's emissions trading program
Available at

6. See Gary Mason Visions of emissions trading fading in puff of smoke, Globe & Mail, December 20, 2010, available online at

7. See Gary Mason Visions of emissions trading fading in puff of smoke, Globe & Mail, December 20, 2010, available online at

8. Carbon Disclosure Project 2010 S&P 500 Report, p. 6, available on line at

9. Available at

10. See President Obama Sets Greenhouse Gas Emissions Reduction Target for Federal Operations, available at

British Columbia Gets Input on its Proposed Cap and Trade System
By Peter Fairey

British Columbia's Greenhouse Gas Reduction (Cap and Trade) Act (the "Act") enables BC to implement a cap and trade system that will eventually be coordinated with its partners in the Western Climate Initiative ("WCI").

Two consultation papers were published by the province in October 2010 to assist in refining the design and operation of British Columbia's proposed cap and trade system.  Submissions on the papers were being sought until December 6, 2010.

The consultation paper on the proposed Cap and Trade Offsets Regulation (the "Proposed Offset Regulation") recognizes that offsets are a key component of a cap and trade system as they reduce compliance costs. The paper outlines criteria for ensuring that offsets are "real, verifiable, additional and permanent".  Such criteria are important for building a robust system that achieves real greenhouse gas ("GHG") reductions. The paper also reviews a number of proposed regulatory procedures including validation, registration, project monitoring, measurement, quantification, reporting, verification, certification and issuance. The Proposed Offset Regulation will build on BC's existing Emissions Offset Regulation B.C. Reg. 393/2008 (which was amended on December 3, 2010, to bring the verification criteria in line with those proposed by the WCI).

The Proposed Offset Regulation will contain the framework for a protocol based system for developing project or program based offsets for use in the compliance market to be created under the proposed Emissions Trading Regulation (see discussion below). Offsets that meet the requirements of the Proposed Offset Regulation will be issued British Columbia Emission Reduction Units ("ERU"s). These ERUs will be delivered into the project proponent's account in a tracking system to be developed. These units can then be held and used for compliance by their owner or sold in the secondary market.

The second consultation paper deals with the proposed Emissions Trading Regulation (the "Proposed ETR"), which will establish the rules by which emissions may be traded under the cap and trade system.  Under the Proposed ETR, the province intends "to establish an efficient, fair market with clear rules on how allowances are created, distributed, traded, tracked and retired for compliance".  The consultation paper considers how the tracking system would operate, the number and allocation of allowances, and which operations and facilities will be subject to the Regulation.

The Proposed ETR will apply to facilities emitting 25,000t of CO2 equivalent ("CO2e") or more per year from covered sources as set out in both the Proposed ETR and the Reporting Regulation B.C. Reg. 272/2009. It will also establish what proportion of ERUs will be auctioned as opposed to being allocated for free and the criteria for the allocation.

In preparation for launch of its cap and trade system, British Columbia will forecast with the other partners in WCI the number of allowances that each will issue annually for 2012 through to 2020 to provide an early indication of supply in the regional marketplace. British Columbia will use this information to help establish its own allowance budget for the first three year compliance period, from 2012 to 2015.

The British Columbia Ministry of Environment website has links to the two consultation papers and a useful backgrounder paper.

British Columbia will be the focus of increased attention in the carbon world as it continues to push ahead with its implementation of the cap and trade framework required under the WCI and it will be interesting to see what opposition may coalesce as the system moves off the drawing board an into actual operation.

Saskatchewan's Climate Change Legislation
ByPatricia Leeson and Roland Hung


The Management and Reduction of Greenhouse Gases Act ("Act"), was given Royal Assent in the Saskatchewan Legislative Assembly on May 20, 2010.  The Act provides a framework for the control of greenhouse gas ("GHG") emissions by regulated emitters. It also establishes various corporations that will invest in, and promote research in and development of, technologies to reduce GHG emissions. The Act will be proclaimed once draft regulations accompanying the Act are finalized. The Saskatchewan government is currently in consultations with various stakeholders on the scope of the proposed regulations that would support implementation of the Act.

Saskatchewan's draft regulation has set a GHG emissions reduction target of 20% below the level of emissions in 2006 by 2020.  A facility that emits 50,000 tonnes of CO2e in any year will be subject to the legislation.  Existing facilities that exceed the emissions threshold and commenced operation before January 1, 2007 must reduce their emissions from their baseline emission level at a rate of 2% per year in each year up to 2020.  Unlike Alberta, Saskatchewan has not adopted an intensity-based approach.

Saskatchewan's Climate Change Framework

The key elements include the following:

  • Regulated Emitters: Regulated emitters are those facilities used for an emissions activity. Emissions activities include natural gas pipelines, manufacturing of chemical, cement or lime, fertilizer, wood and asphalt products, coal mining, and the generation of thermal electric power.
  • Emissions Cap on Regulated Emitters: Regulated emitters must meet the 2% greenhouse gas reduction targets for each year until 2020. Once the Act comes into force, regulated emitters have 90 days to submit a baseline emission level application to the Minister to establish baseline emission levels. After the baseline is established, regulated emitters must submit annual returns that detail actual emissions, mitigation of emissions, the difference between actual emissions for the year and the facilities baseline emission level, the number of credits to be deducted.
  • Reporting requirements: In addition, the draft regulations impose reporting requirements on facilities that are not regulated, but have emitted greater than 25,000 tonnes of CO2e. The report must be provided in a form and in a manner determined by the Minister.
  • Emissions Returns Deductions: Regulated emitters will be permitted to deduct from their returns offset credits, pre-certified investments, credits for early action, and any other CO2e reduction amounts granted by regulation ("credits").
    • Pre-certified investments: This recognition provides credits to a regulated emitter where it has implemented a large-scale and transformative project that is designed to result in a reduction in emissions. The number of tonnes of CO2e allocated to a regulated emitter as a credit is equal to the dollar amount invested in the pre-certified investment project divided by the carbon compliance price or as determined by the Minister. The regulated emitter has 2 years to use the credits from the date of the investment or the Minister's approval, whichever is later.  Pre-certified investment credits are not transferable.
    • Recognition for early action: This recognition provides credits to regulated emitters for taking action to reduce GHG emissions prior to 2006. To qualify, the early action must have occurred on or after January 1, 2004. Early action credits are not transferable.
    • Performance credits: These credits can be earned by a regulated emitter in any year where the actual emissions for a regulated facility are less than the prescribed level of emissions that apply to the regulated facility. Performance credits may be banked or transferred.
    • Offset activities and offset credits: Qualifying offset activities are activities that have resulted in an emission reduction or sequestration of GHGs in Saskatchewan, that have occurred on or after January 1, 2006. The qualification criteria are similar to the criteria set out in Alberta's Specified Gas Emitters Regulation (Alta. Reg. 136/2007) but specifically includes qualifying capture and sequestration activities. Offset credits must be approved by the Minister and registered in an offset credit registry before they can be used.  Offset credits may be banked or transferred.  The draft regulations contemplate a limit to the number of offset credits that may be a regulated emitter to achieve its required emissions reductions. The percentage is yet to be determined.
    • Compliance: If regulated emitters fail to reduce their emissions as required or are unable to meet their target even after deducting credits, they must pay a carbon compliance payment based on a carbon compliance price as well as other factors. These compliance payments will fund the Saskatchewan Technology Fund. The carbon compliance price will be established in the regulations, but has not yet been determined in the current draft of the regulations. Failure to make carbon compliance payments may be an offence subject to a fine not exceeding $1,000,000 or an administrative penalty.

Carbon Capture and Sequestration ("CCS"): Like Alberta, Saskatchewan is focussed on carbon capture and sequestration as the primary technology to reduce and remove GHGs.  The draft regulations provide for the terms under which CCS projects can become a qualifying GHG capture and sequestration activity. The capture of GHGs must occur in Saskatchewan. The person engaging in the activity must have obtained all the licenses, permits and approvals required by law and must comply with those laws. There must be a level of assurance satisfactory to the Minister that the GHGs will be securely captured and sequestered and there must be assurances that accurate measurement and monitoring of the capture and sequestration of GHS are in effect. Note, that although the capture of GHGs must be in Saskatchewan, the sequestration may occur elsewhere.  Qualifying capture and sequestration activities are eligible to qualify as a qualifying offset activity, credits for investments in pre-certified investment projects or to meet a regulated emitter's emission reduction targets.

Special Non-profit Corporations:  The Act will establish the Saskatchewan Technology Fund which will fund GHG emission reduction projects and other climate change initiatives from carbon compliance payments and the Saskatchewan Climate Change Foundation which will provide financial assistance to scientific research related to climate change and adaptation, financial assistance for CCS, energy conservation, low-emitting technologies and education and public awareness.

Conclusion: The impact of the Saskatchewan legislation remains to be seen as the government is still working out the details of the regulatory scheme, such as the price per tonne of CO2e, and receiving input from stakeholders.

Québec Amends its GHG Reporting Regulations
By Paul Granda

Following its initial publication in draft form last June, the Québec Minister of Sustainable Development, Environment and Parks, Pierre Arcand, published on December 15 2010 in the Gazette officielle du Québec, the Regulation to amend the Regulation respecting mandatory reporting of certain emissions of contaminants into the atmosphere (the "Regulation"). The more than 100 page Regulation, which came into force on December 30, 2010, imposes more restrictive measures concerning the mandatory reporting of greenhouse gas ("GHG") emissions.  The amendments, which reduce the threshold above which GHG emissions must be reported and establishes the methods for calculating the reportable emissions, are aimed at harmonizing the reporting levels within Québec with those agreed to by the Western Climate Initiative ("WCI") of which Québec is a partner. 

Accordingly, the mandatory annual emissions reporting threshold has been set at 10 000 tons CO2 equivalent ("CO2e"), as stated in section 6.1.  The reporting obligation shall remain mandatory until such time as the GHG emissions have been below the reporting threshold for three (3) consecutive years (unless provided otherwise by a regulation that remains to be made).  Where an industrial enterprise has several establishments, a separate report will be required for each one whose GHG emissions exceed the reporting threshold.  Also, if an industrial establishment has more than one facility, the data for each facility is required to be identified separately. 

Section 6.1 of the Regulation further provides that when an enterprise, establishment or facility changes operator during a year, the new operator will be required to make the declaration. The previous operator is required to provide the new operator with all the data required to report for the period during which the previous operator operated the enterprise, establishment or facility.

Also of interest, a person or municipality operating an enterprise, establishment or facility that acquires electricity produced outside of Québec for its own consumption or for sale in Québec will be considered an emitter under the Regulation.

Furthermore, emitters of 25, 000 tons CO2e or more will be required to have their emissions declaration audited by an organization accredited to the ISO 14065 standard by a member of the International Accreditation Forum. Furthermore, the Regulation provides companies with a detailed calculation method for emissions from combustion processes.

The calculation methods aimed at industrial activities apply to fixed combustion installations, refinery gas combustion, electricity production, lime production, petroleum refineries, pulp and paper mills, product manufacturing, sodium carbonate production, coal storage, hydrogen production, steel and iron production, petrochemical production, and lead and zinc production. 

The emissions declaration is required to be made electronically to the MSDEP. The declaration must indicate (1) the total quantity of the emitter's CO2e GHG emissions calculated in accordance with the formula set forth in the Regulation, (2) the quantity of emissions of each type of GHG referred to in Schedule A.1 of the Regulation, (3) the prescribed information concerning the type of emitter's enterprise, facility or establishment and, where applicable, the type of activity carried on and the type of process or equipment used, (4) the total quantity of GHG emissions attributable to the combustion of biomass and biofuels, (5) the total quantity of  GHG emissions captured, stored, re-used, eliminated or transferred out of the establishment, the quantity of emissions generated by each operation and the location of each operating or transfer site, (6) the calculation methods used (as set forth in Schedule A.2 of the Regulation), and (7) the emissions factors used. The person responsible for the report must sign it and also attest to the veracity of the information communicated. The emitter must use the same calculation methods for each annual report.

Besides the information mentioned above, the emitter must also communicate the name and address of the enterprise, facility or establishment and the name and contact information of its representative, the emitter's telephone and fax numbers as well as e-mail address, its registered business number and ID number assigned under the federal National Pollutant Release Inventory, the type of enterprise, facility or establishment and, where applicable, the six-digit code under the North American Industry Classification System (NAICS Canada) and the name and contact information of the person responsible for the GHG emissions report.

Emitters should note that for the reporting year 2010, the required GHG emissions report shall be made in accordance with the provisions of the Regulation respecting mandatory reporting of certain emissions of contaminants into the atmosphere, R.R.Q., c. Q-2, r. 3.3, as it read prior to the coming into force of the Regulation.  Other restrictions will also apply in respect to reporting year 2011 calculation methods set forth in Schedule A.2. The auditing requirement will also not apply to reporting year 2011.

Climate Change Disclosure and Staff Notice 51-333 Environmental Reporting Guidance
By Patricia Leeson

In the coming proxy season, public issuers and their counsel will be scrutinizing the recent publication by the Canadian Securities Administrators (CSA) of CSA Staff Notice 51-333 Environmental Reporting Guidance (CSA Notice).  Although the CSA Notice does not (and cannot) create new laws, it does breath life into existing continuous disclosure obligations of public issuers as they relate to environmental disclosure in their public filings.

Securities regulators state that the environmental reporting guidance responds to developments in the marketplace that recognize the effect of environmental matters on public issuers' performance and operations, changing environmental regimes domestically and internationally and increased investor interest in environmental reporting.

The CSA Notice is a sequel to the Ontario Securities Commission (OSC) Staff Notice 51-716 Environmental Reporting (OSC Notice) published in February of 2008 after the OSC completed a targeted review of 35 Canadian public issuers.  In December, 2009, the OSC signaled   it intended to issue a further staff notice providing guidance on compliance with existing environmental disclosure requirements under National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) by December 2010, in time for reporting issuers preparing annual continuous disclosure filings for 2010.   The guidance is largely applicable to TSX-listed issuers.

The CSA Notice expands earlier guidance for environmental disclosure under NI 51-102 and also provides integrated guidance for relevant disclosure requirements and governance matters under National Instrument 58-101 Disclosure of Corporate Governance Practices (NI 58-101) and National Instrument 52-110 Audit Committees (NI 52-110).

It is significant that the CSA Notice has the support of securities regulators from other jurisdictions besides Ontario, notably Alberta, British Columbia, Manitoba, Quebec and New Brunswick.  Consequently, the environmental guidance will apply to public issuers in all of these jurisdictions and is no longer confined to public issuers who distribute securities in Ontario.

Enhancements to OSC Notice

The format of the CSA Notice is a vast improvement over its predecessor as the expanded guidance groups the environmental disclosure requirements under NI 51-102 into five key requirements supported by examples as well as samples of disclosure in an attached Appendix.  The continuous disclosure requirements most likely applicable to environmental matters are found in the form requirements for management discussion and analysis (MD&A) attached to the financial statements and the annual information form (AIF). The CSA reinforces that only material environmental information is required to be disclosed.

  • Environmental risks – Public issuers that are required to file an AIF, are required to disclose risks relating to their business and operations.  Environmental risks that may impact a public issuer's business and operations can be grouped into (i) litigation risk; (ii) physical risk; (iii) regulatory risk; (iv) reputational risk; and (iv) business model risk.  The CSA Notice sets out a table identifying each of these risks with relevant questions for an issuer to help direct a considered response for each environmental risk.
  • Trends and uncertainties – Public issuers must provide a narrative explanation (MD&A) along with the financial statements for the period covered that includes the issuer's financial condition and future prospects.   The CSA Notice advises that public issuers should examine trends and uncertainties respecting environmental matters that may affect the issuer's future performance.  The guidance includes a table of questions related to an issuer's revenues and expenses that may be impacted by environmental matters.
  • Environmental Liabilities – Environmental liabilities can include actual or potential legal obligations to make future expenditures due to current or potential adverse effects on the environment.  The CSA Notices provides that environmental liabilities involving critical accounting estimates require specific analysis that should be quantified if possible.  The CSA is of the view that asset retirement obligations (discussed below) are, in most cases critical accounting estimates to be included in the MD&A.
  • Asset Retirement Obligations (ARO) – An ARO is a requirement to perform certain procedures in relation to assets that are sold, abandoned, recycled or disposed of.  For example, AROs for a mine could include costs relating to the reclamation of tailings ponds and ongoing monitoring of groundwater and surface water quality. The CSA Notice states that public issuers should provide supplemental disclosure in their MD&A about AROs and provide a description of the asset to be reclaimed, restored, abandoned or disposed of.  AROs that are long term obligations should be included in a table that sets out summary contractual obligations.
  • Environmental Protections Requirements – The AIF requires public issuers to disclose the financial and operational effects of environmental protection requirements on the issuer's capital expenditures, earnings and competitive position in current and future financial years.  Guidance suggests that costs associated with these requirements should be quantified if possible (i.e. pollution abatement equipment).

New Guidance


 The CSA Notice sets out expectations for directors and officers of public issuers for management and oversight of environmental risks that attach to their legal disclosure obligations.  The financial statements, MD&A and the AIF are the continuous disclosure documents that will contain material disclosure related to environmental matters. The board must approve annual financial statements and MD&A.  The board or, by delegation, the audit committee must approve interim financial statements and MD&A and the audit committee must review these documents before public disclosure. The chief executive officer and chief financial officer must certify that the issuer's financial statements, and financial information included in the MD&A and AIF, fairly present the issuer's financial conditions, results of operations and cash flow.  Boards, audit committees, other standing committees and certifying officers will need to be cognizant of the materiality of information on environmental matters contained in these documents.

The AIF  requires a description of an issuer's environmental policies that are fundamental to its operation and how they have been implemented.  The CSA Notice recommends that issuers explain the purpose of their policies, the environmental risks the policies are meant to address and how the policies are being monitored and updated.  This may well involve a discussion of the role of the board in reviewing the approval, implementation and amendment of environmental policies as well as any delegation of responsibility for oversight. 

Boards that adopt a written mandate are responsible for adopting a strategic plan and identifying the principal risks (including environmental risks) of the issuer's business.   Any written mandate and all standing committees and their function must be disclosed in the issuer's AIF or in the management information circular.   If the audit committee's responsibility for risk management includes environmental risk management this must be disclosed in the text of the audit committee's charter in the AIF.

Effect of IFRS.

Since the publication of the OSC Notice, reporting issuers are now subject to the changeover to new standards for the preparation and reporting of financial information.  Starting with financial years commencing on January 1, 2011, reporting issuers will be required to use International Financial Reporting Standards (IFRS) rather than Canadian GAAP.  Regulators anticipate that, under IFRS, issuers may be required to accrue environmental liabilities at higher amounts and provide more note disclosure of provisions and contingent liabilities related to environmental matters in their financial statements.

Forward-Looking Information

The CSA Notice includes new commentary respecting forward-looking information (FLI)  and future-oriented financial information (FOFI) or financial outlooks as these requirements apply to continuous disclosure documents, voluntary reports and websites. Regulators warn issuers that disclosure of environmental goals or targets, such as greenhouse gas reduction targets, could qualify as FLI or FOFI and therefore must comply with NI 51-102.   This is of concern to public issuers that use voluntary reporting and websites for the disclosure of environmental matters. The guidance asks public issuers to take note of their voluntary disclosure of environmental matters to ensure consistency with its continuous disclosure documents, to ensure material environmental disclosure in voluntary disclosure is also included in continuous disclosure filings and that any FLI complies with NI 51-102.

Climate Change Disclosure

Curiously absent from the CSA Notice is the discussion of any dedicated climate change disclosure guidance.  In early 2010 the Securities Exchange Commission (SEC) released interpretative guidance respecting existing disclosure rules that may require a company to disclose the impacts that business or legal developments related to climate change would have on its business.  The CSA has not followed in lock-step with the SEC.   However, the Appendix to the CSA Notice does provide some specific disclosure examples under "regulatory risk" for an issuer subject to greenhouse gas emission regulation.   The example contemplates quantification of future compliance cost and estimates of carbon prices.

Future of Environmental Disclosure under Securities Legislation

The CSA Notice provides extensive guidance for substantive continuous disclosure requirements relating to environmental matters and for governance structures around environmental disclosure.  Current mandated securities disclosure includes MD&A for financial statements and CD&A (compensation discussion and analysis) for executive compensation disclosure.  It may be that the CSA Notice is the first tangible step to a future mandatory environmental discussion and analysis (ED&A) as part of a public issuer's continuous disclosure filings.

Carbon Market Watch
By Douglas Clarke

Well, for those that missed it, the Chicago Climate Exchange went extinct. It will attempt to live on as a carbon registry but there are already well established players in this field including APX, Markit and the CSA.  Heralded as the death of the voluntary carbon market by those vehemently opposed to such things, it was the last chapter in an interesting experiment that was maybe just ahead of its time. Its effect on the OTC market, where the action in the voluntary market has been for some time was, from our perspective, nil.

Loyal readers will also note that we have done away with the sad graph showing the lack of any activity of commercial note on the Montreal Climate Exchange ("MCeX"). Until such time as there is activity on the MCeX, the graph will remain in storage.

In the over-the-counter ("OTC") market, the second half of 2010 was marked by less trading activity from our perspective. This slow down was likely due to uncertainty about the future of the WCI as a result U.S. mid-term elections and the referendum on Proposition 23 in California. With that hurdle cleared, early 2011 is showing signs of potential trading activity and as certain protocols begin to get the blessing of the WCI partner jurisdictions, we expect trading in these "compliance approved" types of offsets to increase in volume and price. The flight of certain buyers to these approved offsets may generate a price decline in the rest of the voluntary offset market if demand softens, however, this remains to be seen and as has been the case in the past, we would expect demand for good projects to remain relatively strong and to defy the median market price by a significant margin.

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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