Canada: Focus on Climate Change, May 2005

Last Updated: May 8 2005
Article by Bernard Roth, Karim Mahmud and Thomas F Pepevnak

Originally published in May 2005


The Kyoto Protocol to the United Nations Framework Convention on Climate Change (the "Protocol Protocol") entered into force on February 16, 2005 and committed thirty industrialized countries to reduce or limit their greenhouse gas ("GHG GHG") emissions for the period between 2008 and 2012. Under this new treaty, Canada has committed to a reduction of 6% below 1990 levels – a reduction which translates into a so-called "Kyoto Gap Gap" of 270,000,000 tonnes of carbon dioxide equivalent ("tCO 2e")1 or 270 Mt per year. In response, the federal government has been active in 2005 regarding climate change and has released the following in rapid succession:

  • the 2005 Federal Budget ("Budget 2005 2005") was announced on February 23, 2005;
  • Bill C-43, the Budget Implementation Act, 2005 ("Bill C-43 43"), was tabled in Parliament on March 24, 2005; and
  • Project Green: Moving Forward on Climate Change – A Plan for Honouring our Kyoto Commitment (the "2005 Plan Plan") was released on April 13, 2005 to explain the federal government’s plan to comply with the Protocol.

These initiatives are subject to the passage of both Budget 2005 and Bill C-43 through Parliament. While uncertainty surrounds the longevity of the current federal government, extensive impacts would occur across Canada if these initiatives are indeed implemented. These proposals are summarized below. FMC continues to monitor these initiatives and will provide further information when available.

The total cost between 2005 and 2012 for these initiatives can be estimated as approaching $15 billion (each further discussed below): new federal funding ($7.8 billion); existing federal funding ($2.8 billion); provincial funding under the Partnership Fund ($1.0 billion); maximum cost to Large Final Emitters ($3.4 billion).

These initiatives can be divided into four main categories: (1) Action by Large Final Emitters; (2) Incentives for Developers; (3) International Linkages; and (4) the Trading System under CEPA.

Action by Large Final Emitters

Action by industry is targeted towards the Large Final Emitters ("LFEs LFEs") which comprise the LFE Group (a creation of Natural Resources Canada) that includes large industrial emitters in such sectors as upstream and downstream oil and gas, electricity generation, mining and selected manufacturing, such as cement plants and iron and steel mills. The LFE Group consists of about 700 companies and collectively represented approximately 46% of Canada’s GHG emissions in 2000. A key component of the 2005 Plan is that LFEs will be required to collectively reduce GHG emissions by 45 Mt. The federal government plans to provide GHG emission permits to LFEs on the basis of emissions intensity (emissions per unit of production) at a target lower than the current emissions intensity. This will force GHG emission reductions. LFEs will be required to reconcile, at each year end, actual emissions with an equivalent number of permits (actual emissions = permits = production * intensity target). The same intensity target will apply across an industry sector. Fossil fuel combustion-based emissions will require an emissions intensity decrease of 15% (85% of current intensity) and chemical processbased emissions, so-called "fixed process emissions emissions", will require no net increase of emissions intensity (100% of current intensity). However, the maximum reduction in emission intensity for any specific industry sector will be 12% (88% of current intensity). As a result, a company with high emissions intensity will need to implement greater reductions to reach the sector target than a competitor with a low emissions intensity.

LFEs will have the following options for compliance:

  1. in-house GHG reductions;
  2. purchase of permits from an LFE with a surplus;
  3. purchase of credits from a non-LFE which implements a project that reduces domestic emissions;
  4. purchase of qualifying international Kyoto credits;
  5. purchase of permits from the federal government at $15 per tCO2e – this is the "Price Assurance Mechanism Mechanism" and these permits can be referred to as "PAM AM Units Units"; and
  6. investment into the newly announced Greenhouse Gas Technology Investment Fund whereby investments into technologies that can reduce GHG emissions will entitle LFEs to permits at the same rate of $15 per tCO2e (total participation of the LFE Group will be limited to 9 Mt of permits).

While under development, it appears that the Price Assurance Mechanism will offer PAM Units under annual forward contracts whereby LFEs will need to commit at the beginning of the year to purchase a specific amount for delivery when the LFEs annual compliance is being finalized. Also, it appears likely that PAM Units will not be tradeable or bankable as this increases the financial risk to the government if the market price for permits exceeds $15.

The availability of PAM Units allows the estimation of the LFE Group’s maximum cost of compliance:

Annual Cost between 2008-2012:
= 45,000,000 tCO2e * $15 per tCO2e = $675 million

Total Cost for 2008-2012:
= $675 million per year * 5 years = $3.4 billion

It is important to note that the 2005 Plan contemplates implementation of the foregoing under the Canadian Environmental Protection Act, 1999 ("CEP CEPA") while making maximum use of equivalency agreements with each province to establish such a system. There are significant jurisdictional issues of both a legislative and constitutional nature regarding the federal government’s power to implement the LFE program under CEPA.

Incentives For Developers

While LFEs are a key component of the 2005 Plan, it is important to highlight that Budget 2005 provides initiatives for both LFE and non- LFE alike:

  • initial funding of $1 billion for a "Climate Fund Fund" (with funding to increase to a total of $4-5 billion between 2008-2012) whereby the Canada Emissions Reduction Incentives Agency ("CERIA CERIA") will purchase domestic and international credits on behalf of the federal government and retire these credits in conjunction with Canada’s commitment to the Protocol;
  • $200 million over 5 years and $920 million over 15 years for the Wind Power Production Incentive ("WPPI WPPI") to quadruple the current target of wind power generation from 1000 MW to 4000 MW – the WPPI incentive provides financial support of $0.01 per kWh for the first 10 operational years of eligible wind-power projects commissioned before April 1, 2010;
  • $97 million over 5 years and $886 million over 15 years for the Renewable Power Production Incentive ("RPPI RPPI") to encourage the development of 1500 MW of other types of renewable energy - the RPPI incentive will provide financial support of $0.01 per kWh for the first 10 operational years of eligible projects commissioned between April 1, 2006 and March 31, 2011;
  • $300 million for tax incentives by accelerating the capital cost allowance (from 30% to 50%) for investments in highly-efficient cogeneration and renewable energy generation equipment; and
  • $250 million Partnership Fund to support federal-provincial projects such as the expansion of the east-west transmission grid, carbon storage and clean coal technology (with the possibility that federal funding could total $1.5 billion and provincial funding could total $1.0 billion).

The Climate Fund, WPPI and RPPI are widely expected to encourage the business community to develop projects to reduce GHG emissions. As mentioned above, a further incentive for non-LFE developers is that the Federal Government will issue credits to projects that create real and verifiable reductions for purchase by LFEs for domestic compliance. This will be an additional funding opportunity for developers to implement projects.

International Linkages

The 2005 Plan contemplates the recognition of credits issued under two of the flexibility mechanisms of the Protocol: the Clean Development Mechanism ("CDM CDM") and Joint Implementation ("JI JI"). Canadian linkage with these mechanisms can occur in two ways:

1. LFE purchase of credits to assist with LFE compliance domestically; and

2. Climate Fund purchase of credits to assist with Canada’s compliance with the Protocol.

LFEs can obtain credits by (1) implementing CDM or JI projects or (2) purchasing such credits from project developers. Only the international credits obtained by LFEs which are "real and verified emission reductions" will be recognized. The Climate Fund will utilize similar criteria for investment decisions, but will also consider additional factors including whether the project applies Canadian technology or expands Canada’s trade.

Trading System Under Cepa

The domestic permit trading system to be developed under CEPA will likely include the following key points:

  • an LFE with a surplus of permits can transfer excess permits to an LFE with a shortfall of permits;
  • the federal government will manage a registry that will be the official record of the issuance, holding and transfer of permits for LFEs (each LFE will maintain a compliance account);
  • the registry will not be a trading platform, the process by which buyers and sellers identify each other and settle financially will be carried out elsewhere;
  • permits can only be transferred from one account to another;
  • the federal government will hold a "LFE Remittance Remittance" into which LFEs will remit a sufficient number of permits to demonstrate compliance;
  • non-LFEs who wish to participate in the permit trading system will be required to maintain a trading account; and
  • procedures will be required to link the CDM and JI credits obtained by LFEs with such a registry.


This newsletter highlights the key climate change-related developments which have the potential to affect your business.


1 The greenhouse gases subject to the Protocol, each of which has varying greenhouse impacts, are typically converted into the common unit of tonnes of carbon dioxide equivalent symbolized by tCO2e.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
4 Nov 2016, Seminar, Toronto, Canada

Please join us for a complimentary half-day seminar on the following topics:

  • "When “actively employed” is not enough: Employee bonus update", presented by Matthew Curtis and Chelsea Rasmussen
  • "The top 10 labour arbitration cases of the past year", presented by
18 Nov 2016, Seminar, Vancouver, Canada

Ten days following the election, join us for a discussion with Gary Doer, former Canadian Ambassador to the US, and Gordon Giffin, US Ambassador to Canada under Bill Clinton, to discuss how the new President and Congressional makeup will shape US-Canada relations for years to come.

25 Nov 2016, Seminar, Toronto, Canada

On Thursday, September 22, 2016, Dentons hosted a panel discussion about the management of liabilities and risks associated with environmental crises, including potential liabilities for directors and officers and provided insight into risk and liability techniques associated with environmental crisis management.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.