Canada: BC Will Regulate GHG Emissions From LNG Facilities Through Bill 2-2014: The Greenhouse Gas Industrial Reporting And Control Act

On October 20, 2014, the province of British Columbia introduced Bill 2-2014, the Greenhouse Gas Industrial Reporting and Control Act (the Bill). If passed, the Bill will require the province's liquefied natural gas (LNG) facilities to meet an emissions intensity standard of no more than 0.16 tonnes of CO2 equivalent per tonne LNG produced (0.16T CO2e/T LNG, or the Emission Standard), which is among the most stringent standards for LNG in the world.

The Bill would also repeal and replace the current Greenhouse Gas Reduction (Cap and Trade) Act and consolidate various related statutes and regulations under the Bill or new regulations to be promulgated under the Bill, thereby amending the current greenhouse gas (GHG) reporting, offsets, and related requirements under the Reporting Regulation, the Emissions Offsets Regulation and the Carbon Neutral Government Regulation. The Bill will operate in addition to the $30/tonne of carbon tax that is payable on all combustion fuel GHG emissions in the province and the recently announced LNG GHG pro-rated incentive program payments, which are intended to mitigate compliance costs and address competitiveness concerns. The key elements of the Bill are outlined below:

Reporting. All industrial operations emitting above 10,000 tonnes GHG will be required to measure and report on their emissions, and operations emitting above 25,000 tonnes will be required to have their emissions verified through a more streamlined process. Non-reporting facilities will be required to keep records confirming that they are below the reporting threshold.

Compliance. LNG facilities will be required to meet the Emission Standard and coal-fired electricity generation facilities will be required to meet a standard of 0 T CO2e, effectively eliminating coal-fired generation or mandating 100% effective carbon capture and storage (CCS) on such facilities in the province. Emissions in excess of the applicable standard must be offset by contributions to a technology fund, or purchases of offsets or excess "earned credits." GHG emissions that are captured and stored will be exempt from the compliance obligation. GHG emissions from gas-fired generation facilities, which are currently regulated, will no longer be covered.

Compliance Flexibility. In a manner very similar to Alberta's Specified Gas Emitters Regulation, the Bill provides for ample compliance flexibility through the unlimited purchase of: (i) "funded units" earned by contributing to a yet-to-be-formed technology fund at a rate of $25/ tonne CO2e; (ii) verified "offset units" created in accordance with a positive list of pre-approved and validated emission reduction project protocols; and/or (iii) "earned credits" from regulated entities that emit less than the standard. Compliance will be effected through the use of a registry, which may or may not be housed within the government. There are no limits on banking or trading such compliance units once created.

Enforcement. The Bill includes broad enforcement powers, including inspection powers and administrative monetary penalties that will be available to conservation officers. There is also provision for a number of related offences and the potential for director and officer liability for both administrative penalties and offences. In an attempt to provide for a future equivalency agreement with the federal government under the Canadian Environmental Protection Act, the Bill also provides for the potential for citizens to initiate a potential investigation through the Chief Conservation Officer, who has the power to discontinue frivolous and vexatious claims.

Penalties. The penalties contemplated in the Bill are at two times the technology fund contribution rate ($50) plus the shortfall of compliance units must also be purchased and surrendered. Penalties for more serious offences under the Bill may be as high as $1.5M and include a jail sentence of up to two years. All penalties may be appealed to the Environmental Appeal Board.

Timing. BC hopes to have the Bill passed this calendar year and push forward with consultation papers on key regulations, including the reporting regulation, the technology fund, and the offset regulation early in 2015, for implementation later in 2015.

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