Canada: Focus on Climate Change - September 28, 2005

Last Updated: October 12 2005
Article by Bernard Roth, Philip K. Barton, Karim Mahmud and Thomas F Pepevnak


Since the April 13, 2005 release of Project Green: Moving Forward on Climate Change – A Plan for Honouring our Kyoto Commitment (the "2005 Plan"), the Federal Government has been very busy developing the "Large Final Emitter System" and a national greenhouse gas ("GHG") emissions trading system. The following has occurred within the last 90 days:

  • both the 2005 Federal Budget and the Budget Implementation Act, 2005 entered into force on June 29, 2005 (the "2005 Budget") providing approximately $5 billion over five years for climate change including the creation of the Climate Fund;
  • the Notice of Intent to Regulate Greenhouse Gas Emissions by Large Final Emitters was published in the Canada Gazette on July 16, 2005 (the "Notice of Intent") as a formal announcement of the Federal Government’s intention to regulate Large Final Emitters ("LFEs") under the Canadian Environmental Protection Act, 1999 ("CEPA");
  • the Federal Government released the Offset System for Greenhouse Gases: Overview Paper & Technical Background Document on August 11, 2005 (the "Offset System") to generate discussion on the proposed rules for a national emissions trading system; and
  • the draft Order Adding Toxic Substances to Schedule 1 of CEPA was published in the Canada Gazette on September 3, 2005 (the "CEPA Draft Order") to formally announce the Federal Government’s intention to add six GHGs to CEPA before the end of 2005.

One of the key components of the 2005 Plan is that LFEs will be collectively required to reduce annual GHG emissions by 45 million tonnes of carbon dioxide equivalent ("CO2e") for the 2008 to 2012 period. LFEs are the largest industrial producers of GHGs and comprise the following sectors: upstream and downstream oil and gas, electricity generation, mining and selected manufacturing, such as cement plants and iron and steel mills.1 The concurrent development of the Offset System alongside the LFE System is important because the combination of both systems will capture virtually all GHG emissions in Canada. Under the Offset System, non- LFE project proponents can implement GHG reducing projects that are recognized by the issuance of "Offset Credits". Furthermore, LFEs will be able to initiate projects that are outside the application of LFE regulations and will receive Offset Credits. Each of these new important developments are further discussed below. For more information on the 2005 Plan and the 2005 Budget, please access Focus on Climate Change (May 6, 2005) at


The Notice of Intent provides further detail to the LFE component of the 2005 Plan. Existing facilites of LFEs will be regulated under CEPA by providing permits ("LFE Permits") for emissions intensity (emissions per unit of production) at a target lower than the current emissions intensity. LFEs will be required to reconcile, at each year end, actual emissions with an equivalent number of LFE Permits (actual emissions = permits = production * intensity target). The same intensity target will apply across an industry sector and will be published in sector-specific regulations which are expected in January, 2006. 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", will require no net increase of emissions intensity (100% of current intensity). However, the maximum reduction in emission intensity for any specific industry will be 12% (88% of current intensity). By regulating in the manner above, an LFE with a 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. reduce GHG emissions;

2. purchase permits from another LFE;

3. purchase Offset Credits from a project proponent under the Offset System as these will be recognized as LFE Permits;

4. implement offset projects to directly obtain Offset Credits;

5. purchase international Kyoto credits;

6. purchase permits from the federal government at $15 per tCO2e under the "Price Assurance Mechanism"; and

7. investment into the new Greenhouse Gas Technology Investment Fund – such investment will immediately entitle LFEs to permits at $15 per tCO2e (this Fund will invest in technologies that can potentially reduce emissions).

In addition, the sector-specific intensity target referred to above would not apply to activities carried out in new large facilities or existing facilities undergoing major transformations or expansions. These activities would be subject to a separate intensity target developed on the basis "Best Available Technology Economically Achievable" or "BATEA" (which is currently under being developed).

Important developments to watch for are (1) the discussion draft of the LFE cross-cutting regulation, (2) further refinement of the BATEA concept, (3) development of the $15 per tCO2e Price Assurance Mechanism, (4) equivalency agreements with provinces2 and (5) rules concerning mergers & acquisitions. The LFE cross-cutting regulation is to take the form of an "umbrella" regulation which establishes the compliance requirement, reporting obligations and other general rules which are equally applicable to all the industry sectors of the LFE System. Also important are the possible penalties for non-compliance – the Notice of Intent stipulates that the Federal Government will not seek a penalty of greater than $200 per tCO2e for emissions in excess of permits.


The purpose of the Offset System is to encourage GHG reductions and/or removals ("R/R") outside what will occur under the LFE System. Project proponents that generate R/R will receive Offset Credits that will be purchased by the Climate Fund3 or by LFEs as a compliance option. Participation in the Offset System is voluntary and will be available to both non-LFEs that develop projects and LFEs when they generate R/R from activities that are not covered by LFE regulatory requirements. For example, an LFE could participate in the Offset System by developing wind energy or sequestration projects. The proposed eligibility rules are as follows:

1. quantifiable – R/R are calculated as the GHG difference between the absence and existence of the project;

2. real – the project must involve a specific and identifiable action that results in net R/R (excluding decreasing production);

3. surplus – the R/R must be voluntary (ie. cannot already be subject to the LFE System or other regulations);

4. verifiable – the R/R must be verified as achieved as claimed;

5. unique – an R/R can be used only once;

6. coverage – the project must result in R/R from sources/sinks that are including in Canada’s inventory for compliance with the Kyoto Protocol (subject to possible exceptions); and

7. timing – the R/R which resulted from the project must have commenced after January 1, 2000 and only the R/R which occur after January 1, 2006 are eligible to receive Offset Credits – the window for R/R to be recognized is 8 years after registration but projects can be re-registered if still ahead of the "business-asusual" baseline.

It is important to note that the concept of "financial additionality"4, often considered an eligibility criteria for emissions trading, is not a requirement. The removal of this criteria will streamline the Offset System. Also, it is important that renewable energy projects, such as wind energy, will be able to receive Offset Credits. Furthermore, it is proposed that the participation of renewable energy projects in the Wind Power Production Incentive and the developing Renewable Power Production Incentive will not exclude the Offset System.


The authority for the LFE System will be that GHGs are listed on Schedule 1 of CEPA. The CEPA Draft Order formally announces the Federal Government’s intention to amend Schedule 1 of CEPA (the List of Toxic Substances) to add six GHGs: carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulphur hexaflouride. These are being added on the basis that they satisfy the criteria in section 64, namely they they "constitute or may constitute a danger to the environment on which life depends." It is anticipated that these six GHG substances will be added to CEPA in late 2005.


The Federal Government has an aggressive goal of implementing the Offset System and having the regulations for the LFE System in place by early 2006 (with the reduction obligations of LFEs to commence on January 1, 2008). Their timeline is as follows:


release the discussion draft of the LFE cross-cutting, prepare a legal draft of the LFE cross-cutting regulation and complete the design of the Offset System


submit the following for Federal Cabinet approval: (i) the order listing GHGs on Schedule 1 of CEPA, (ii) the LFE cross-cutting regulation and (iii) the final design of the Offset System


publish in the Canada Gazette: (i) the order listing GHGs on Schedule 1 of CEPA, (ii) the LFE cross-cutting regulation and (iii) the final design of the Offset System


(i) publish most of the sector-specific LFE regulations and (ii) commence issuing Offset Credits under the Offset System


publish the remainder of the sector-specific LFE Regulations

FMC will provide further newsletters as more detail becomes available.


1. The Federal Government is in the process of finalizing sector-specific LFE regulations (anticipated in January, 2006) to provide certainty as to what constitutes an LFE. Originally, LFE sectors were selected using the following annual criteria: (i) at least 8,000 tonnes of CO2e per facility and (ii) at least 20kg of CO2e per $1,000 of output. On this basis, there are approximately 700 LFEs that collectively represent nearly half of national GHG emissions.

2. Currently, only the Province of Alberta has announced its intention to enter into an equivalency agreement with the Federal Government; basically, the federal LFE regulations will not apply in provinces which have similar provincial legislation. 

3. The Climate Fund, with initial funding of $1 billion, will purchase domestic and international credits on behalf of the Federal Government. 

4. This concept dictated that if the project would occur regardless of the financial assistance from GHG credits then it should not receive such credits.

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.

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
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 you may opt out by clicking here

    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.

    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.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    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.

    By clicking Register you state you have read and agree to our Terms and Conditions