Canada: Climate Change & Emissions Regulation

Alberta Regulations

This spring, Alberta amended its Climate Change Emissions Management Act ("Act") and drafted new regulations under that Act called the Specified Gas Emitters Regulation ("Alberta Regulations"). The Act dates back to 2002. In 2003, Alberta started requiring facilities emitting 100,000 tonnes or more of carbon dioxide equivalent ("CO2e") to report emissions. Beginning July 1st, 2007, these facilities will be required to reduce their GHG emissions by 12% relative to the baseline emission intensity of the facility.

By September 1st, 2007, applications will be required to establish a baseline emissions intensity for facilities. Unless otherwise directed, baseline emissions intensity will be calculated by averaging the CO2e emissions per unit of production for 2003, 2004 and 2005. Industrial process emissions (non-combustion emissions) are excluded from the average. Facilities will have to reduce their GHG emissions by 12% below this average.

By March 31st of each year, a compliance report will have to be submitted for the prior calendar year. The emissions and production information disclosed in the report will have to be verified by third party auditors. To achieve compliance, emissions must be reduced or credits must be acquired to offset emissions in excess of the intensity target reductions. There are three different types of credits: technology fund credits, which can be purchased for $15.00/tonne of excess CO2e; performance credits, which can be acquired from operators of other facilities that reduce emissions by more than required; and emission offsets, which are reductions in CO2e emissions from Alberta-based projects that do not have reduction requirements (e.g., facilities emitting less than 100,000 tonnes of CO2e per year). Performance based credits cannot be banked. They must be used as credits for the year in which they were generated. Emission offsets can be banked for future use.

Emission reductions for new facilities are phased in over eight years. No reductions are required in the first three years. Starting in the fourth year of operation, reductions of 2% a year are required up to 12%.

New Federal Plan

This spring, the federal government released its Regulatory Framework for Air Emission, which included a plan for reducing GHG emissions. The plan will be implemented through new regulations enacted under the Canadian Environmental Protection Act. Details of the federal plan will be provided in draft regulations in the spring of 2008.

The federal regulations will not come into force until 2010. Like the Alberta Regulations, the federal plan will apply to facilities. However, unlike the Alberta Regulations, which apply to all facilities emitting 100,000 tonnes, the federal plan is limited to facilities engaged in electrical generation from combustion, oil and gas, forest products, smelting and refining, iron and steel, iron ore palletizing, cement, lime and chemicals production.

Similar to the Alberta Regulations, the federal plan is intensity based. It will exclude fixed process emissions. Without legal definitions, it is not certain whether such emissions are the same as Alberta's industrial process emissions. Examples given in the federal plan suggest fixed process emissions might provide a more limited exemption than the Alberta Regulations.

The federal plan will require an 18% reduction in emission intensity starting in 2010, escalating by 2% per year thereafter. The federal baseline will be established using 2006 emissions, not a three year average used by Alberta. Federal reduction targets start later than the Alberta Regulations, but at a higher, escalating rate. Like Alberta, the federal plan exempts new facilities from reduction targets for the first three years of operation and then requires emission reductions escalating by 2% a year.

Like Alberta, compliance with the federal plan can be achieved through emissions reductions as well as credit-trading. The federal plan will allow the purchase of technology fund credits at $15.00 a tonne in 2010 through 2012, rising to $20.00 in 2013 and escalating at an inflation factor thereafter. In the federal plan, costs of technology plan credits rise at the same time as the availability of these credits is curtailed. In 2010, 70% of the total emission reductions target can be satisfied through the purchase of fund credits. By 2018, technology fund credits will be phased out. The Alberta Regulations fix technology fund credits at $15.00 a tonne and do not limit their use.

The federal plan will allow unlimited use of domestic offsets to meet reduction requirements. The federal plan will also allow limited access to trading in certain international (Kyoto) credits to meet up to 10% of the emission reduction requirements. This is broader than the Alberta Regulations, which only recognize Alberta-generated offsets. Like Alberta, facilities exceeding their reduction requirements under the federal plan will earn credits, which will be tradeable. However, unlike Alberta, the federal plan will allow performance credits to be banked and used in future years.

Conclusion

The federal plan avoids duplication by providing for equivalency agreements with provincial governments. Although the federal plan lacks the definition necessary to determine whether the Alberta Regulations will be equivalent, the differences between the Alberta Regulations and federal plan do not appear to be significant. If the federal government proceeds as proposed, an equivalency agreement with Alberta seems likely.

The federal plan departs from Alberta's approach to other types of air emissions. The federal plan proposes absolute caps on NOX, SOX, VOC and particulate emissions beginning in 2012. From 2012 to 2015, the federal government proposes to reduce NOX emissions by 40%, SOX emissions by 55%, VOCs by 45% and particulates by 20%. Alberta has started a process for regulating reductions in NOX and SOX emissions; however, Alberta's plan only applies to older thermal-electric generation facilities. The federal plan, although lacking detail, appears to present a greater challenge to industry in the area of non-GHG emissions.

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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