Canada: Climate Change And The Electricity Sector: Running A Business In A Carbon-Constrained World

Last Updated: June 9 2008
Article by BLG'S Environmental Law Group

Most Read Contributor in Canada, November 2017

This Climate Change Bulletin is the first in a series that will be prepared periodically by BLG's Climate Change Focus Group to alert our clients of emerging issues and initiatives that are relevant to their businesses and strategic interests. Future Climate Change Bulletins will review and consider issues facing various provinces as well as different industrial sectors. Comments and questions are always welcome.

The European Union

The roll-out of the European Union Emissions Trading Scheme in January 2005 put a price on carbon; specifically it put a price on the emission of carbon dioxide, the principal greenhouse gas. All industrial installations with a generating capacity of more than 20MW were given a cap, or allowance, based on their estimated current emissions. If an installation exceeded its cap in Phase One (2005-07) it would either have to pay a €30 per tonne fine, or buy an equivalent credit from an emitter within the scheme which had emitted less than its allowance, or else buy an offset credit from within the Kyoto-based flexible mechanisms – the Clean Development Mechanism or Joint Implementation1. This type of regulation-driven market is known as a cap-and trade system.

The sectors targeted for caps are power producers, oil refiners and producers of ferrous metal, pulp and paper, cement, glass and ceramics. In all, approximately 11,500 installations were capped in the then 25 member states of the European Union. However, the burden of reduction was placed on the power producers, on the grounds that they are less sensitive to competition from non-EU suppliers. Regulators made the related assumption that if the power producers incurred significant costs in order to comply with the scheme then these costs could be passed on to their customers.

North America

As we know, neither Canada nor the United States emulated the EU's cap-and-trade experiment. In Canada, some initiatives have been taken at the provincial level, initially in British Columbia, Quebec and Alberta. Most recently, Ontario and Quebec have announced their intention to create a cap-and-trade system involving both provinces. At the federal level, interest is focussed on intensity targets, incentives for new technology (such as carbon capture and storage), and the development of a carbon offset market. In the United States several regional-groupings of states are developing carbon markets,2 and more than a dozen bills are going through Congress. Meanwhile, the Chicago Climate Exchange pioneered the development of voluntary markets for trading credits for reducing GHGs. The Chicago initiative is still active and has recently been extended with the May launch of the Montreal Climate Exchange.

These North American developments will certainly evolve dramatically over the next few months given that all three remaining contenders for the American presidency have declared themselves in favour of implementing a cap-and-trade system at the federal level. Inevitably, Canada will have to devise something that is in some way compatible with the American system3. How soon this will happen and how it will dovetail with growing provincial and state initiatives is unknown. However, it is safe to assume that 'a price for carbon' will emerge quite soon.

Thus, while European power producers are struggling with issues of compliance, for North American producers the current challenge is to respond to continuing uncertainty. Whatever does emerge is going to increase the complexity of producing power, heat and steam in a carbon-constrained world. Even when a carbon market is put in place a number of contentious issues will remain for some time to come. For example, are power producers/exporters or power users/importers 'responsible' for the carbon burden of their fuel? So far, in the EU, that burden has been placed on the producers.

Strategic Considerations

In the face of this kind of uncertainty what kind of corporate strategy makes sense? If we assume that carbon will have a price in North America within the next two years then companies owning installations which are likely to be brought into a trading scheme should consider the following steps:

  • develop an inventory of its greenhouse gas emissions (GHGs), if it has not already done so;

  • identify opportunities for GHG reductions;

  • analyse potential carbon offsets, domestic and international;

  • develop a green market strategy in partnership with its shareholders, customers, suppliers and NGOs.

For electricity producers, a 'green market strategy' would include many of the technological issues that are already actively under development, such as:

  • renewable energy, including managing intermittency in the grid and developing improved storage capacity;

  • carbon capture and storage;

  • water availability and efficient use.

An assessment of these and related issues will provide a company with a sense of where its principal risks and opportunities lie. Future BLG Climate Change Bulletins will provide additional recommendations based on developing government policy initiatives and market responses to those initiatives.

Lessons Learned from the European Union Experience

Although the North American entry into a carbon-constrained world is still characterised by uncertainty, there are a number of key lessons that can be drawn from the EU experience over the last three and a half years. First, it is worth delaying the implementation of a cap-and-trade scheme until an independently verified baseline is in place for GHG emissions for each capped installation. (The over-allocation of allowances brought about a dramatic collapse in the price of carbon in the EU in 2006.) Second, some percentage of the allowances should be auctioned rather than issued free, as this too will control overallocation and will reward the more carbon-efficient producers. Third, the EU time horizons for compliance (three years in Phase One, five years in Phase Two), are too short for the typical corporate investment cycle.

Despite the difficulties observed in the EU scheme, we can draw mostly positive lessons from the EU experience which should assist the development of a carbon market in North America. Given that this means that carbon will have a price for all electric utilities (and other GHG emitters) in the near future we should prepare ourselves for this eventuality.


1 The Clean Development Mechanism allows countries which are signatories to the Kyoto Protocol, and have accepted caps on their greenhouse gas emissions (GHGs), to earn credits towards their targets by reducing GHG emissions in developing countries. Joint Implementation allows signatories to earn credits by reducing emissions in other capped countries.

2 The two largest regional agreements are the Regional Greenhouse Gas Initiative in the north-eastern United States and the Western Climate Initiative, which includes British Columbia and Manitoba. Other provinces have observer status in one or both of these groups.

3 Generally, the more participants there are in the trading system the greater the opportunities for developing markets that enjoy liquidity and transparent price discovery

About BLG

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