Canada: Canada´s Credit For Early Action Program – First Deadline Approaching

Last Updated: July 30 2008

On June 28, 2008 a Notice was published in the Canada Gazette regarding the Credit for Early Action (CEA) Program. Credits received from the CEA Program may be used by a facility to meet all or part of its reduction target under the Canadian government's proposed regulatory framework for greenhouse gas (GHG) emissions. To be considered for the CEA Program, a "Notice of Interest" must be submitted by July 28, 2008.

In April 2007, the Canadian government first introduced its proposed regulatory framework for industrial greenhouse gas emissions. Further details on the framework were released in March 2008. The proposed framework has not yet been enacted into law, but the Canadian government is expected to publish draft regulations this fall. Under the proposed framework, facilities in targeted sectors will be required to reduce their emissions intensity by 18% from 2006 base levels in 2010, and by a further 2% each year thereafter. The sectors currently targeted are electricity generation produced by combustion, oil and gas, pulp and paper, iron and steel, iron ore pelletizing, smelting and refining, cement, lime, potash, chemicals and fertilizers.

The proposed framework provides for a number of ways to comply with this reduction target. One way for a facility to meet all or part of its reduction target is to use credits received from the CEA Program. The CEA Program will allocate credits totalling 15 megatonnes of carbon dioxide equivalent, with a maximum of five megatonnes allocated for use in each of 2010, 2011 and 2012. If eligible reductions exceed 15 megatonnes, credits will be allocated on a pro rata basis. It is anticipated that facilities will be able to use one early action credit to satisfy a compliance obligation of one tonne of CO2 equivalent, and that facilities will be able to bank their credits. The credits will also be tradable, with the price set by the market.

Eligibility for early action credits

Credit will be given for action taken to reduce GHG emissions between 1992 and 2006. All six of the following requirements must be satisfied to be eligible for early action credits:

  • The action reduced one or more of the specified GHGs: carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons,and sulphur hexafluoride.

  • The action occurred in a "facility," which is defined as all buildings, equipment, structures and stationary items that are located on one site or contiguous sites, are owned or operated by the same person and function as a single integrated site.

  • The action occurred in a facility where the emission from (or capacity of) the facility in 2006 exceeded the sector minimum threshold of carbon dioxide equivalent. These thresholds are 10 megawatts for electricity; 3 kilotonnes/facility and 10,000 barrels of oil equivalent per day per company for upstream oil and gas; and 50 kilotonnes for chemicals and fertilizers and natural gas pipelines. If no threshold is specified, the minimum is zero.

  • Initial reductions from the action occurred in 1992 or later and continued at least until December 31, 2006.

  • The GHG reductions are "unique" in the sense that GHG credits have not already been received for the reductions.

  • The action was "incremental" – that is, beyond usual business conditions when the reductions first occurred. To be considered incremental, the action must have gone beyond:

    • legal requirements;

    • standard improvements, such as normal equipment replacement. To be considered beyond a standard improvement, there must also have been a "significant barrier to implementation", e.g., a financial or technological barrier; and

    • actions that resulted from receipt of a direct government climate change incentive (i.e., a financial contribution to the demonstration or implementation of a project), although these may be partially eligible if a performance target was surpassed or the project was only partially funded by the incentive.

Reductions that were a result of a plant slow-down or shut-down, actions outside of the facility's boundaries, the movement of production off-site (with some exceptions), the capturing or sequestering of GHGs, an energy efficiency improvement at another facility, or a reduction of fugitive emissions are each ineligible for early action credits.

The Application Process

An application for early action credits must be made by the operator of the facility for which the credits are sought. There is no application fee.

The application process is made up of three Phases. Phase I is the "initial information submission phase" during which facilities must submit a "Notice of Interest" and a "Phase I template." The purpose of the Notice of Interest is to provide administrative information about the facility and a short description of the early action taken and the GHGs reduced. The Phase I template must include a point estimate of the GHG reductions using one of the specified formulas. Phase I must be successfully completed to participate in Phase II. Both of these documents can be found at the following CEA Program website: www.ec.gc.ca/cmap-cea. Supporting evidence is not required in Phase I.

After the Phase I information has been received, the government will estimate the total quantity of reductions that could be eligible. This estimate will be published to help applicants determine whether they wish to continue to Phase II, the "final submission phase." Before Phase II begins, a "Guidance Manual for Applicants for Early Action Credits" will be published. Among other things, this Manual will address technical issues about the quantification of GHG reductions. Consultations about a draft manual are expected to take place this fall. Phase II submissions must include third-party verification.

Phase III is the allocation of credits.

Timeline

The timeline for the application for (and allocation of) early action credits is as follows:

Deadline for submission of Notice of Interest

July 28, 2008

Deadline for submission of Phase I template

September 5, 2008

Publication of estimate of total potential claim on 15 Mt
budget of credits

October 2008

Consultation on draft Guidance Manual for Applicants for
Early Action Credits

December 2008

Publication of final Guidance Manual for Applicants for
Early Action Credits

February 2009

Launch of Phase II

February 2009

Deadline for submission of Phase II template

May 2009

Allocation of early action credits

July 2009

Radha Curpen is a partner in the Litigation Department of Osler, Hoskin & Harcourt LLP. She specializes in environmental and regulatory matters. Shawn Denstedt is a partner in the firm's Calgary office. His practice focuses on environmental, regulatory and aboriginal law issues, and includes experience in a variety of industries, including oil and gas, mining, chemical companies and utilities. Dan Kirby is a partner in the firm's Environmental Law Group. He specializes in litigation and environmental law, including civil litigation, charges under environmental statutes, alternate dispute resolution, environmental advice with respect to commercial transactions, environmental inspections, investigation, audits, contamination, clean-up, remediation, decommissioning and environmental compliance, air emissions and emissions trading, applications for and hearings regarding environmental assessments and approvals at both the federal and provincial levels, and emergency response assistance.

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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