The federal government recently announced details of a
federal regulatory scheme involving a carbon cap and trade
system, and carbon trading framework, as part of its
"Turning the Corner" plan aimed at cutting greenhouse
gas (GHG) emissions. The new carbon cap and trade system will
apply initially to large industrial emitters across Canada,
including those in the oil sands, electricity, mining, cement,
pulp and paper, and chemical manufacturing sectors.
While the federal government has also announced and
initiated a number of other GHG emissions reductions programs
and incentives under the ecoACTION initiatives administered by
Environment Canada, the carbon cap and trade system is pegged
to be the source for major GHG emissions reductions. To
properly prepare for this new regime, companies need to start
thinking about their compliance options.
The federal government expects to publish regulations for
the carbon cap and trade system in late 2008, and implement the
system by January 1, 2010, with the 2010 calendar year to be
the first compliance period.
To date, Alberta is the only jurisdiction in Canada that has
legislated GHG emissions limits on large industrial emitters.
Given that the planned federal GHG regulations will apply to
many more facilities than the current Alberta regime, and that
the federal compliance options are more limited and may be more
onerous to comply with than the existing Alberta rules,
commentators are suggesting that many regulated companies are
not, and will not be, prepared to meet the rapidly approaching
federal requirements. This is expected to be the case even in
Alberta, where certain facilities have the benefit of
Preparing for the 2010 compliance period may pose challenges
for companies who have yet to focus efforts and properly
consider the cost/benefit analysis of the various compliance
options. Choosing the right mix will be a sector-specific and
operations-specific determination. For example:
Companies planning capital turnover, significant capital
equipment or fleet investments in upcoming years should
consider the pros and cons of meeting compliance obligations
through abatement (which refers to in-house reductions of GHG
emissions, such as improvements in technology or processes,
or fuel-switching). This is a particularly strategic
consideration for new or future facilities in all
Companies for whom abatement may not be possible or
economically feasible should seriously investigate purchasing
credits or offsets (both of which should be considered in
contracting), or making contributions to the federal
Technology Fund (or through certain pre-qualified
expenditures which could be deemed to be Technology Fund
contributions) to comply with the federal requirements. The
Technology Fund will largely finance investments in
technology and infrastructure deployment that have a high
likelihood of reducing GHG emission in the near future.
Meeting emission reduction targets will be more complex
under the federal plan than under the existing Alberta regime
because the federal plan will limit the quantum of federal
Technology Fund contributions. This limit will make
participation in the domestic carbon trading market a practical
necessity for many businesses.
Businesses involved in industries that may create or obtain
legal rights to offsets (generally speaking, projects or
practices that remove or forego GHG emissions from the
atmosphere) will be able to register their projects in
Environment Canada's new registry. Registration will be
required to sell and trade offsets in Canada. It will also
serve as a public notice forum of any legal rights to offsets
being claimed by an individual or business in Canada.
McCarthy Tétrault Notes:
While the federal regulations will initially apply to large
industrial emitters, regardless of the particular industry or
the size of their current carbon footprint, all companies need
to consider and plan for climate change risk. This may include
developing a comprehensive climate strategy and taking steps to
reduce carbon impacts in advance of regulatory
While there are costs associated with climate change
activities, there are also significant business opportunities,
including carbon emissions trading schemes, bottom-line cost
reductions by reducing energy intake and capitalizing on
operational efficiencies, and the development of carbon neutral
or "clean" technologies and products for which
consumers and investors have an increasingly insatiable
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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