Canada: Climate Change Law Update: Recent North American Developments - June 2008

Climate change regulations and responses are changing rapidly across Canada and North America.

To keep you up to date on this quickly-evolving situation, we have compiled a brief overview of the most significant recent developments. This update should be read in conjunction with the Bennett Jones LLP brochure entitled "Key Federal & Provincial Actions to Address Greenhouse Gas Emissions".

Ontario/Quebec MOU Re:Provincial and Territorial Greenhouse Gas Cap and Trade Initiative

On June 2, 2008, the Premiers of Ontario and Quebec signed a Memorandum of Understanding (the "MOU") in which they agreed on behalf of their governments to collaborate on a Provincial and Territorial Greenhouse Gas Cap and Trade Initiative (the "Initiative").

In the MOU, Ontario and Quebec reject intensity-based greenhouse gas emission reduction schemes in favour of hard caps in order to provide "sufficient certainty of real reductions". They would put in place a regional cap and trade system through extensive co-operation with other provinces, territories and US and Mexican states. The signatories promise to work co-operatively with other jurisdictions on the design and implementation of a greenhouse gas cap and trade system, to facilitate linkages with other trading regimes, to provide a collaborative forum for intergovernmental initiatives and to harmonize greenhouse gas reporting requirements to avoid redundancy. Other provinces and territories are explicitly invited to sign on to the MOU.

Although the MOU sets out key elements of the Initiative only in general terms, the proposals look starkly different from the climate change plan of Canada's federal government released in April, 2007 and updated in March, 2008 (the "Federal Climate Change Plan"). The Initiative's promise of hard caps on emission volumes and reference to the base year of 1990 (the year used as a base for emissions reductions targets under the Kyoto Protocol) contrast with the Federal Climate Change Plan's intensity-based reductions without near or middle term hard caps and use of a 2006 base year for target setting.

As indicated above, the Initiative places great emphasis on inter-jurisdictional co-operation and collaboration between provinces, states and territories and in that respect also differs from the Federal Climate Change Plan. Indeed several of the commitments in the MOU relate to intergovernmental ties, work and harmonization. While the Federal Climate Change Plan states that the federal government "still intends to work to reach equivalency agreements with any interested provinces that set enforceable emission standards that are at least as stringent as the federal standards," and contemplates links to emissions trading systems in the U.S. and Mexico, it is not clear that equivalency agreements are achievable and there is little evidence of progress to date on U.S. or Mexican links. An equivalency agreement is contemplated in the Canadian Environmental Protection Act, 1999 ("CEPA") as the pre-requisite to an order which makes otherwise relevant federal regulations not applicable in a province with equivalent provisions in its laws. The proposed Initiative, if translated into provincial law, could be 'equivalent' to the Federal Climate Change Plan regulations as the provincial requirements likely will exceed the federal targets (although this is not certain). However, the fundamental differences between hard caps and intensity-based systems as well as the vehemency with which the competing views are held and expressed indicate that it will be a political challenge to reach federal/provincial equivalency agreements of the type contemplated in CEPA.

British Columbia Statutes

British Columbia has been active in creating a suite of legislation to enable it to meet its greenhouse gas reduction targets and meet commitments such as those arising from its membership in the Western Climate Initiative (discussed further below).

Greenhouse Gas Reduction (Cap and Trade) Act

The province is already preparing for a regional cap and trade system by enacting the Greenhouse Gas Reduction (Cap and Trade) Act (the "Cap and Trade Act"), which received Royal Assent on May 29, 2008 but is not yet in force. This legislation provides the framework for a provincial cap and trade regime, the details of which are to be fleshed out in regulations, and authorizes the use of units from other systems considered acceptable to the BC government, thus opening the way for participation in the WCI or even the use of Kyoto Protocol-compliant units.

Greenhouse Gas Reduction (Renewable and Low Carbon Fuel Requirements) Act

The Greenhouse Gas Reduction (Renewable and Low Carbon Fuel Requirements) Act (the "RLCFR Act") will enable British Columbia to meet its commitment to adopt a low carbon fuel standard similar to California's by (i) requiring suppliers of gasoline and diesel fuels to ensure that the fuel they supply contains a prescribed percentage of renewable fuel in a given compliance period; and (ii) requiring specified transportation fuel suppliers to meet a prescribed carbon intensity standard in a given compliance period (i.e. the greenhouse gas emissions attributable to the fuel proportionate to the energy provided by the fuel must be below a certain threshold).

The prescribed percentage of renewable fuel is not stated in the RLCFR Act; rather it will be specified by regulation, and is likely to be 5% pursuant to the province's commitment in the BC Energy Plan to establish a 5% average renewable fuel standard for diesel and gasoline by 2010.

The RLCFR Act also provides flexibility for regulated fuel suppliers to meet their obligations by allowing "notional transfers" of renewable fuels and of attributable greenhouse gas emissions, similar to the concept of transferring carbon credits for compliance purposes.

The RLCFR Act received Royal Assent on May 1, 2008 but is not yet in force.

Greenhouse Gas Reduction (Emissions Standards) Statutes Amendment Act, 2008

This Act received Royal Assent on May 29, 2008, and most sections are not yet in force. It amends existing legislation to address certain commitments contained in the Premier's 2008 throne speech and the BC Energy Plan.

The Act includes amendments to the Environmental Management Act:

  • Requiring owners/operators of waste management facilities (including landfills, composting facilities and sewage treatment plants) to manage specified greenhouse gases produced from wastes handled at the facility, and providing for regulations requiring the reduction of such specified greenhouse gases or using them as an energy source;
  • Requiring the capture and sequestration of greenhouse gases from coal-fired electricity generation by prohibiting operators of coal-based generating facilities from allowing emissions of prescribed greenhouse gases from coal-based generation to be "introduced into the environment". This prohibition will not apply to emissions that are captured and sequestered; and
  • Requiring new electricity generating facilities and expansions to existing facilities to have zero net emissions. For any emissions that are not captured and sequestered, operators will be required to apply offsets to net their emissions to zero. These obligations will apply to existing facilities as of 2016.

The Act also amends the Forest Act and Forest and Range Practices Act. Among other things, these amendments introduce provisions to: encourage the use of wood residue as a potential energy source; allow for the creation of a new form of the "license to cut" tenure to provide access to unwanted roadside or landing timber; encourage beetle-attacked timber to be harvested; and enable the government to enter into forest licenses with those who enter into bioenergy supply contracts with BC Hydro as a result of a call for power.

Most details of the above legislative requirements remain to be enacted as regulation. Of the amendments mentioned here, only the provisions in respect of licenses for successful applicants for bioenergy supply contracts with BC Hydro are currently in force.

Greenhouse Gas Reduction (Vehicle Emissions Standards) Act

This Act will require manufacturers to ensure that the average greenhouse gas emissions of their "vehicle fleets" do not exceed a prescribed fleet emissions standard to be set out in regulations. It will also allow the government to make regulations to require larger manufacturers to include a prescribed amount of zero emission vehicles ("ZEV's") in their fleets. The Act provides flexibility by allowing manufacturers to use credits to meet fleet greenhouse gas requirements or to achieve equivalence with ZEV requirements. It received Royal Assent on May 29 and is not yet in force.

Carbon Tax Act

This Act received Royal Assent on May 29, and the majority of the Act comes into force on July 1, 2008. It imposes the most comprehensive carbon tax in North America to date, and will start being phased in as of July 1, 2008. The tax will apply to consumption in British Columbia of virtually all fossil fuels, including gasoline, diesel, natural gas, coal, propane, and home heating fuel. The tax will start at a rate based on $10 per tonne of associated emissions of CO2 equivalent and increase by $5 each year to $30 per tonne by 2012.

The Carbon Tax Act allows regulations to be made in order to avoid "double taxation" of entities that are also subject to other legislative requirements relating to greenhouse gas emissions. Regulations can be made to allow exemptions or refunds in respect of emissions from fuels or combustibles that are subject to caps under the Cap and Trade Act and the new obligations in the Environmental Management Act discussed above that pertain to electricity generating facilities. Regulations can also be made to provide for exemptions or refunds with respect to fuels or combustibles that are used to capture and sequester greenhouse gases.

Western Climate Initiative and Ontario

The Western Climate Initiative ("WCI"), a group of seven U.S. states and now three Canadian provinces (B.C., Manitoba, and Quebec as of April 18, 2008, with Ontario as an observer) have agreed to a common emissions reduction target and are committed to the establishment of a regional cap and trade system. In May, the WCI released draft design recommendations on key elements of a regional cap and trade program that would encompass its member jurisdictions. The WCI is expected to complete the design of its program by the end of August 2008. Ontario recently indicated that it is actively exploring the possibility of joining the WCI and has encountered only one major obstacle, that being the California vehicle tailpipe emissions standards.

The Lieberman-Warner Climate Security Act

The U.S. Senate recently debated the Lieberman-Warner Climate Security Act of 2008, which is the most prominent of the proposed U.S. Senate legislative initiatives to establish a nation-wide cap and trade regime in the United States. The Lieberman-Warner bill would have imposed caps on emissions in effect as of 2012, with the aim of reducing emissions from covered facilities by about 2% per year from 2005 emission levels. While the bill did not come to a vote, strong support for the bill was clear and momentum is building towards a federal cap and trade system to be enacted in the term of the next U.S. President.

Montreal Climate Exchange Begins Trading in CO2e Futures

The launch on the Montreal Climate Exchange on May 30, 2008 of trading of a carbon-based security was an important event. The securities being traded are futures contacts for the delivery of carbon credits in 2011 or 2012. The credits are to be usable in the system to be created by Canada as suggested in the Federal Climate Change Plan.

The Bennett Jones LLP Climate Change and Emissions Trading Group has unique international and domestic experience in assisting clients with carbon trading, carbon finance and renewable energy and "cleantech" projects and financing, as well as advising on climate change risk management and skills to help our clients reduce risk and capitalize on opportunities related to climate change in Canada and around the globe.

Our lawyers are also recognized internationally as leaders in their fields by industry publications and directories, including practice chair Gray Taylor acknowledged by Chambers Global: The World's Leading Laywers for Business as one of ten individuals globally in the first tier for climate change and "one of the fathers of the climate change industry".

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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