Canada: Canadian Implications Of The Waxman-Markey Bill

An emissions trading bill currently making its way through a committee of the U.S. House of Representatives includes a number of provisions with potential ramifications for cross-border trade. On March 31, 2009, House Representatives Markey and Waxman released the American Clean Energy and Security Act (the "Act").1 Representative Waxman is the Chairperson of the Energy and Commerce Committee while Representative Markey is the Chairperson of the Energy and the Environment Sub-Committee.

The Act is largely based on a blueprint published by the U.S. Climate Action Partnership, which includes major American businesses and non-government organizations. The Obama administration and Democratic congressional leaders aim to have emissions trading legislation passed in both the House of Representatives and the Senate by December's Conference of the Parties to the United Nations Framework Convention on Climate Change.

Overview of the Act

The Act is organized in four titles: Clean Energy, Energy Efficiency, Reducing Global Warming Pollution, and Transitioning to a Clean Energy Economy.

Clean Energy

The Act would require retail electricity suppliers to meet six percent of their demand through the supply of renewable energy by 2012. By 2025, fully one quarter of electricity would need to be supplied from renewable sources.

The Act would also impose a low carbon fuel standard ("LCFS"). Such a standard would be based on emissions intensity of fuel over its full lifecycle or from "well-to-wheel." The Act would require the emissions intensity of fuel to meet 2005 levels from 2014 to 2022. Emissions intensity would then drop five percent below the 2005 baseline by until 2030 and ten percent below the baseline thereafter.

As the emissions intensity of fuel from Canada's oil sands is up to thirty percent higher than that of conventional crude, it would become increasingly difficult for American oil refineries to market fuel from the oil sands. Minister Prentice has stated he is keen to speak further with his U.S. counterpart on the prospect of a LCFS as part of the "Clean Energy Dialogue" between the two countries.

The LCFS included in the Act is modeled after that of California, which was formally adopted in late April. California's LCFS adopted Thursday requires refineries, producers, and importers to reduce the carbon intensity 10% by 2020 and more thereafter.

Leading up to its adoption Canada's Minister of Natural Resources, Lisa Raitt, wrote to Governor Schwarzenegger suggesting that such a measure may constitute an unfair barrier to trade. One concern is that fuel from the oil sands would be treated less favourably than fuels with similar levels of emissions intensity, like those from Venezuela. The Government of Ontario, in contrast, has signed a Memorandum of Understanding committing to follow California's LCFS.

Energy Efficiency

The Act would authorize funding for building efficiency measures and would delegate to the Administration the authority to set and harmonize efficiency standards for vehicles, appliances, public buildings, and industry.

Reducing Global Warming Pollution

Using 2005 as a base year, the Act calls for GHG reductions of 3% by 2012, 20% by 2020, 42% by 2030, and 83% by 2050. (By way of comparison, using 2006 as a base year, the Government of Canada has pledged to reduce emissions by 20% by 2020 and by at least 60% by 2050). Through a combination of upstream and downstream measures, the Act would cap emissions from sectors covering 85% of the American economy, with entities emitting 25,000 tons or more subject to the cap. The Act does not yet specify how allowances would be distributed between sectors and whether they would be allocated or auctioned; this has been left to the committee.

Offsets would be limited to two billion tons annually, half of which could come from international sources. Acceptance of international offsets would be contingent upon the existent of a bilateral agreement with the host country of the offsets and the Environmental Protection Agency (EPA) would have considerable discretion to limit the use of international offsets. Further, an emitter would need to purchase five tons of offsets to replace every four tons of emissions. According to Point Carbon, only half of the 20 million tons of offsets that will be available in Canada and the U.S. in 2012 would be eligible for inclusion.

There would be no limit on the banking of allowances and there would be a one-year limit on the borrowing of allowances. To provide some price stability, some allowances would be set aside in a "strategic reserve." The Federal Energy and Regulatory Commission (FERC) would provide oversight of the carbon market. The International Emissions Trading Association has argued that it is the Commodity Future Trading Commission (CFTC), rather, that has the necessary experience. The EPA estimates that the price of a ton of carbon under the system will be in the $17-22 range by 2020.

The Act calls for the pre-emption of regional and state initiatives from 2012 to 2017. The Regional Greenhouse Gas Initiative (RGGI) and California have already stated their general support for such pre-emption. A number of Canadian provinces would be impacted as they are members of regional initiatives. British Columbia, Quebec, Ontario, and Manitoba are members of the Western Climate Initiative (WCI) while Saskatchewan is an observer. Ontario, Quebec, New Brunswick, Nova Scotia, Newfoundland & Labrador, and Prince Edward Island are observers of the Regional Greenhouse Gas Initiative. Manitoba is a member of the Midwestern Greenhouse Gas Reduction Accord. The prospect of suspended regional initiatives would likely increase pressure on the Canadian federal government to institute an emissions trading scheme.

Transitioning to a Clean Energy Economy

To protect trade competitiveness, energy-intensive sectors that produce globally traded commodities would be eligible for rebates. The rebate program would be phased out by 2020. The Act would allow the President, should he find the rebates to be ineffective in preventing leakage, to institute "border adjustments." Under such adjustments, importers would be required to purchase allowances to cover the carbon content of the imported goods. It has been estimated that 11-13% of allowances would need to be freelyallocated to trade-exposed sectors to protect their competitiveness.2

Canadian manufacturers have expressed concern about the measures potentially being used as a guise for protectionism. "I think the worst thing we could see here is regulatory standards being applied on manufacturing processes to restrict access to the U.S. market. [...] On issues of enforcement, the boundaries get blurred pretty quickly, especially when you've got strong, local political pressure saying 'protect American jobs.'"3

Minister Prentice has also acknowledged the potential impact of the Act if Canada does not have similar measures in place. He has also mused recently that Canada may adopt absolute emissions targets over intensity-based targets, and has stated that the three members of NAFTA are working to strengthen NAFTA's environmental side agreement. The Obama administration is conscious of the need for the U.S. to stay onside its international obligations in this regard.

Members of the World Trade Organization (WTO) are free to take certain environmental measures that would otherwise be viewed as restraints on trade. Nations are free to take measures (b) "necessary to protect human, animal or plant life or health"4 and "relating to the conservation of exhaustible natural resources."5 WTO jurisprudence has held that air is such a natural resource. The measures, however, must not be arbitrary or constitute unjustifiable discrimination.6

Conclusion

Representative Waxman has stated that, with the exception of the overall cap, he is open to changes to the Act. The drafters anticipate reporting the bill out of committee by the end of the month. Senator Boxer, Chair of the Environment and Public Works Committee, anticipates introducing Senate legislation in September.

While certain issues remain to be deliberated and decided, particularly concerning the auctioning of allowances, it is becoming very likely that emissions trading will commence in the U.S. within the next few years. Even absent legislative action, the EPA has recently made an "endangerment finding" with regard to carbon dioxide that opens the door for executive action.

In whatever form, the U.S. emissions trading initiatives will have a major impact on Canada's economy and policy options.

Footnotes

1. An official summary of the American Clean Energy and Security Act is available at: http://energycommerce.house.gov/Press_111/20090331/acesa_summary.pdf
The full-text of the bill is available at: http://energycommerce.house.gov/Press_111/20090331/acesa_discussiondraft.pdf .

2. Statements of Trevor Houser of the Peterson Institute for International Economics at the hearings of the Energy and Commerce Committee (April 2009).

3. Jayson Myers, President of the Canadian Manufacturers & Exporters Association, as cited in Shawn McCarthy, "Exports at risk from U.S. climate change bill," (3 April 2009) Globe and Mail.

4. General Agreement on Tariffs and Trade (GATT), Article XX(b).

5. General Agreement on Tariffs and Trade (GATT), Article XX(g).

6. General Agreement on Tariffs and Trade (GATT), chapeau to Article XX.

The foregoing provides only an overview. Readers are cautioned against making any decisions based on this material alone. Rather, a qualified lawyer should be consulted.

© Copyright 2009 McMillan LLP

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions