Canada: Climate Change Policy Profiles Of Key Nations – Canada

INDC

On May 15, 2015 the Government of Canada announced that Canada plans to reduce its greenhouse gas emissions (GHG) by 30% below 2005 levels by 2030. Canada formally submitted this target, referred to as an Intended Nationally Determined Contribution, to the United Nations Framework on Climate Change.

According to a statement by Canada's Environment Minister "This is a fair and ambitious target that is in line with other major industrialized countries and reflects our national circumstances, including Canada's position as a world leader in clean electricity generation."

In its INDC submission, Canada noted:

Canada's target is to be achieved by the adoption of coal-fired electricity standards that ban the construction of traditional coal-fired electricity generation units and the phase-out of existing coal-fired electricity generation units, implementation of GHG standards for vehicles, the regulation of hydrofluorcarbons, the reduction of methane emissions from the oil and gas sector, and GHG emission reductions from the natural gas-fired electricity, chemical and nitrogen fertilizer industries. Canada's regulatory approach is coupled with investments in clean energy technologies and green infrastructure.

The full text of Canada's INDC submission can be accessed here.

Market Mechanisms/Carbon Pricing

In Canada, climate change is a shared responsibility among the federal government and the governments of Canada's 13 provinces and territories. Canadian provinces have jurisdictional authority over the fields of natural resources, energy and many aspects of the environment. Each has its own legal framework, policies and measures in place to reduce GHG emissions.

There is no federal carbon price in Canada, although four of the largest provinces have established or are establishing GHG emission reduction regulations which provide for the issuance and trading of carbon emission credits or other carbon pricing mechanisms.

Alberta

In 2003, Alberta passed the Climate Change and Emissions Management Act (the Act). The Act led in 2004 to the development of a mandatory GHG emissions reporting program under the Specified Gas Reporting Regulation (SGRR). The SGRR requires facilities in Alberta directly emitting over 50,000 tonnes of GHGs measured in carbon dioxide equivalents (tCO2e) per year to submit an annual report on their previous year's GHG emissions to Alberta Environment and Parks (AEP). On July 1, 2007, Alberta brought into force the Specified Gas Emitters Regulation (SGER). It requires each established facility in Alberta that emitted over 100,000 tCO2e per year in any calendar year from 2003 or after to reduce its annual GHG emissions intensity by 12% from its 2003 - 2005 baseline emission intensity.

Emission intensity is a measurement of GHG emissions per unit of production. For instance, for a gas processing plant, the emission intensity is the quantity of CO2e emitted per thousand cubic meters of natural gas production.

The SGER sets out a formula for establishing a facility's baseline emissions intensity. It is essentially an averaging of the ratio of total annual direct GHG emissions to production for the years 2003, 2004 and 2005.

A facility's baseline emission intensity is used to calculate the facility's "Net Emission Intensity Limit", which is the facility's maximum net emission intensity permitted under the SGER. The Net Emission Intensity Limit is calculated by multiplying the facility's approved baseline emission intensity by its reduction target. Specifically, an established facility's Net Emissions Intensity Limit is calculated as its approved baseline emissions intensity times 0.88 (i.e. a 12% reduction of the baseline emissions intensity).

Third party verification is a key component of the establishment of a facility's baseline emissions intensity, as well as for compliance reporting.

In June 2015 AEP announced that the 12% reduction in emissions intensity will be changed to 15% starting January 1, 2016 and to 20% starting January 1, 2017.

As mentioned above, a facility's GHG emissions must not exceed it's Net Emissions Intensity Limit and annual compliance reports must be filed with AEP each year. Facilities have four ways to comply:

• Reduce emissions down to the facility's Net Emissions Intensity Limit through such things as improvements in facility operations and efficiency (i.e. technology improvements, maintenance resulting in better efficiency and lower emissions, fuel switching, etc.).
• Pay a fee of $15¹ per tCO2e to the Climate Change and Emissions Management Fund (CCEMF) for each tCO2e needed to bring the facility's emission down to its Net Emissions Intensity Limit. For each payment to the CCEMF, a facility obtains one technology fund credit equal to one tCO2e. The CCEMF creates a pool of resources that enables additional investments in technologies and programs for reducing emissions or adapting to climate change. Starting in 2016, the fee for a technology fund credit will increase to $20 and in 2017 it will be $30.
• Purchase emissions offset credits generated from facilities in Alberta which are not subject to the SGER and retire those offset credits to meet the facility's Net Emissions Intensity Limit. A one tCO2e reduction from a facility not regulated by the SGER constitutes one emission offset. The SGER sets out how a recognized offset credit is created.
• Acquire emission performance credits from another facility regulated by the SGER that has reduced its emissions intensity below its Net Emissions Intensity Limit and retire those credits to meet the facility's Net Emissions Intensity Limit.

Alberta has also appointed a five person panel, chaired by a University of Alberta economist, to conduct a comprehensive review of Alberta's climate change policies. The panel is holding public consultation sessions and is expected to make its recommendations to Alberta by the end of 2015. The panel's advice is to be considered by the Province in its development of a new provincial climate change strategy.

British Columbia

British Columbia implemented a revenue-neutral carbon tax in 2008. The carbon tax is a broad-based tax that applies to the purchase or use of fuels, such as gasoline, diesel, natural gas, heating oil, propane and coal, and the use of combustibles, such as peat and tires, when used to produce heat or energy. The carbon tax applies to fuels at different rates depending upon their anticipated carbon emissions. The rate for each fuel type is applied consistently throughout the province.

Administratively, the carbon tax is applied and collected in essentially the same way the other B.C. motor fuel taxes are applied and collected, except for natural gas which is collected at the retail level. This was done to minimize the cost of administration to government and the compliance costs to those collecting the carbon tax on the government's behalf.

Since July 1, 2012, the tax rate has been set at $30 per tCO2e. The following table sets out the per unit rates for each selected fuels.

The carbon tax has a broad base in that it is paid by individuals, businesses and governments. It applies to virtually all emissions from fossil fuel combustion in B.C. captured on Environment Canada's National Inventory Report. There are very few exemptions to application of the tax.

The carbon tax is based on the volume of the fuel combusted and is not related to the selling price of the fuel. For instance, someone purchasing 100 litres of gasoline would pay $6.67 in carbon taxes, regardless if the price of the gasoline itself was 50¢ per litre or $2.00 per litre.

As mentioned above, B.C.'s carbon tax is meant to be revenue-neutral, meaning that every dollar of the carbon tax collected is to be returned to British Columbians through reductions in other taxes. The B.C. Minister of Finance is required by law to annually prepare a three-year plan for recycling carbon tax revenues through reductions in other taxes. This plan is presented to the Legislative Assembly at the same time as the provincial budget.

In 2013, B.C. reviewed the carbon tax and decided that it would keep the carbon tax in place and keep the current tax rate of $30 tCO2e. It also decided that revenues will continue to be returned through other tax reductions. The review covered all aspects of the carbon tax, including revenue neutrality and the impact on the competitiveness of B.C. businesses.

B.C. also passed the Greenhouse Gas Reduction Targets Act in 2007 and under the Emission Offsets Regulation (EOR) created a carbon market for offsets. A fundamental purpose of the EOR is to enable B.C. public service carbon neutrality and to allow a future industrial cap and trade program for facility's emitting over 25,000 tCO2e per year. A Crown corporation, the Pacific Carbon Trust, was created to source and supply offset credits from projects located in B.C. and then to sell them to B.C. government departments and agencies. However, the provincial auditor general reported that government departments and agencies were purchasing offset credits from the Pacific Carbon Trust at a cost of more than double the amount on the open market and that the Trust was purchasing offsets from projects that were not eligible. In late 2013, the government wound down the Trust and transferred the carbon offset program to the Climate Action Secretariat – Climate Investment Branch of the B.C. Environment Ministry.

Finally, B.C. passed the Greenhouse Gas Industrial Reporting and Control Act in November 2014. The main intent of the Act is to enable performance standards to be set for industrial facilities or sectors by listing them in a Schedule. Liquefied natural gas (LNG) operations have been listed in the Schedule given that B.C. is strongly promoting the development of B.C. LNG industry. The proponents of LNG facilities in B.C. wanted more certainty and thus successfully lobbied to have LNG emissions included. The Schedule also includes standards for electricity from coal combustion and will be amended to include other industries.

A series of policy intentions papers on future performance standards have been circulated for public comment and it is intended that final policies and regulations will be published in late 2015.

Under the Act, regulated operations must comply with an emission limit benchmark by submitting a compliance report relative to the benchmark. Operations that have greater emissions than the limit must submit to a compliance account one compliance unit for every tonne of GHG emissions in excess of their emissions limit. There are three types of compliance units that are equivalent for compliance purposes: emission offset units, funded units (financial contributions to a technology fund) and earned credits (units issued to regulated operations with emissions less than the annual emission limit).

B.C. has also had since November 2009 a Reporting Regulation created under the Greenhouse Gas Reduction (Cap and Trade) Act. The Reporting Regulation requires the reporting of GHG emissions from B.C. facilities emitting 10,000 or more tonnes of CO2e per year.

Quebec

In 2009, Quebec amended its Environment Quality Act in order to introduce a new division designed to regulate GHG emissions and establish, for this purpose, a cap-and-trade system of GHG emission rights. Pursuant to the enabling powers granted by this legislation, the government of Quebec adopted in 2011 the Regulation Respecting a Cap-and-trade System for Greenhouse Gas Emission Allowances. Quebec's cap-and-trade system, often referred to as a "carbon market", came into force on January 1, 2013. It applies to all stationary sources emitting more than 25,000 tCO2e every year and to importers and distributors of fossil fuels whose combustion causes the emission of more than 25,000 tCO2e.

In order to prepare the establishment of its cap-and-trade system, the government needed a comprehensive database of GHG emissions. This information was assembled by emissions reporting by industry pursuant to the Regulation Respecting Mandatory Reporting of Certain Emissions of Contaminants into the Atmosphere which requires all emitters of GHGs which emit more than 10,000 tCO2e every year to provide detailed information on emissions to the Government of Quebec. The regulation sets out detailed sampling, measurement and verification protocols for each sector of industrial activity.

Quebec's cap-and-trade system became linked to its California counterpart on January 1, 2014. Carbon emission rights are sold by the Ministry under an auction program. Four auctions are held each year. Quebec has held joint auctions with California since 2014. The sale of emission units is expected to generate more than $3 billion in revenues by 2020, all of which is to be reinvested in measures intended to reduce GHG emissions and prepare Quebec to adapt more successfully to the inevitable impact of climate change. The system accepts the use of offset carbon credits which are generated by voluntary reductions of GHG emissions by unregulated sources. Carbon credits, including offset credits, issued in Quebec may be used for the purposes of California's cap-and-trade system, and vice-versa.

In 2006, the Government of Quebec adopted its first comprehensive Climate Change Action Plan, a 6-year plan. A new plan, the 2013-2020 Climate Change Action Plan is presently under way. Its objective is to reduce total GHG emissions from Quebec by 20% by year 2020, compared with baseline emissions of 1990. The current Action Plan includes three compliance periods, an initial 2-year period followed by two 3-year periods. Regulated facilities have to reduce their emissions in accordance with reduction limits set by the government for each compliance period, or purchase carbon credits to cover any emissions above the limits set by the government. Non-compliance with the emission limits is punishable by hefty fines, including a fine of between $ 3000 and $ 600 000 per metric tonne of CO2e emissions which has not been properly covered.

Discussions are under way to prepare a 2020-2030 Climate Change Action Plan. On September 17, 2015, the Government of Quebec set an emissions reduction target of 37.5% for 2030, from 1990 emissions.

Ontario

Ontario is also taking action in climate change mitigation and adaptation while striving to build a low carbon economy. In 2008, Ontario joined the Western Climate Initiative. The Government of Ontario has been working with 10 subnational jurisdictions in both Canada and the United States in order to develop a climate change policy and climate change initiatives. Like Quebec, it has been partnering with other subnational jurisdictions worldwide in such initiatives and signed the Under 2 MOU in 2015 indicating its intention to contribute to the attainment of an increase of the planet's temperature by not more than 2 degrees in 2050. On April 13, 2015, the Government of Ontario announced that it would move towards a cap-and-trade system similar to Quebec's cap-and-trade system, which will be linked to Quebec's system and California's system.

Ontario is presently holding discussions with industry and other stakeholders in order to design a made-in-Ontario system that is tailored to Ontario's economic structure. Legislation and regulations will be required to implement its cap-and-trade system. Information on emissions of GHGs is presently being collected by the Ministry of Environment and Climate Change pursuant to Ontario's Regulation 452/09 on Greenhouse Gas Emissions Reporting which was adopted initially in 2009 and which applies to industrial facilities emitting more than 25 000 tCO2e annually. On September 14, 2015, the Ministry published draft amendments to this regulation and to the Guideline for Greenhouse Gas Emissions Reporting in order to update these instruments to align them on Quebec's and California's cap-and-trade systems. These amendments, which among other things purport to reduce the reporting threshold to 10,000 tCO2e are up for public review and comment until October 29, 2015.

Ontario has established an objective to reduce GHG emissions by 37% by year 2030, compared to baseline emissions of 1990. Ontario reduced its emissions by 6% in 2014 and intends to achieve a 15% reduction in 2020, compared to 1990 figures.

Renewable Energy

The renewable energy policies and regulations vary from province to province.

In B.C., the B.C. Energy Plan: A Vision for Clean Energy Leadership outlines the steps required for B.C. to develop goals for, among other things, clean energy. The Clean Energy Act sets an objective of producing 93% of B.C.'s electricity from clean or renewable resources.

BC Hydro and Power Authority (BC Hydro), which is owned by the province, is the main electrical generator and distributor in the province. It reports to the B.C. Minister of Energy and Mines and is regulated by the B.C. Utilities Commission. BC Hydro has had a number of programs to enter into power purchase agreements with independent power producers to buy electricity generated from wind, solar, run-of-the-river hydro, wood waste and organic municipal waste. A standing offer program for projects that will generate up to 15 MW is presently in place.

Alberta at this time has no specific policies other than incenting investment into clean and renewable energy projects through the operation of the SGER. Alberta's wholesale electricity market is unique in Canada as privately-owned generating stations bid their facility's power output into a real time market administered by an independent agency which then balances the supply with the demand. About 7% of the generation capacity in Alberta is renewable, and about 12% is derived from industrial cogeneration.

Quebec developed its first energy strategy for the 2006 to 2015 period. This strategy focused mainly on new hydroelectric projects, the creation of a wind energy sector and the diversification of natural gas and oil supply sources.

A new energy policy covering the 2016-2025 period is to be made public by the Government of Quebec in the fall of 2015. This new policy should, among other things, pursue the following objectives: increase Quebec's leadership with regard to renewable energy, continue the transition towards a more carbon-efficient economy and enhance the performance of the province with regard to energy effectiveness and technological innovation.

This new energy policy will necessarily take into account the unique situation of Quebec due to its energy profile regarding its hydroelectric and forestry resources. While on the world scale more than 80% of consumed energy comes from fossil energies, in Quebec, energy is generated by renewable sources (hydroelectricity and biomass) and by fossil fuels. However, 99% of the energy required for transportation is fossil fuel energy, which, consequently represents an important sector for the development of renewable energy such as biofuels.

Hydro-Québec, the sole shareholder of which is the Government of Quebec, has adopted a 2015-2020 sustainable development action plan which focusses on the development of the Quebec's hydropower potential, on the electrification of modes of transportation by deploying recharging points, on pursuing work on renewable energies and on the electrification of mass transit systems.

Initiatives at the municipal level are also encouraged by the government which provides financing for the building of municipal biomethanation and composting facilities to handle organic waste materials.

Ontario has adopted the Green Energy and Green Economy Act, 2009, which takes a two-pronged approach to creating a renewable energy economy. The first is to bring more renewable energy sources to the province and the second is the creation of more energy efficiency measures to help conserve energy. The bill also appoints a Renewable Energy Facilitator to provide "one-window" assistance and support to project developers in order to facilitate project approvals. The approvals process for transmission projects are also streamlined and for the first time in Ontario, the bill enacts standards for renewable energy projects. Homeowners now have access to incentives to develop small-scale renewables such as low- or no-interest loans to finance the capital cost of renewable energy generating facilities such as solar panels.

Ontario has a program of moving away from coal and promoting renewable resources which has led to a number of industrial-scale photovoltaic plants being built. Located in Sarnia, Ontario, the 97 MW Sarnia Photovoltaic Power Plant is one of the largest solar farms in the world and can power more than 12,000 homes. Other facilities include the 23.4 MW Arnprior Solar Generating Station and a 68 MW solar farm in Sault Ste. Marie.

Energy Efficiency

Canada passed an Energy Efficiency Act in 1992 (the Act). It prohibits the importation into Canada or the shipping across provincial boundaries of various energy-using products unless they comply with energy efficiency standards and the product or packaging is labelled in accordance with the regulations. The range of products regulated is broad and includes many household appliances as well as boilers, motors, heaters, coolers and other equipment. The prescribed energy efficiency standard for each regulated product is listed in a Schedule to the regulations.

The Act prescribes responsibilities on the "dealers" of energy-using products, which are persons manufacturing, importing, selling or leasing energy-using products in Canada. Dealers are responsible for ensuring that each model of a regulated product meets the prescribed energy efficiency standard for the product and that an energy efficiency report is sent to Natural Resources Canada.

In Quebec, the Act respecting energy efficiency and innovation was adopted in 2011, giving the Minister of Energy and Natural Resources the responsibility of developing a comprehensive plan with regard to energy efficiency and innovation and to ensure its implementation and follow-up. This plan is meant to contribute to the attainment of the government's target regarding the reduction of GHGs.

The Bureau de l'efficacité et de l'innovation énergétique of the Ministry of Energy and Natural Resources, as well as Hydro-Québec, Gaz Métro and Gazifère, offer different programs and services, including financial support, to various stakeholders in areas such as agriculture, the food industry, commerce, technological innovation institutions, municipalities, residential, community and transport.

Quebec's comprehensive plan on energy efficiency will be updated after the adoption of the 2016-2025 energy policy.

Financial Support

Canada has a number of federal and province-based financial initiatives in place to support clean energy investment, research and development. At the federal level, since 2009 the Clean Energy Fund Program has supported clean energy research, development and demonstration projects, including large-scale carbon capture and storage. Initially announced as a $1 billion investment, the fund was reduced by $205 million in 2010 to provide additional funds to the ecoENERGY Retrofit-Homes Initiative. Approximately $146 million has been provided for small scale demonstration projects in renewable and clean energy research and development projects conducted by federal departments and agencies.

The federal ecoENERGY Innovation Initiative has since 2011 funded research and development projects involving energy efficiency, clean electricity and renewables, bioenergy, electrification of transportation and unconventional oil and gas. Funding is provided to successful proponents following a review and due diligence process and the signing of a contribution agreement.

The Program of Energy Research and Development is a federal, interdepartmental program operated by Natural Resources Canada to fund energy research and development initiatives of 13 federal departments and agencies. At times these departments and agencies partner with the private sector, associations, universities and international organizations.

The ecoENERGY for Renewable Power Program was launched in 2007 to encourage the generation of electricity from renewable resources. Although no new contribution agreements have been signed since March 2011, projects with contribution agreements receive a one cent per kilowatt-hour incentive for eligible renewable energy production during their first ten years of operation. As of March 2011, 104 projects qualified for the incentive.

Footnote

1 All references to dollars are to Canadian dollars.

Norton Rose Fulbright Canada LLP

Norton Rose Fulbright is a global legal practice. We provide the world's pre-eminent corporations and financial institutions with a full business law service. We have more than 3800 lawyers based in over 50 cities across Europe, the United States, Canada, Latin America, Asia, Australia, Africa, the Middle East and Central Asia.

Recognized for our industry focus, we are strong across all the key industry sectors: financial institutions; energy; infrastructure, mining and commodities; transport; technology and innovation; and life sciences and healthcare.

Wherever we are, we operate in accordance with our global business principles of quality, unity and integrity. We aim to provide the highest possible standard of legal service in each of our offices and to maintain that level of quality at every point of contact.

Norton Rose Fulbright LLP, Norton Rose Fulbright Australia, Norton Rose Fulbright Canada LLP, Norton Rose Fulbright South Africa (incorporated as Deneys Reitz Inc) and Fulbright & Jaworski LLP, each of which is a separate legal entity, are members ('the Norton Rose Fulbright members') of Norton Rose Fulbright Verein, a Swiss Verein. Norton Rose Fulbright Verein helps coordinate the activities of the Norton Rose Fulbright members but does not itself provide legal services to clients.

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.