Canada: Climate Change Round-Up

Legislative efforts to address climate change have attracted renewed attention in recent weeks. British Columbia and Alberta have developed emissions intensity regimes while, at a global level, a range of ideas are still percolating. BC's brand new regime regulates facilities that have yet to be built, whereas Alberta's regime is seven years old, with a legislated expiration date that was extended a second time on December 19, 2014 until June 30, 2015. A summary of these regimes, and other major climate change regimes relevant to British Columbia, follows below:

BC's Greenhouse Gas Industrial Reporting and Control Act

In November, 2014, Bill 2, or the Greenhouse Gas Industrial Reporting and Control Act, received Royal Assent. The new Act replaces the Greenhouse Gas Reduction (Cap and Trade) Act and regulates greenhouse gas (GHG) emissions from liquefied natural gas (LNG) facilities. These facilities will be subject to a GHG emissions "intensity" benchmark of 0.16 carbon dioxide tonnes for each tonne of liquefied natural gas produced. In addition to carbon offsets, the new Act provides for technology fund "units" that LNG facility operators can purchase to avoid exceeding the emissions limit. The unit price is $25, which matches the price floated by by some for a US federal price. It is more expensive than the current $15 for similar Alberta fund credits, but less than a revised $30 Alberta price anticipated by some commenters earlier this year.

BC Carbon Tax

On July 1, 2008, the BC government implemented a carbon tax as part of its strategy aimed at reducing the effects of climate change. This revenue neutral tax prices each tonne of GHG emitted, with the intended effect of reducing GHG emissions by encouraging reduced fuel consumption, switching to "cleaner" fuels and implementing new technologies. The carbon tax started at a rate of $10 per tonne of carbon emissions in 2008 and rose $5 a year to $30 per tonne by 2012, where it has remained in 2014. The carbon tax will apply to emissions from LNG facilities unless an individual exemption is made pursuant to the Greenhouse Gas Industrial Reporting and Control Act.

The BC Offset Policy and Energy Plan

Released in 2007, BC's Energy Plan aimed to make BC energy self-sufficient while "taking responsibility for its natural environment and climate". The Energy Plan stated that all new natural gas or oil fired electricity generation projects developed in BC and connected to the integrated grid will have zero net GHG emissions. The Energy Plan clarified that this means that the proponents of these projects will have to invest in other initiatives that would completely offset the GHG emissions generated by these projects, unless the technology is available to eliminate or capture and store emissions from the plant. No such projects have been proposed since 2007.

The Greenhouse Gas Industrial Reporting and Control Act provides for the creation of a registry by regulation which credits offset units and earned credits to accounts. Additionally, this registry will track transactions in relation to these offset units and other compliance units and publish that information. Projects that were authorized and validated under the previous offsets regime of the Greenhouse Gas Reductions Target Act will be accepted under the new legislation, with certain conditions.

Alberta Climate Change Emissions Management Act and the Specified Gas Emitters Regulation

In 2003, Alberta passed the Climate Change and Emissions Management Act. Four years later, in 2007, Alberta enacted the Specified Gas Emitters Regulation (SGER) which was Canada's first GHG regulation and compliance carbon pricing system.

Under the SGER, all facilities that emit direct GHG emissions equal to or exceeding 100,000 tonnes of carbon dioxide per year on or after 2003 must submit a Baseline Emissions Intensity Application and annual Compliance Reports. A facility's baseline emissions intensity is calculated by dividing total annual GHG emissions by the total production for a facility. Established facilities are required to average their emissions intensity for the years 2003-2005 to determine their emissions intensity baseline, whereas new facilities are required to establish emissions intensity baselines for their third full year of commercial operation. The SGER requires 12% reductions below the facility-specific baseline. Compliance can be achieved by efficiency improvements, offsets or $15 fund credits (as noted above).

The SGER was set to expire in September and then December 2014, but the deadline for expiry was recently extended again until June 30, 2015. The Minister of Environment and Sustainable Resource Development had earlier stated that the provincial government would like to see emissions standards harmonized between the United States and Canada, and the extension gave Alberta more time to consult with the federal government and industry on "the best plan moving forward." While recent federal statements indicate a common approach is not forthcoming, recent provincial statements indicate  developments outside Alberta will influence the approach Alberta takes beyond June, 2015.

Canadian Federal Initiatives

In 2008, the Government of Canada established a national target of an absolute 20% reduction in GHGs from 2006 levels by the year 2020 – a reduction of 330 megatonnes from projected levels - as part of the government's "Turning the Corner" program. This target became a non-binding commitment under the 2009 Copenhagen Accord to cut emissions 17 percent below 2005 levels by 2020, matching an identical U.S. target commitment.

The federal government has moved on clean coal technology and older coal generation. In 2008, Natural Resources Canada issued a Clean Coal Technology Roadmap and in 2012, the Reduction of Carbon Dioxide Emissions from Coal-Fired Generation of Electricity Regulations under the Canadian Environmental Protection Act, 1999 came into force. These Regulations apply a performance standard of 420 tonnes of carbon dioxide per gigawatt-hour to new coal-fired electricity generation units and units that have reached the end of their useful life. The Regulations cover emissions of carbon dioxide only, which represents 98% of GHG emissions from coal-fired units. The performance standard will come into effect on July 1, 2015 and is expected to encourage the employment of carbon capture and storage (CCS) technology or combust biomass by coal-fired units.

American Federal Initiatives

The United States, in a recent non-binding deal with China, has agreed to cut its emissions to 26%-28% below its 2005 levels by 2025. President Obama's climate change agenda has faced significant roadblocks, notably the inability of the United States Senate to pass the American Clean Energy and Security Act, also known as the Waxman-Markey Bill, in 2009. Drawing heavily from that Act, the Clean Energy Jobs and American Power Act, also known as the Kerry-Boxer Bill, was introduced in the same year and also failed to become law.

The Environmental Protection Agency (EPA) challenged its obligation in the U.S. Supreme Court to regulate GHGs under the Clean Air Act. However, the Court held that "because greenhouse gases fit well within the Clean Air Act's capricious definition of 'air pollutant'...the EPA has the statutory authority to regulate the emission of such gases from new motor vehicles." In November 2014, a $100 million settlement was reached in an enforcement action against two major automobile manufacturers, alleging that the companies inflated the certification of their cars' GHG emissions.

Other EPA air quality regulations, including in relation to the oil and gas industry, are expected to reduce GHGs as a side benefit. For example, in 2012 the EPA released standards that resulted in the control of air pollution from hydraulic fracturing, or fracking. By January 2015, fracking operations must install equipment that will reduce emissions of ozone-producing volatile organic compounds (VOCs) and hazardous air pollutants through the use of emissions reduction technology. A side benefit of these measures is that they capture methane, a powerful GHG.

California and the Western Climate Initiative

The Western Climate Initiative (WCI), created in 2007, is a collaboration between California, Québec, British Columbia, Manitoba, and Ontario to "identify, evaluate, and implement emissions trading policies to tackle climate change at a regional level."  In effect, the WCI formed as a response to lack of action by the US federal government, with state and provincial participants seeking to create a regional cap and trade program.  Participation over time has varied, however.  Former partners of the WCI include Arizona, Montana, New Mexico, Oregan, Utah, and Washington.

BC's participation in the WCI has, in part, shaped its provincial laws governing air emissions. Absent a provincial cap-and-trade regime, it is unclear what BC's participation with WCI will be in the future, if any.

In late September 2013, California and Québec signed an agreement to link their carbon emissions trading schemes beginning January 1, 2014. This is the first linkage under the WCI to establish a carbon reduction and trading scheme that is intended to produce an overall 15% reduction from 2005 level carbon emissions by 2020 amongst the five jurisdictions.

The Intergovernmental Panel on Climate Change

The Intergovernmental Panel on Climate Change (IPCC), set up in 1988 by the United Nations Environment Programme and the World Meteorological Organization, gathers scientific data to inform the policy decisions of the UN. The latest science by the IPCC will be important when 196 nations meet to determine how best to respond to climate change at the 2015 United Nations Climate Change Conference in Paris, France from November 30-December 11, 2015. The last meeting in Copenhagen failed to result in a legally binding agreement and, instead, the Copenhagen Accord was only "recognized" by the nations at the summit.

A 2014 Synthesis Report published by the IPCC warns that "continued emission of greenhouse gases will cause further warming and long-lasting changes in all components of the climate system, increasing the likelihood of severe, pervasive and irreversible impacts for people and ecosystems." The Report also reinforces the goal of limiting the maximum global average temperature to no more than two degrees, which was the figure also cited in the Copenhagen Accord.

The European Union Emissions Trading System

Meanwhile, the European Union emissions trading system (EU ETS), which covers around 45% of total GHG emissions from the 28 EU countries, is midway through its plan to have 2020 emissions be 21% lower than in 2005. It is a 'cap and trade' regime where companies receive or buy emission allowances which they can trade with each other when needed. Heavy fines are imposed on companies that do not purchase enough allowances to cover all of their emissions.

The EU ETS entered its third phase in 2013 that will take it through to 2020 and there has been a growing surplus of emissions allowances and international credits in comparison to emissions. Due in large part to the economic crisis, the European Commission estimates that by the end of 2013, the surplus had grown to in excess of 2.1 billion allowances. The surplus causes uncertainty in both the carbon market in the EU and in the ability of the region to meet emission targets in an economically viable way. An additional issue with the EU ETS has been market abuses, such as money laundering, that have threatened the integrity of the program. In 2010, to combat these abuses, Commission Regulation (EU) 1031/2010 was enacted which coordinates carbon auctions by establishing common auctioning platforms and giving national law authorities investigative and enforcement powers.

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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