This paper reviews federal and provincial greenhouse gas ("GHG") reduction initiatives in Canada, Canadian involvement in North American regional initiatives, and the growth of Canada's voluntary carbon sector, including the role of environmental non-governmental organizations ("ENGOs"). It closes by describing private and mixed private-public sector initiatives in Canada with the potential to contribute to the convergence of voluntary and mandatory GHG markets across North America.
According to Canada's most recent national inventory (2005) Canada's GHG emissions are 25.3% above 1990 levels, or 32.7% above Canada's legal commitment under the Kyoto Protocol to reduce GHG emissions on average over 2008 to 2012 to 6% below 1990 levels (see Table 1: Canada's GHG Emissions, 1990-2005). The largest driver of GHG emissions has been growing oil and gas production, based primarily in Alberta (see Table 2: Provincial GHG Emissions: 1990 and 2005). Climate change debates have been preoccupied with whether Canada's targets can still be met at acceptable cost.
The Canadian federal government introduced a new regulatory plan for GHGs from all major emitting industrial sectors on April 26, 2007 ("Regulatory Framework for Air Emissions") (http://www.ec.gc.ca/ doc/media/m_124/report_eng.pdf ). It is not, however, without controversy, particularly in respect of its emissions intensity targets set out in Table 3. These intensity targets are stated to be rigorous enough to stabilize and cut absolute emissions from 2006 levels as early as 2010, the year targets enter into force, and no later than 2012, notwithstanding expected growth in the energy sector.
The federal plan includes domestic emissions trading with access to credits under the Kyoto Protocol's Clean Development Mechanism ("CDM") "limited to 10% of each firm's total target" and no access to Joint Implementation credits. Linkages to emerging and future regimes in the United States and possibly other jurisdictions and co-operation with Mexico are to be explored, with a domestic off sets program to be launched in 2009.
The technology fund would have two components, one devoted to near-term technology deployment and infrastructure, the other to longer-term R&D. Regulated firms can contribute $15/tonne during 2010-2012 to meet some of their compliance obligations, rising to $20/ tonne in 2013 and then increasing in sync with nominal gross domestic product.
Contributions to the deployment and infrastructure component of the fund would be limited to 70% of the total regulatory obligation in 2010, decreasing by 5% for each year for the first few years to 50% in 2014, then to 40% in 2015, 10% in 2016, 10% in 2017, and nothing in 2018 and thereafter. Contributions to the R&D component are limited to 5 megatonnes per year.
Early action credits of up to 15 megatonnes for verified actions taken between 1992 and 2006 will be available but no more than 5 megatonnes are useable in any year.
The proposed GHG regulations will not be effective until 2010 and GHG intensity targets remain controversial. Early on, the real GHG reductions achieved by the system could be limited, due to the large proportion of compliance represented by the technology fund. The size of the fund, intensity targets, limited international linkages at present, and limited credit for early action are unlikely to ensure robust emissions trading in Canada from federal action alone.
Nine out of ten Canadian provinces have released climate change plans. The targets set by the federal government and the provinces are summarized in Table 3 below.
The Climate Change and Emissions Management Act in Alberta establishes a target of a reduction in specified gas emissions relative to Gross Domestic Product to a level equal to or less than 50% of 1990 levels, by December 31, 2020. Alberta is the only jurisdiction in North America which has comprehensive regulations in force for GHG emissions from industry. The Specified Gas Emitters Regulation (see http://www3.gov.ab.ca/ env/air/pubs/Specified_Gas_Emitters_Regulation.pdf ) imposes an emissions intensity improvement requirement commencing with the period July 1 to December 31, 2007 and continuing for each year thereafter and with the improvement set at 12% against average emissions intensity during 2003/2004/2005 for facilities that completed their first year of commercial operation before January 1, 2000 and a less onerous requirement (which increases to 12% over time) for more recently established facilities. Alberta's regulatory system is innovative and complex and includes emissions reporting, off sets, a technology fund mechanism and emissions trading. In late 2001, Alberta adopted a policy to require new coalfired power plants to reduce emissions on a net basis to the level of a combined cycle gas plant.
British Columbia has stated its intention to reduce GHG emissions to 33% below current (2007) levels by 2020, also announcing that it will adopt California's greenhouse gas regulations for motor vehicles, which were recently upheld in United States federal court in Vermont (see http://www.vtd.uscourts.gov/Supporting%20Files/ Cases/05cv302.pdf ) as well as California's low carbon fuel standard ("LCFS").
Ontario's targets were introduced in a speech given by the Premier on June 20th of 2007, as set out in Table 3 below. 50% of a short-term target for 2014 of 6% below 1990 levels is to be achieved through closing Ontario's remaining coal-fired plants. Ontario has not announced any plans to comprehensively regulate its main emitting sectors. While it has followed British Columbia on California's LCFS, the Province has opted not to accept California's GHG standards for motor vehicles. On September 5, 2007 Ontario announced that it was establishing a working group of experts to develop protocols for carbon off sets and that pilot carbon off set projects for farms and forests are expected to be "up and running" in 2008.
Quebec has opted to pursue voluntary GHG reduction agreements with industrial sectors (but it is not clear if these will be "regulatory covenants"). Quebec is currently pursuing a short-term GHG reduction based on Canada's Kyoto Protocol target (see Table 3 below). Quebec also announced North America's first carbon tax in June 2007. The modest tax applies to all hydrocarbons used in the province based on carbon content. Quebec has stated that it will adopt standards for GHG emissions from motor vehicles sold in the province based on California's.
British Columbia has joined the Western Climate Initiative ("WCI") led by California, which includes 5 other U.S. states and Manitoba. The WCI has established a GHG emission reduction goal of 15% below 2005 levels by 2020 as a minimum level for its members, and is committed to establishing regional mechanisms such as a cap-and-trade system. As of August 27, 2007, Ontario, Quebec and Saskatchewan, as well as four other Western States and the Mexican State of Sonora, have observer status.
In 2001, the New England Governors and Eastern Canadian Premiers (an entity including, from Canada, the four Atlantic provinces plus Quebec) developed the Climate Change Action Plan ("NEG/ECP Plan"), a regional initiative with targets incorporated into the plans of Atlantic Provinces to various degrees, as referenced in Table 3 below. Some provinces have observer status in the Regional Greenhouse Gas Initiative of the U.S. Northeastern states, which will establish a cap-and-trade system for GHG emissions from the power sector.
Canada is a leader in the development of the global voluntary carbon off set market. zerofootprint is perhaps Canada's largest carbon retailer. Shell Canada uses carbon off sets to reduce its carbon footprint from energy intensive oil sands operations in Western Canada to a level consistent with conventional oil operations. Earlier this decade, Ontario Power Generation acquired emission reduction credits representing up to 6 million metric tonnes of CO2 reductions from U.S. projects, with an option for another 3 million.
Voluntary markets matter because: they can provide a price safety valve mechanism, where such credits would become available if other carbon units rose above a certain price; they can provide badly needed liquidity, important in a small market like Canada; they are laboratories for innovation; and in North America they are increasingly more universal than governmental initiatives, cutting across many borders.
Yet there are also limits to the public's willingness to © 2007 Bennett Jones LLP all rights reserved appreciate the differences between the rapidly growing number of different private sector initiatives. Convergence is arguably desirable for voluntary and regulatory systems alike. To do this, a common approach to measurement, reporting and verification, and related functions, for both entity and project-based mechanisms, as well as a system for tracking ownership and use of carbon reductions, are vital.
Perhaps the most important provider on the horizon is The Climate Registry. The Climate Registry will provide a common entity-wide GHG accounting, reporting and verification system to support a range of both mandatory and voluntary GHG reduction policies. Two Canadian provinces, British Columbia and Manitoba, and approximately two-thirds of the U.S. states, two American Indian tribal governments, and the Mexican State of Sonora are currently members. In August 2007, the remaining eight Canadian provinces and three territories agreed that they would join The Climate Registry. The Registry will begin accepting data from entities in January 2008.
The Canadian Standards Association ("CSA") is also introducing a CleanStartTM Registry for entity-level accounting, which like all of its registries will employ ISO 140604.
The Climate Registry is not equipped to deal with projectbased mechanisms, however, but others such as the CSA are filling the gap through its CleanProjectsTM Registry. This Registry requires all GHG reduction projects to be validated and verified by an independent third party expert. The reductions can be registered in the name of an entity other than the project entity, through serialization of the reductions and the "delisting" of these units to other entities. A GHG CleanProjects AggregationTM Registry is also being introduced by CSA for small projects. These Registries, however, do not perform the services of an exchange.
The CSA is collaborating with Manitoba and the Canadian Climate Exchange, created by the parent company of the Winnipeg Commodity Exchange, to establish a "recognized carbon credit registry in Manitoba", that could also fill a much needed niche in North America not met by The Climate Registry, in respect of tracking the ownership of GHG reductions.
A number of private entities in the carbon market have experience providing the services typically provided by an exchange. For example, the Montreal Climate Exchange, established by the Montreal Exchange and the Chicago Climate Exchange ("CCX"), has announced that it will provide standardized carbon futures contracts by the end of 2007. The CCX provides clearing services, which its counterpart in Montreal intends to provide (through its corporate family).
ENGOs in Canada provide guides for purchasers of voluntary carbon credits and similar commodities that may have an increasing impact on markets. For example, the David Suzuki Foundation publishes numerous guides to voluntary carbon off sets for businesses and individuals (http://www.davidsuzuki.org/Climate_Change/What_ You_Can_Do/carbon_neutral.asp). The Foundation's guides purport to provide criteria for the reliability of voluntary carbon off sets and providers. The Foundation links a number of offset providers on its website, although it does not explicitly endorse them (contrasting to at least one major ENGO in the United States, Environmental Defense, which endorses specific off set providers: see http://fightglobalwarming.com/page.cfm?tagID=270).
Pollution Probe publishes a "Consumer Guide to Green Power in Canada" (http://www.pollutionprobe. org/whatwedo/greenpower/consumerguide/c2_1.htm), which describes services which may be analogous to carbon off sets. "Green power" services allow purchasers to pay for the production of "green" electricity corresponding to their own consumption of electricity from the grid. Pollution Probe provides links to specific providers (e.g. BullFrog Power of Ontario).
Private and mixed private-public sector initiatives in Canada are significant, and may potentially contribute to the emergence of a broader North American GHG reduction and trading system. Private sector GHG initiatives must be clearly communicated to the public, and doing so effectively may depend upon convergence around one or a small number of common standards that the public can grow to trust. ENGOs may play a constructive role in achieving public acceptance of voluntary credits, but may complicate matters by introducing non GHGrelated criteria. A comprehensive appreciation of the GHG market in Canada, including provincial, regional and voluntary sector initiatives, suggests that Canada continues to be an important country for the global market, despite continuing uncertainty.