Lawyers in Canada: Davis LLP - Legal Advisors Since 1892

Minister Prentice: Environmental, energy and economic policy are parallel roads to the same destination

Environmental, energy and economic policy will remain tightly intertwined at the federal level. This was Minister of the Environment Jim Prentice's message to business leaders at at the Lake Louise World Cup Business Forum on November 28, 2008. "It is understood that when we speak of environmental policy, we also speak of energy policy. And when we speak of energy policy, we speak of economic policy," noted Minister Prentice during his address. "These are all parallel roads to the same destination. That destination is one of an enduring Canadian prosperity."

Minister Prentice's remarks are consistent with the message that has been emerging from Ottawa since the federal Conservatives won another minority government on October 14.

The remarks were made in the midst of the global economic crisis. However, the economic crisis is not the only factor that will shape Canada's climate change policy. Minister Prentice also pointed to President-elect Obama's position on the environment and energy as well as the ongoing UN negotiations regarding the successor agreement to Kyoto as factors that must be considered.

With respect to the US, he said that Canada must "forge an immediate relationship with the new American administration in order to quickly and collectively address the environmental issues that straddle the borders of our two nations." Minister Prentice, along with his counterparts in International Affairs and International Trade, have already reached out to President-elect Obama to discuss a continental cap-and-trade regime. He emphasized that Canada must "work collectively on all fronts - domestically, in North America, and as a leading contributor to international efforts - to make real progress."

While Minister Prentice set out an integrated framework for federal climate change policy, he did not propose any specific regulations, nor did he address Canada's existing Turning the Corner climate change plan. The fate of Turning the Corner,which was to be implemented by January 1, 2010, is now very uncertain.

Creating an integrated environmental, energy and economic policy will necessarily involve compromise. The concern among environmentalists is that in an age of economic turmoil and energy scarcity, environmental interests may be subordinated to economic and energy supply concerns. Given the immediacy of the economic crisis and the urgent push to enact environmental legislation, there is a risk that short term economic concerns could lead elected officials to craft weak greenhouse gas emissions regulations, with significant long term consequences for the global environment.

US to move quickly on climate change legislation

"Instead of denial we will have resolve, instead of procrastination, we will have action. Instead of listening to the voice of the stagnant status quo, our committee hears the voice of our president-elect." This is US Senator Barbara Boxer's assessment of the sea change in climate change policy resulting from the election of Barack Obama. President-elect Obama is widely expected to pursue the climate change file aggressively in early 2009. What happens in the US will be critically important for the future of Canadian climate change policy. Canadian businessed should therefore monitor the situation south of the border.

The new US administration's focus on climate change is heralded by the following recent developments:

• At a climate change summit hosted by California Governor Arnold Schwarzenegger last week, President-elect Obama said that the US will "engage vigorously" in the UN climate change talks, and that the US will "help lead the world toward a new era of global cooperation on climate change." As a first step, the US will implement its national cap-and-trade system. Both the US House and Senate are currently formulating proposals for such a system;
• The chairperson of the House of Representative's energy committee was recently replaced. John Dingell, whose Michigan riding made him a necessary ally of the auto industry, was replaced by Henry Waxman from California. Congressman Waxman had previously introduced a Safe Climate Act with similar targets to those espoused by President-elect Obama. His ascension to chair of the energy committee suggests that a House bill will be drafted with the goal of reducing emissions to 1990 levels by 2020 and by an additional 80% by 2050; and
• Senator Boxer continues to lead the senate committee on environment and public works, which is expected to draft a bill directing the Environmental Protection Agency to implement a cap-and-trade regime. According to a committee statement on November 20, that regime will be one that "meets the goals laid out by the president-elect." She also announced a second bill that will establish a grant program to reduce global warming emissions under the Clean Air Act with up to $15 billion a year available to spur innovations in clean energy, including advanced biofuels;

Governor Schwarzenegger, Congressman Waxman and Senator Boxer all hail from California. As in the past, the Golden State therefore appears to be setting the tone for the US's environmental policy. The US federal government will likely look to California's emissions reduction law (Assembly Bill 32) and related scoping plan for inspiration.

Ottawa has already engaged President-elect Obama on the related issues of the environment, energy and the economy. British Columbia, Manitoba, Ontario and Quebec will likely seek to be heard through their relationship with California under the Western Climate Initiative.

CPRB releases climate change disclosure guidance

The Canadian Performance Reporting Board ("CPRB") recently released "Building a Better MD&A: Climate Change Disclosures" (the "Guide"), a guidance document intended to help companies improve their climate change disclosure. The Guide helps to answer some of the questions that have been raised in response to calls from institutional investors and the Ontario Securities Commission for improved disclosure (see our previous posting for additional background).

The Guide helpfully puts the issue of climate change into a business context by noting that climate change may affect the following:

• Business continuity, where a changing climate could interrupt operations;
• Access to capital, where investors are concerned about climate change;
• New capital expenditures, where the economic regulation of greenhouse gases ("GHG") could change the future value of assets;
• Inter-jurisdictional complexities, where regulations vary across the jurisdictions in which the company operates;
• New M&A considerations, where climate change risks and opportunities may affect valuations; and
• Operational costs, including those associated with process changes and regulatory compliance.

The Guide suggests that investors want material disclosure about climate change as it relates to the following:

• Business strategy: What are the implications of climate change for a company's competitiveness? Is climate change a threat, an opportunity or both? What is the company's strategic response to climate change?
• Risks: What are the risks that climate change poses for the business and what are the company's risk management strategies? Risks include physical risks to operations and supply chains, regulatory risks (which may differ across jurisdictions in which the company operates), reputational risks, and litigation risks.
• GHG emissions: If they are significant to assessing the past performance and future prospects of the company, what are the company's direct and indirect greenhouse gas emissions for the period covered by the annual MD&A? Have GHG targets been set? If so, were they met? Emissions data should be expressed both in absolute and intensity (i.e., per unit of production) terms.
• Financial impacts: How have climate change matters impacted financial operations, cash flows and financial condition? What are the future financial implications related to capital and operating expenditures, liquidity, commitments, liabilities or revenues associated with climate change strategies, risks and greenhouse gas emissions? This section in particular should provide the context for financial data that is disclosed by the company.
• Governance: What governance processes and organizational resources has the company assigned to the identification and management of climate change issues?

The Guide reminds companies that climate change disclosure must meet the basic criteria of any other type of corporate disclosure with respect to materiality, continuity of disclosure, and forward looking statements.