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IBM and Acclimatise identify 10 strategic questions that directors should ask about climate change

IBM and Acclimatise (a UK climate adaptation risk management consultancy) recently release a list of 10 strategic questions that directors must ask about climate change. The list is included in a report that focuses on the actions being taken by the UK FTSE 350 companies to "adapt to a changing climate and build business resilience" (the "Report"). The report was prepared as part of the Carbon Disclosure Project.

The questions are grouped to help companies assess their climate change risks, opportunities, and responses. In the preface to the report, IBM says that it believes "anticipation and competent management of [climate change] risks - and the opportunities they present - will be a source of competitive advantage and be crucial to business success."

As shareholders and securities regulators become increasingly focused on climate change issues, the anticipation and competent management of these risks will also be crucial to discharge the fiduciary duties of directors to the corporation and to comply with environmental disclosure requirements.

The following excerpt begins at page 16 of the Report (© Copyright Acclimatise (Climate Risk Management Ltd) and International Business Machines Corporation, 2009, reproduced with permission):

"YOUR RISKS

1) What are the operational impacts of climate change on your company?

• How are your supply chains and suppliers' operations affected?
• What are the implications for the price, supply and demand for commodities (e.g. agriculture, fisheries, minerals), and services (e.g. water, energy, telecommunications and IT)?
• How will international and internal security threats due to climate change affect your local labour supplies and supply chains?

2) Which of your company's key operating assets are located in areas vulnerable to climate change impacts and what are the implications?

• How long would it take and what costs would be involved to relocate and reconfigure key operating assets?
• What are the implications of depreciating, abandoning or writing-off assets before normal end-of-life?
• How will the value of your asset portfolio change over time?

3) How sensitive is demand for your products and services to climate change impacts?

• How will customer needs, buying behaviour and ability to pay, change and over what timescale?
• What steps have you taken to ensure that your current products and services remain viable?
• What are the implications arising from changes in the demographics of your customer base?

4) How could current and future climate change regulations and industry standards affect your organisation and its reputation?

• What is your level of regulatory and financial exposure to the introduction of prescriptive legislation on adaptation, together with further legislation on urgent mitigation action as the reality of climate change becomes more pressing?
• How effective and auditable is your process for reporting regulatory and policy compliance?
• Which areas of your business are sensitive to media, NGO and local community concerns?

YOUR OPPORTUNITIES

5) What new and enhanced existing products and services can you offer your customers?

• What steps are you taking to develop new or enhanced business opportunities that will provide competitive leadership?
• How will you develop brand stretch to take advantage of changes in customer behaviours and develop climate related markets?
• Can you provide products and services that will help customers predict, monitor, adapt, insure or recover from climate change?

6) What operational benefits could you enjoy from managing your response to climate change?

• How can you improve the attractiveness of your company to investors, banks, credit rating agencies, employees and potential recruits?
• How will you use the current economic crisis as an opportunity and an incentive to revisit your business model and respond to the growing social, environmental and economic challenges?
• What are the cost advantages if you can secure more favourable insurance cover by demonstrating strong operational risk management processes and a responsible climateaware business?

YOUR RESPONSE

7) How clear and effective are your company's internal management responsibilities for climate change and your engagement with stakeholders?

• To what extent are your climate change leadership and management roles clearly defined, supported and empowered?
• How are you sharing knowledge with and informing governments, regulatory bodies, NGOs, and the media to manage and forecast exposure?
• What actions are you taking to ensure that the investment community, your bankers and insurers understand and support the steps you are taking regarding climate risk?

8) How well structured is your company's approach for managing climate change?

• How effective is your process for exploring longer-term scenarios and identifying risks and opportunity signals as they emerge to plan and act accordingly?
• How are you assessing the vulnerability of your suppliers, assets, operations, workforce and markets to changing risks?
• What steps are you taking to ensure that climate-driven business risks and opportunities are embedded into your capital investment and operational expenditure decision-making processes?

9) How can you ensure your company's approach is based on robust information and assumptions?

• How have you integrated the latest available climate science, climate change scenarios to inform your business planning and decisions?
• Are your management information systems for assets, supply chains, operations, markets and customers reporting on and monitoring climate change KPIs using realtime, interconnected and intelligent data?
• Can your information systems provide an early warning of operational risk?

10) How can you demonstrate that your company's climate business resilience plans are realistic and financially viable?

• What actions have you taken to understand and manage future liquidity and ensure sufficient contingency funding?
• How do your business continuity and crisis management plans reflect the changing risk profiles due to climate change and are they well-rehearsed?
• What steps are you taking to involve your employees, implement new technologies, and develop new skills, expertise and cultural change?"

Update: the G8 Meeting of Environment Ministers

The First day of the G8 Meeting of Environment Minister's occurred yesterday. The agenda for Day 1 was "a Meeting with NGOs and Civil Society". According to the Press Release, the meeting touched on climate change, low-carbon technologies, biodiversity and protecting children's health. The press release confirms that the Ministers are aware that the coming months' work will focus on Copenhagen and that upcoming international environmental discussions must be used to identify a common planning platform between advanced economies and developing national.

The Italian Environment Minister, Stefania Prestigiacomo, concluded at the end of yesterday's session:

"As environment ministers, we must be capable of directing economic stimulus programmes towards the Green Economy and a New Green Deal, developing research and investment in new technologies and forms of co-operation with developing nations so as to ensure that these countries get access to both".

As mentioned in Monday's blog, technology seems to be emerging as a key theme of the meeting. The Ministers focus on climate change and new technology in their sessions today. More updates tomorrow.

Alberta's Climate Change Compliance

As we blogged yesterday, the Alberta Environment reported a reduction in greenhouse gas emissions in Alberta. The emissions reductions come as a result of facilities compliance under the Climate Change and Emissions Management Act (the "Act").

"Alberta is building a strong foundation of experience as we take action to balance the environment, energy and the economy," said Premier Ed Stelmach. "As the only jurisdiction taking this kind of concrete action, we have valuable insight into how we can work with our national and international partners to make real and lasting emission reductions without harming the economy or threatening energy security."

The Act and the associated Specified Gas Emitters Regulation, require that facilities which emit more than 100,000 tonnes of "specified gases" must improve their emissions performance by 12 percent relative to an established baseline rate. Facilities may achieve compliance by reducing their emissions, purchasing emissions offsets in the Alberta offset system or pay $15.00 per tonne over their target into the Climate Change and Emissions Management Fund ("Fund").

In its press release, Alberta Environment also announced that $82.3 million was collected into the Fund in the 2008 compliance year (which ended March 31, 2009), bringing the total paid to $122.4 million. A detailed report will be released later in the year when the industry audits are complete. We'll keep our eyes out for it and keep you updated.

Alberta Environment Reports a Reduction in Greenhouse Gases

Alberta Environment has announced that its climate change program has resulted in a reduction in greenhouse gas emissions by 6.5 million tonnes. Credited with this change is Alberta's Climate Change and Emissions Management Act, which sets mandatory reduction targets for industrial emitters of greenhouse gases and requires payment of penalties if those targets are exceeded.

This announcement comes on the heels of a report in the Vancouver Sun stating that the UN has reported that Canada's emissions have increased more since 1990 than any other G8 nation.

Alberta has taken the steps to establish a regime where greenhouse gas emissions are regulated. Now, the goal indicated by Alberta's Minister of Environment, Rob Renner, will be to continue to improve the emissions regulation program. The most difficult step - starting the program - has been taken. Alberta was the first province to introduce legislation to reduce greenhouse gases, and it is continuing to lead by example.

A final detailed report is expected later in 2009 following industry submission audits. We will monitor the status of this report and will blog about it once it is released.

By Colin Lipsett

G8 Environment Ministers Meeting in Italy - the Agenda

The 2009 G8 Summit will be held on the island of La Maddalena, Italy from July 8 to 10. In the months leading up to the Summit, the host country has organized a series of ministerial meetings, including the G8 Environment Minister's meeting, which is being hosted by the City of Siracusa on the Sicilian coast, from April 22 - 24.

Climate change and the preservation of biodiversity are the two main issues on the agenda in Syracuse. The goal of the Environment Minister's meeting is to "send out an important political message on biodiversity and to facilitate dialogue on the issue of climate change ahead of the Copenhagen conference in December of this year, where the debate is going to focus on the world's "post-Kyoto" setup".

The agenda for the meeting indicates that discussions with respect to new technologies to foster economic recovery and promote clean energy will be paramount. According to the official website, "the discussion is going to focus on how to promote clean energy technology in order to address the dual challenge of climate change and energy security".

In addition to the Ministers from the G8 countries, representatives of Czech Republic, in its capacity as EU duty president, China, India, Brazil, Mexico, Indonesia, South Africa, Australia, the Republic of Korea, Egypt and Denmark have also been invited to attend. Denmark is hosting the 2009 Climate Change Conference in Copenhagen in December.

The meeting will facilitate discussions between Canada, the United States, which has pledged a commitment to international co-operation on climate change, and non-G8 counties, such as India, China and Mexico, all of whom our Environment Minister, Jim Prentice, has indicated must be actively engaged on climate change issues and challenges.

The first round of meetings begins tomorrow. We will be closely monitoring the results of these discussions and will keep you posted.

Canada's greenhouse gas emissions continue to rise: report to UN

On April 17, Canada filed its National Inventory Report ("NIR") with the UN pursuant to its obligation under the Kyoto Protocol. In the NIR, Canada reveals that its greenhouse gas ("GHG") emissions continue to grow and that Canada ranks "first among the G8 nations" for increasing emissions.

The following summary is included in the executive summary:

"In 2007, Canadians contributed about 747 megatonnes of CO2 equivalent 2 (Mt CO2 eq) 3 of GHGs to the atmosphere (Figure S-1), a 4.0% increase from 2006. This followed a year of virtually no growth in emissions and two years of declining emissions, such that the overall change from 2004 is an increase of 0.8%. Canada's economic GHG intensity-the amount of GHGs emitted per unit of economic activity-was 1% higher in 2007 than in 2006. Since 1990, emissions have increased by about 26%." (at 3)

Canada agreed under the Kyoto Protocol to reduce its emissions by 6% from 1990 levels during the 2008-2012 commitment period. It is almost certainly impossible for Canada to reduce its emissions from 26% above 1990 levels to 6% below 1990 levels in the next 3 years.

In the NIR, Canada persists in repackaging data in relative terms by, for example, including emissions intensity, emissions efficiency and emissions per capita figures. While such figures may assist Canada in planning its GHG reduction strategy, they are irrelevant to the country's international legal obligation to reduce absolute emissions.

More helpfully, Canada apportioned its emissions to various sources. Energy, comprising mostly the combustion of fossil fuels but also some fugitive emissions, accounted for 82.2% of total emissions. Agriculture and Industrial Processes accounted for 8.0% and 6.9% respectively; waste, for 2.9%. The balance was from Solvent and Other Product Use. The report noted the following about the drivers of emissions growth:

"The largest portion of the growth is observed in the Energy Sector, where the energy industries (fossil fuel industries plus Electricity and Heat Generation), Road Transportation, Commercial and Institutional, and Mining categories made the greatest contributions." (at 11)

Additional reporting from Canada.com is available here.

Obama Announces Energy and Climate Partnership of the Americas

As further evidence of the United States' commitment to international co-operation on climate change, President Obama recently announced the Energy and Climate Partnership of the Americas. The partnership, which was announced during the opening of the Fifth Summit of the Americas in Trinidad and Tobago on April 18th, attempts to "strengthen the foundation of our prosperity and our security and our environment through a new partnership on energy".

The President commented:

"[The Energy and Climate Partnership] will harness the vision and determination of countries like Mexico and Brazil that have already done outstanding work in this area to promote renewable energy and reduce greenhouse gas emissions. Each country will bring its own unique resources and needs, so we will ensure that each country can maximize its strengths as we promote efficiency and improve our infrastructure, share technologies, support investments in renewable sources of energy. And in doing so, we can create the jobs of the future, lower greenhouse gas emissions, and make this hemisphere a model for cooperation".

The annoucement comes two days after the White House issued a press release confirming that the U.S. and Mexico would "strengthen and deepen bilateral cooperation by establishing the US-Mexico Bilateral Framework on Clean Energy and Climate Change". According to the press release:

"The Bilateral Framework will focus on: renewable energy, energy efficiency, adaptation, market mechanisms, forestry and land use, green jobs, low carbon energy technology development and capacity building. The framework will also build upon cooperation in the border region promoting efforts to reduce greenhouse gas emissions, to adapt to the local impacts of climate change in the region,, as well as to strengthen the reliability and flow of cross border electricity grids and by facilitating the ability of neighboring border states to work together to strengthen energy trade".

In a speech the same day as the inauguration of the new American President, Environment Minister Jim Prentice remarked that in order for the Canada to effectively address climate change, comparable efforts from all of the developed nations would be required. He stressed that "meaningful participation from all of the developing world led by the Big Five, the so-called Big Five of China, India, Brazil, South Africa and our NAFTA partner Mexico" must be secured.

With these recent announcements out of the United States, it appears that things are moving in that direction.

US Environmental Protection Agency finds GHG threat to health and welfare

On April 17, 2009, the US Environmental Protection Agency ("EPA") issued a proposed finding Friday that greenhouse gases ("GHGs") contribute to air pollution that may endanger public health or welfare. If finalized after a 60-day consultation period, the finding would pave the way for the EPA to regulate emissions of the 6 identified gases. Whether or not the EPA will ultimately regulate GHGs will depend on whether President Obama and his climate change team succeed in enacting federal cap-and-trade legislation.

As blogged about previously, the EPA had already sent the proposed finding to the White House. The finding builds on the 2007 decision of the US Supreme Court in Massachusetts v. EPA in which the court held that the EPA had the authority to regulated GHGs under the Clean Air Act and that its decision not to regulate GHGs was, at the time, "arbitrary, capricious, or otherwise not in accordancewith law." The EPA has evidently taken that message to heart.

The proposed finding attempts to lay to rest any claims that the science on global warming is inconclusive. The EPA notes that its proposed finding is "based on rigorous, peer-reviewed scientific analysis of six gases - carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulfur hexafluoride - that have been the subject of intensive analysis by scientists around the world. The science clearly shows that concentrations of these gases are at unprecedented levels as a result of human emissions, and these high levels are very likely the cause of the increase in average temperatures and other changes in our climate." The EPA added that climate change is also a threat to national security and could have a disproportionate effect on certain segments of society.

The EPA was careful to point out that its proposed finding does not include regulations. The EPA notes that "both President Obama and Administrator Jackson have repeatedly indicated their preference for comprehensive legislation to address this issue and create the framework for a clean energy economy." If Washington enacts federal cap-and-trade legislation (or its equivalent), there would be no need for the EPA to regulate GHGs. Many emitters would prefer to participate in the crafting of federal legislation rather than be subject to regulations penned and enforced by the EPA.

Combined with President Obama's desire to pass a cap-and-trade law, and his desire to take a principled leadership role in Copenhagen at the end of this year, the EPA announcement may encourage Washington to agree on an emissions management bill sooner rather than later.

NRTEE Releases "Achieving 2050: A Carbon Pricing Policy for Canada"

The National Round Table on the Environment and the Economy released "Achieving 2050: A Carbon Pricing Policy for Canada" today (April 16, 2009). Achieving 2050 has been published by the NRTEE in reaction to what it sees as a patchwork of responses to climate change in Canada and to the United States' commitment to achieving truly global consensus on climate change.

The NRTEE was created in 1988 by the Federal Government to convene "diverse and competing interests around one table to create consensus ideas and suggestions for sustainable development". The NRTEE's mission is to generate and promote sustainable development solutions to advance Canada's national environmental and economic interests simultaneously, through the development of innovative policy research and advice.

The Report explains the NRTEE's belief that now is the time to lay the climate policy framework for a "nationally collaborative approach to a unified carbon pricing policy in Canada and an internationally harmonized approach in North America". Achieving 2050 recommends a "unified carbon pricing policy for Canada" which is aimed at meeting one clear objective - "the greatest amount of carbon emissions reductions at the least amount of economic cost". There are four main elements of the carbon pricing policy advocated in the Report:

1. Economy wide cap and trade system

2. Complementary regulations and technology policies

3. Participation in international emissions markets

4. A climate governance strategy to implement and adapt the carbon pricing policy over time

The publication generates a number of conclusions:

• An economy-wide carbon price signal is the most effective way to achieve the Government of Canada's medium- and long-term emission reduction targets and reduce cumulative emissions released into the atmosphere.
• That price signal should take the form of an economy-wide cap-and-trade system that unifies carbon prices across all jurisdictions and emissions and prepares us for international linkages with our major trading partners.
• An effective carbon pricing policy needs to find a balance between certainty and adaptability - it should be certain enough to transmit a clear, long-term price signal to the economy upon commencement to encourage technology and change behaviour, yet adaptable to changing circumstances and future learning.
• There is a cost to delay in the form of higher carbon prices later to meet targets, and a cost to maintaining Canada's current fragmented approach to carbon pricing policies in the form of reduced GDP and higher carbon prices over time.
• Canada's economy will continue to grow under this policy - it is forecast to be twice as large in 2050 than today - but this will be smaller than if no carbon pricing policy were adopted.
• New federal/provincial/territorial governance mechanisms and processes should be put in place to achieve a harmonized Canadian carbon pricing policy.
• Technology development and deployment, along with the electrification of the energy system, is central to emission reductions and is stimulated through an economy-wide carbon price signal, as well as appropriate public investment in carbon capture and storage and renewable energy.
• Complementary regulations and technology policies in the transportation, buildings, oil and gas, and agricultural sectors are also required to ensure broad-based emissions coverage at an overall lower price, reduce total emissions, and meet government targets.

This is significant news for climate change in Canada. How does the NRTEE propose that we "achieve 2050"? What are the implications of the Report?

Come back tomorrow when we analyze the NRTEE's recommendations and provide some insight as to what the implications of the Report will be.

BC releases Energy Plan progress report

On April 9, British Columbia released a progress report on the implementation of the BC Energy Plan.

The province highlighted that it has completed several initiatives, including the following:

• Rolled out the LiveSmart BC: Efficiency Incentive Program, which has provided energy-efficiency labels to over 10,000 houses, giving homeowners access to rebates and incentives to improve the energy efficiency of their homes;
• Enacted the Greenhouse Gas Reduction Targets Act to make the broad public sector carbon neutral by 2010;
• Required utilities to implement demand side management measures, which has prompted BC Hydro to apply to BCUC for approval of a Long-Term Acquisition Plan that includes ambitious demand-side management program.
• Prompted BC Hydro to procure more renewable power by conducting the Clean Power Call and the Bioenergy Call for Power Phase 1, which approved 4 new projects (Phase 2 is underway), and by establishing a Standing Offer Program for projects under 10 MW;
• Issued Special Direction 10 to BCUC to ensure BC Hydro can pursue self-sufficiency goals;
• Provided 34 clean energy projects with $47 million in funding from the Province's Innovative Clean Energy (ICE) Fund

In his preface to the report, Blair Lekstrom, Minister of Energy, Mines and Petroleum Resources, notes that, "while we're proud of the achievements to date, there is still much work to be done." Accordingly, the report also describes many initiatives that are underway or planned for the future.

Has Ontario killed the electric car?

On March 21, Ontario enacted amendments to regulations regarding the use of low speed electric vehicles ("LSEV") on the province's roads and highways. As reported by the CBC, the new rules are too strict for key players in the industry.

Catherine Scrimgeor of Toronto-based ZENN Motors is quoted as saying, "the ZENN [electric car] as it exists right now - the ZENN car that we sell in Quebec and the United States - will not be marketed in Ontario." ZENN, which stands for "zero emission no noise", is one of the province's most vocal proponents of LSEVs.

The new regulations are part of a pilot project of the Ministry of Transportation (Ontario). In enacting the regulations, the Ministry attempted to balance the benefits of getting LSEVs on the road with the risks that their drivers would face when surrounded by conventional vehicles. The regulations were developed in part with reference to a study of the issue prepared by the National Research Council Canada.

O. Reg. 449/06 Pilot Projects - Low-Speed Vehicles and R.R.O. 1990, Regulation 611, Safety Inspections (applies in part to LSEVs), which are both regulations under the Highway Traffic Act, are available online.

The U.S. Climate Bill - Flexibility on Cap and Trade and the Canadian Response

We blogged last week about a proposed U.S. cap and trade system and questioned whether or not the American President was backing down in his support for it. There is more evidence this week of a shift in White House backing of cap and trade. While President Obama seems to remain committed to the basic idea of a cap and trade system, it is becoming increasingly clear that he is going to be flexible on how that will be accomplished.

Henry Waxman, a Democratic Congressman from California and a proponent of economic measures such as cap and trade to lessen climate change, introduced a climate change bill last week to Congress. The Waxman-Markey bill, officially named the American Clean Energy and Security Act, is comprised of four titles: a "clean energy" section, promoting the use of renewable sources of energy; an "energy efficiency" section, promoting across the board increases in energy efficiency; a "global warming" section, providing limitations on heat-trapped pollutant emissions; and a "transitioning" section, promoting green jobs and protecting U.S. industry and consumers for the duration of the transition to clean energy.

The bill requires that, using the 2005 output of CO2 equivalent emissions as a base, emissions be reduced down by 3% in 2012, to a reduction of 20% in 2020. As well, the bill requires that, by 2050, carbon dioxide and methane emissions be reduced by nearly 80%. In regard to electricity, the bill requires that by 2025, a quarter of the electricity production of every region within the United States be derived from renewable resources (i.e. solar, wind and geothermal). Also included within the bill is the requirement that the electrical grid be modernized, that more electric vehicles be produced and that increases be made in the efficiency of appliances, buildings and the generation of electricity.

Perhaps the most controversial aspect of the bill is with respect to plans for cap and trade. The bill would cover about 85% of the U.S. economy requiring businesses to obtain permits to cover their emissions. What is missing from the bill is how the permits would be distributed. The President originally favoured a "100% auction to create incentives for companies to reduce their greenhouse-gas emissions". This is not a popular option among lawmakers from states whose industry is coal based. Another option is that the permits be given away for free, but this method also has critics.

The 648-page draft bill is expected to become the blueprint for congressional and administration policy efforts with respect to climate change. Consideration of the bill by the Energy and Commerce Committee, of which Mr. Waxman is the Chair, is scheduled to be completed by Memorial Day. Congressional debate would begin thereafter.

The Wall Street Journal reported today that "[m]any lawmakers have warned that passing a climate bill will be difficult if the administration sticks to a position that all of the greenhouse-gas emissions allowances under a so-called cap-and-trade system would have to be purchased at auction. Recent Senate votes have indicated that proponents of an economy-wide cap and trade proposal don't yet have the 60 votes needed in the Senate to overcome a filibuster".

In light of the opposition to the bill, the President's office has indicated that the White House may have to be flexible. The WSJ reported today that the "President's science adviser said in an interview with the Washington Post Wednesday that a climate bill didn't necessarily have to start with 100% auction, but could work its way there over time".

So while they might not be backing away from cap and trade entirely, these recent comments seem to suggest that the President and his administration may have to be adaptable to a different system than they had originally envisioned.

Meanwhile, north of the 49th, Environment Minister, Jim Prentice, confirmed that as a result of the proposed U.S. legislation, Canada may have to align itself with the American form of cap and trade system. Minister Prentice remarked "[t]here are clearly measures [being planned in the United States] that would have trade-related consequences for Canada if we don't have equivalent environmental legislation in place" and acknowledged that "Canada would have to adopt regulations and enforcement standards 'comparable' to whatever the Obama administration...passes".

Minister Prentice also confirmed what we've outlined above - that the Americans are "talking about a system of flexibility". Canada has not yet released detailed regulations, expected to come into force in 2010, which would outline reduction targets for industry. Environmental groups are impatient and insistent that these regulations be unveiled sooner than later. But if Canada will be aligning itself with the U.S., then perhaps it is premature expect the federal government tell us what our emissions regime is going to look like, when it is not yet clear what the end result south of the border is going to be.

OEB Chair issues letter regarding possible changes to regulatory approval of capital spending by transmitters and distributors

On April 3, Howard Wetston, Chair of the Ontario Energy Board ("OEB") issued a statement regarding upcoming changes to the way the OEB will regulate capital investment in Ontario's electricity grid. Ontario's Green Energy and Green Economy Act, 2009, if passed, will place new obligations on transmitters and distributors to upgrade their infrastructure to accommodate distributed generation, renewable generation, and enhanced conservation and demand management (see our bulletin for more details). The Chair notes that the magnitude of these new investments has "led me to consider
how the Board could create conditions which would foster timely investment by utilities in required infrastructure."

In particular, the Chair is "of the opinion that electricity utilities may need greater regulatory certainty prior to making significant capital investments." The OEB will therefore consider modifying the its approach to cost recovery for capital investment. Some of the alternatives that the OEB may consider are the following, which the Chair characterizes "as possible elements of an integrated cost recovery approach for infrastructure costs":

• the ability to recover construction costs while construction is in progress;
• the ability to recover certain project costs as they are incurred or based on the achievement of certain milestones;
• the ability of a utility to apply to the regulator outside of the normal rate application cycle for a rate increase as a result of a single capital project; or
• the imposition of rate riders or surcharges to allow for the recovery of certain specific cost increases without the need for a general rate case.

The Board expects to initiate a formal consultation shortly.

Pembina and Ecojustice seek review of approval of two Shell oil sands projects

As reported by the Calgary Herald, Globe and Mail, and the Wall Street Journal, the Oil Sands Environmental Coalition (the "Coalition") wants the Alberta Energy Resources Conservation Board and Canadian Environmental Assessment Agency to revisit their joint decisions to approve Shell's Jackpine Mine and Muskeg River Mine Expansion oil sands projects. The Coalition, led by the Pembina Institute and represented by lawyers from Ecojustice, has filed an affidavit requesting a review of the 2004 and 2006 decisions of the EUB/CEAA Joint Review Panel. The Coalition alleges that Shell has declared that it will not follow through with written commitments made as part of its approval applications to reduce greenhouse gas emissions by a total of approximately 900,000 tons of carbon dioxide a year. The Coalition alleges that these commitments were prerequisites to the approvals of the projects.

Jackpine Decision

The ERCB's decision regarding the Jackpine project was released in 2004. In that decision, the Panel summarized Shell's view of the climate change issue as follows (at page 50):

"Shell stated that it shared the widespread concern that GHGs were leading to changes in the global climate. Shell advised that it supported the commitment by Royal Dutch/Shell Group to cut emissions from GHGs from its global operations by the amount that would meet or exceed Kyoto emissions reduction targets out to the year 2010. Shell noted that it had set voluntary targets for its oil sands unit, with a goal to be less carbon dioxide (CO2) intensive than the most likely alternative, which was imported crude on a full-cycle basis. It stated that this goal had led to a voluntary reduction target of 50 per cent by 2010 for the Muskeg River Mine. Shell stated that it was presently working with its stakeholders and the Shell Canada Climate Change Advisory Panel to assess voluntary targets for the project, and it further committed to put in place a GHG management plan to reduce emissions over time. Shell also committed to employ the best commercially available technology to minimize GHG emissions. Shell stated that it was committed to meeting the future requirements of Alberta and Canada with respect to GHGs."

The Panel largely accepted Shell's view of the issue, stating the following at page 53 of its decision:

"The Panel accepts Shell's commitment to use leading technologies to minimize GHG emissions and to develop a GHG management plan for the project. The Panel believes that the issue of GHGs can be dealt with through initiatives and policies developed at the federal and provincial levels. The Panel supports AENV in requiring appropriate GHG emissions and emissions intensity reporting. The Panel expects Shell to participate in the development of sectoral agreements that may be applicable to oil sands facilities and to abide by them."

Muskeg Expansion Decision

The ERCB's decision regarding the Muskeg expansion project was released in 2006. In that decision, the Panel summarized Shell's view of the climate change issue as follows (at page 39):

"It said that Shell and Albian believed that human activities could affect climate and that those companies were taking action to reduce GHGs. Albian stated that while GHGs were not yet regulated, it had the lowest GHG intensity of all oil sands operators. It indicated that Albian would be directed by Shell's climate change principles, which included proactive participation in addressing climate change issues, voluntary emission reduction targets, and voluntary progress reporting, among others."

Effect of Shell's voluntary commitments

The Panel noted the following in its Jackpine decision (at page 97), and made a similar statement in its Muskeg Expansion decision (at page 90):

"The Panel believes that when a company makes commitments of this nature, it has satisfied itself that these activities will benefit both the project, stakeholders, and the public, and the Panel takes these commitments into account when arriving at its decision. The Panel expects that Shell will adhere to all commitments it made during the consultation process, in the application, and at the hearing, to the extent that those commitments do not conflict with the terms of any approval or licence affecting the project or any law, regulation, or similar requirement Shell is bound to observe. The Panel expects Shell to advise the EUB if, for whatever reasons, it cannot fulfill a commitment. The EUB would then assess whether the circumstances regarding the failed commitment warrant a review of the original approval. The EUB also notes that the affected parties also have the right to request a review of the original approval if commitments made by the applicant remain unfulfilled."

To the extent that Shell actually made a commitment to set and meet voluntary GHG reduction targets for the projects as part of the above applications and has subsequently refused to follow through with that commitment, the Oil Sands Environmental Coalition is likely relying on this statement as the ground for its request for review. Exhibits filed by Shell in respect of such commitments are no longer available on ERCB's website.

Shell's Response

Shell Canada's John Abbott, Executive Vice President, Oil Sands provided the following statement in response to the allegations:

"We understand and share the concerns of stakeholders on greenhouse gas emissions from oil sands. At Shell we see our role as providing more energy and CO2 solutions, and in consultation with a wide range of Canadian and global organisations took early voluntary action, becoming the lowest GHG intensity operator of all mineable oil sands projects.

We're also adding our voice to the call for a concerted regulatory framework at the regional, national and global levels that drive down emissions across our industry on a level playing field. Alberta's current regulations and the emerging Canadian policies recognize that the need to reduce emissions is too important to rely on voluntary commitments, and along with the rest of the industry we are now focused on meeting these new regulatory targets.

Shell continues to work with stakeholders on ways to strengthen CO2 policies and welcome the thoughtful debate on this critical issue."

The Coalition has interpreted Shell's position to be that it will not meet voluntary targets, but will instead wait for the government to impose binding targets on the projects.

Stay tuned for developments, or track the progress of the Coalition's application regarding Jackpine and Muskeg River on the ERCB's website.

Canada appoints envoys to three working groups under Clean Energy Dialogue

On March 31, Minister of the Environment Jim Prentice responded to a question from the opposition by announcing that the federal government had appointed envoys to three working groups under the Clean Energy Dialogue:

• Linda Hasenfratz, CEO of of Ontario auto parts company Linamar, will co-lead the working group on biofuels and clean engines;
• Jacques Lamarre, CEO of engineering and construction giant SNC-Lavalin, will co-lead the group on improving the electricity grid;
• Charlie Fischer, who was recently president and CEO of the Canadian-based, global energy company Nexen Inc., will co-lead the group on clean energy.

Each of the envoys will be paired with a co-leader drawn from senior levels of government bureaucracy.

As reported in the Ottawa Citizen, the appointment of Mr. Fischer has drawn criticism from environmentalists. For example, Stephen Hazell, executive director of the Sierra Club of Canada, questions whether Mr. Fischer's prior involvement with and ownership position in a company committed to developing Alberta's tar sands undermines the credibility of Canada's efforts to address climate change.

However, Mr. Hazell conceded that Mr. Fischer is one of the more environmentally progressive oil industry executives. For example, Mr. Fischer is co-chair of Alberta Climate Change Central, a not-for-profit organization that promotes greenhouse gas reduction.

9 of 20 companies pull bids for Alberta CCS money

On April 2, CBC reported that 9 companies, including Suncor Energy, Syncrude Canada Ltd., and ConocoPhillips Canada, have withdrawn their requests for money from Alberta's $2 billion carbon capture and storage ("CCS") fund. CBC's sources attributed the companies' decisions to withdraw to a perception that CCS projects are too expensive, even with government assistance.

Twenty companies had submitted applications. Only 11 are still vying for funding, including Enbridge and EPCOR (as reported in an earlier posting). Funding decisions are expected in June.

Alberta Budgets for Climate Change

The Alberta Government announced its 2009 Budget yesterday. Reading through the many pages of the document, it is clear that climate change is a priority for both the Department of Energy and for Alberta Environment. It is no surprise that climate change initiatives are addressed in more than one Ministry - climate change isn't the responsibility of just one area of government - it touches matters for which many are accountable.

Energy

Of the eleven goals outlined in the Energy Business Plan, six of them are related directly to climate change initiatives in the areas of renewable and alternative sources of energy, conservation of energy and carbon capture and storage. In some cases, strategies for meeting these goals are a combination of the above initiatives.

Renewable and Alternative Sources of Energy

A strategy for meeting Goal 4, to encourage value added development in Alberta, includes facilitating the development and utilization of alternative energy resources such as biofuels and waste to energy opportunities.

Goal 5, to make Albertan's aware of and understand existing and emerging trends relating to energy development and use in Alberta relates to renewable and alternative sources of energy, contains strategies to proactively identify, communicate and address emerging issues that face energy and mineral development in Alberta and to enhance provincial, national and international understanding of Alberta's energy resources and work being done to develop these in an environmentally sustainable manner.

Goal 8 is to ensure effective innovation policies and programs to achieve technology and processing improvements in the development of energy and mineral resources. Realizing Alberta's energy vision will include the development of new technologies or the enhanced deployment of already proven technologies, including renewable energy sources. One of the strategies under this goal is to work with other ministries (Environment?), research organizations and industry to develop an integrated, coordinated approach to research that supports environmentally sustainable energy development.

Carbon Capture and Storage

The Department of Energy identifies Carbon Capture and Storage as a significant opportunity for Alberta in two ways:

Value Added - Alberta has a unique opportunity to develop leading industrial and petrochemical upgrading and refining clusters based on transforming raw feedstocks into synthetic gas and gas liquids for petrochemical development. At the same time we can capture and store carbon emissions and produce electricity for the provincial grid.

CCS - CCS in its ultimate role, is an enabler of clean gasification processes and is a key technology component to realizing the commercial viability of clean fossil fuels. The Western Canada Sedimentary Basin is also one of the world's most attractive sites for storing carbon emissions. Ultimately, Alberta's expertise in the science of solutions will be valued and an exportable resource unto itself.

A number of the goals outlined in the Energy Business Plan specifically relate to CCS.

Goal 3 is to ensure energy and mineral resource development occurs in a responsible, environmentally sustainable manner and achieves the Government of Alberta's outcomes. To do so, the Department of Energy will work with other ministries and stakeholders to implement the provincial action plan on climate change and the recommendations from the Carbon Capture and Storage Development Council, in particular the implementation of carbon capture and storage research and demonstration projects.

Goal 7, that Energy infrastructure is built and sustained to support the Government of Alberta's objectives, includes the need to build infrastructure to support CCS.

Goal 8, ensuring effective innovation policies and programs to achieve technology and processing improvements in the development of energy and mineral resources, specifically mentions the need to develop technologies to realize large scale capture and use of carbon.

Conserving Energy

Goal 6 in Energy's Business Plan is to ensure that industry, citizens, and communities conserve and use energy wisely. Do to so, Energy intends to promote smart metering, smart grids and better consumption measurement; facilitate the reduction of energy intensity through gains in energy effi ciency and demonstrated government leadership; and support the development of an energy effi ciency policy framework and provincial legislation.

Expenditures

The Department of Energy intends to spend wisely in the areas of renewables, conservation and carbon capture and storage. $100 million for CCS alone has been budgeted for 2009/2010. Next year's forcast is triple that number.

Environment

One of the opening statements in Alberta Environment's Business Plan confirms its commitment to addressing climate change:

Leadership is provided to transition Alberta to an outcomes focused environmental cumulative effects management system, implement the provincial Climate Change Strategy, implement the renewed Water for Life strategy, develop all Alberta's energy resources, including the oil sands, in an environmentally sustainable way, and to provide Albertans, stakeholders and industry with information on government's role in ensuring environmental excellence and sustainable development while providing tools to reduce their environmental footprint.

Climate change is specifically identified as a significant opportunity and challenge for Alberta. The Alberta Environment Business Plan summarizes this opportunity and challenge as follows:

Climate change has been described as "the most complex collective action problem in human history". In the United States, President Obama sees climate change as putting "the planet in peril". Global action on this issue continues to build not only from an environmental perspective but in the areas of economics and politics. Albertans and the Ministry are in a unique position of providing global leadership on this issue. The Alberta government's recent announcement of resources towards climate change initiatives including carbon capture and storage is the single largest global expenditure to date. The challenges of managing our global energy resources in an environmentally responsible and economically sound and efficient manner, is creating opportunities for this province to reduce carbon while supporting global energy security.

The budget shows that there is $132 million in the Climate Change and Emissions Management Fund and is projecting another $95 million will be collected next year. March 31 was the date for compliance under the Specified Gas Emitters Regulation and final figures indicating contributions to the Fund should be available from Alberta Environment shortly.

Goal 1, that the cumulative effects of development on land, air, water and climate be managed to achieve Government of Alberta desired environmental outcomes, is the main goal in Alberta Environment's Business Plan which focuses on climate change.

This goal will be addressed using a variety of strategies, including:

• assist in ensuring Alberta's energy resources are developed in an environmentally sustainable way by supporting the Ministry of Energy in the implementation of carbon capture and storage research and demonstration projects
• Continue to implement the Climate Change Strategy through policy, program and infrastructure initiatives and assure appropriate governance of the Climate Change and Emissions Management Fund. This strategy will include programs that promote wise energy use across the province, emissions management, vulnerability assessment and climate change adaptation strategies to reduce Alberta's exposure to climate change risks, development of legislation to drive energy effi ciency and conservation, and support for energy innovation and carbon management initiatives designed to lower greenhouse gas emissions over the long term.
• Complete work with the Clean Air Strategic Alliance (CASA) to update Alberta's Clean Air Strategy and begin implementation of the strategy by applying the revised management framework and renewing the major elements of the provincial air system.

Lessons Learned

This Budget confirms a number of things we have been blogging about:

1. Alberta is a global leader in climate change initatives such as CCS - our government's $2 billion commitment to CCS is the world's largest

2. Cooperation is required - to address climate change domestically, government departments will work together. Both Environment and Energy Business Plans indicate that they will be working with other ministries to address climate change initiatives

3. Addressing climate change is a challenge, but it is also an opportunity for governments

Given the commitments outlined in this budget, Alberta will have much to be proud of at the Copenhagen Climate Conference in December.

Enbridge and EPCOR move forward with CCS projects

Enbridge and EPCOR are planning two large scale carbon capture and storage ("CCS") projects in Alberta. According to the Globe and Mail, each of the projects could meet almost quarter of Alberta's goal of reducing emissions by 200 megatonnes by 2050. Both the federal and provincial governments are being asked to help fund the ambitious projects.

The first project is combines an Integrated Gasification Combined Cycle ("IGCC") commercial-scale near-zero-emission thermal power plant with CCS. The companies expect the Genesee IGCC CCS project to capture more than 3,300 tonnes per day or 1.2 million tonnes of carbon dioxide emissions a year. The second project would use an amine scrubbing process to remove CO2 emissions from the flue gas of a conventional power plant. The companies expect the the Genesee Amine CCS project to capture 3,000 tonnes of CO2 per day, or nearly one million tonnes a year.

Both projects would pipe the captured CO2 from the project sites for use in enhanced oil recovery or permanent storage in deep saline aquifers. The transportation and storage of CO2 would be the responsibility of the Alberta Saline Acquifer Project ("ASAP"), a joint initiative of 37 companies that is on track to build a demonstration pilot project by 2012.

Recent funding announcements suggest that the two Genesee projects are still on track. On March 26, the companies announced that the Genesee Amine CCS projects would receive funding under the federal ecoENERGY Technology Initiative. The exact amount of funding will be determined as the government and companies negotiate the contribution agreement. On April 2, they announced that they had applied for funding for both projects under the Alberta Government's $2 billion CCS program under the climate change action plan. Alberta is expected to process the application over the next 3 months.

More ecoENERGY money available for energy efficiency improvements

The Government of Canada substantially increased ecoENERGY incentives available to indivdiuals and businesses.

Under the ecoENERGY Retrofit-Homes program grants has increased by 25%, effective March 30. The ecoENERGY Retrofit - Homes program provides homeowners with grants of up to $5,000 to offset the cost of making energy-efficiency improvements to their homes. Grants apply to a range of measures that reduce energy consumption, from increasing insulation to upgrading windows and doors to installing solar systems.

Under the ecoENERGY for Renewable Heat program, the maximum payment for solar hot water projects has increased from $80,000 to $400,000, effective March 1. The ecoENERGY for Renewable Heat program encourages users in the industrial, commercial and institutional sectors to install active energy-efficient solar air and/or water heating systems.

Tailpipe Emissions and Other Important Messages

Minister Prentice announced on April 1 that Canada would be implementing new "tailpipe" emissions standards for vehicles built in the 2011 model year. The announcement confirmed Canada's intention to address climate change domestically and signalled its commitment to work in concert with the United States on reductions of greenhouse gases continentally.

The current CAFE (Corporate Average Fuel Economy) standard for cars is 27.5 miles per gallon. Changes to the American standards would raise the fuel economy for cars to 30.2 miles per gallon for the 2011 model year and 24.1 miles per gallon for trucks, for an average standard of 27.3 mpg. These standards are a first step to address vehicle emissions in the United States. The goal will be a combined standard of 35 mpg by 2020.

Canada does not require automakers to adhere to these standards - rather Canadian manufacturers and importers are guided by a voluntary standard which is closely aligned with CAFE. Wednesday's announcement means that the emissions standard will no longer be voluntary, but regulated. Minister Prentice remarked:

"The new U.S. fuel economy standards will have an impact across the North American automotive industry - especially Canada. We don't trade vehicles with the Americans so much as we build vehicles together. In this relationship, Canada punches way above its weight. We produce between 15 and 20 percent of North America's vehicles. Approximately 80% of new vehicles manufactured in our country are exported to the U.S."

Minister Prentice confirmed that Canada's mandatory standards to reduce carbon dioxide emissions are going to be "consistent with the national fuel economy standards set by our largest trading partner". On-going alignment with U.S. standards will be ensured.

Messages

In addition further demonstrating the Canada plans to work with the United States to address climate change, there are two important messages in the announcement.

Firstly, the development of vehicle emissions standards for the 2011 model year is one of the many components found in the Conservative government's Turning the Corner action plan to address climate change. This announcement signals the federal government's intention to implement Turning the Corner.

Secondly, the tool being employed to manage auto emissions is the Canadian Environmental Protection Act, 1999 (CEPA) and not new legislation. CEPA is a federal statute which provides, among other things, the authority for the government to introduce regulations to govern vehicle emissions. Section 160(1)(a) of CEPA specifically provides that the Governor in Council may, on the recommendation of the Minister, make regulations respecting emissions and prescribing standards in relation to emissions. CEPA is a broad environmental statute, which has, as Minister Prentice observed, the "flexibility that will let us harmonize with the broad range of possible future actions from the U.S. government".

Does this mean that other federal climate change initiatives found in Turning the Corner will also be addressed using CEPA? In his concluding remarks, Minister Prentice referred to further Canadian action on climate change: "In the coming months, you will also see us move decisively on the other major contributors - including electricity generation, and industrial production, including oil and gas".

Stay tuned.

Hydro One Distribution releases distributed generation interconnection requirements for public consultation

The Green Energy Act, if passed, will place a significant onus on owners of distribution systems to connect small scale renewable energy projects to the grid. Hydro One Distribution is readying itself for the change. It recently released draft Distributed Generation Technical Interconnection Requirements - Interconnections at Voltages 50kV and Below for public comment.

Stakeholders are invited to submit question and comments by email to DGConnectionReq@hydroone.com. The deadline for providing feedback is April 23rd, 2009.

Hydro One plans to hold one public meeting to discuss the draft requirements at a date to be determined. More information is available on the Hydro One DG site.

Canada Steering to Achieve Reduced Emissions from Vehicles

Canada's Environment Minister, Jim Prentice, announced today that the government will introduce new regulations to limit greenhouse gas emissions from the automotive sector. The new regulations, which will be introduced under the Canadian Environmental Protection Act, 1999 are in keeping with the government's commitment to tougher standards for vehicles in the 2011 model year and beyond.

Given the Minister's remarks that Canada and the United States must co-operate to address climate change, the move to tougher emissions standards comes as no surprise. The American President directed his Department of Transportation to issue new fuel efficiency standards in January of this year and last week unveiled the new standard of 27.3mpg for the 2011 model year.

Final Canadian regulations are expected to come into force in 2010.

CO2 emissions regulation is part of the Canadian Government's effort to address climate change and its commitment to total GHG reductions of 20% from 2006 levels by 2020. Together with the Clean Energy Dialogue Canada has with the United States and the Major Economies Forum on Energy and Climate, of which Canada is a participant, addressing greenhouse gas emissions is high on the Environment Minister's priority list. As the writer blogged back at the start of the year all roads lead to Copenhagen in December.