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Virginia and Alabama join the attack on the EPA's endangerment finding

The States of Virginia and Alabama have commenced legal action to challenge the U.S. Environmental Protection Agency's ("EPA") endangerment finding and its jurisdiction to regulate greenhouse gases under the Clean Air Act. As reported last week, Texas, the U.S. Chamber of Commerce, and a coalition of business lobby groups (including the National Association of Manufacturers and the American Petroleum Institute) have launched similar claims.

Virginia's petition stands out, however, in that it appears to attack the climate science, not just the administrative process by which the EPA arrived at its foundational endangerment finding. BusinessGreen.com reports that Virginia attorney general Kenneth T Cuccinelli II accused the EPA of acting in "an arbitrary and capricious fashion" and relying too heavily on reports from the U.N. Intergovernmental Panel on Climate Change ("IPCC"). "The IPCC reports were produced without regard to US data standards and thus lack the transparency and data quality standards that the EPA should be demanding in the reports it bases it's [sic] endangerment findings on," said Mr. Cuccinelli, continuing, "We cannot allow unelected bureaucrats with political agendas to use falsified data to regulate American industry and drive our economy into the ground."

By focusing on the science that underpins the endangerment finding, Virginia's petition could result in a trial that would be much more politically charged and highly publicized than the trials of the petitions that focus on purely administrative law concepts. Comparisons are already being drawn with the 1925 "Scopes Monkey Trial", in which the validity of a statute that prohibited the teaching of evolution was challenged.

Texas, US Chamber of Commerce and other groups challenge EPA endangerment finding

The U.S. Environmental Protection Agency ("EPA") will be fighting a battle on many fronts with respect to its recent finding that greenhouse gases in the atmosphere endanger the public health and welfare of current and future generations (the "endangerment finding"). At least three lawsuits have been launched to challenge the ability of the EPA to regulate greenhouse gases under the Clean Air Act based on its endangerment finding. The litigious onslaught is far from surprising, but comes at a bad time as prospects for passing a climate change bill in Congress dimmed further this week.

The State of Texas launched a lawsuit this week opposing the endangerment finding. A similar action was launched the same day by a coalition of eight trade groups, including the National Association of Manufacturers, the American Petroleum Institute (API), and the National Association of Home Builders. The U.S. Chamber of Commerce kicked off the trend last week with a petition challenging the process by which the EPA arrived at its endangerment finding.

In fact, the Chamber of Commerce has been on the offensive for several months, but appears to have changed tactics. Back in August, the Chamber was calling for a "Scopes monkey trial" of climate change science. Now they appear to be taking a more clinical administrative law tack, alleging that the EPA's process for making the endangerment finding was deficient. The Chamber's chief legal officer, Steven J. Law, said that the legal challenge "will focus specifically on the inadequacies of the process that EPA followed in triggering Clean Air Act regulation, and not on scientific issues related to climate change or endangerment."

The Chamber's view is not shared by all of its members. Apple, Pacific Gas and Electric, PNM Resources, and Exelon announced last year that they would not renew their memberships as a result of the Chamber's stance on climate change. Nike stepped down from the board in protest, but remained a member in hopes of advocating for a change in the position.

The lawsuits are not surprising. All of the petitioners have expressed deep concern about the economic impact of EPA-administered emissions regulations. Perhaps these stakeholders believe that a more favourable and flexible climate change regime will be developed in Congress, although they may be hoping to stall that effort as well.

And stalled is exactly what the bills in Washington appear to be. Making matters worse, key industry supporters ConocoPhillips, Caterpillar, and BP recently dropped out of the US Climate Action Partnership, which has been lobbying Congress to pass climate change law. They cited concerns that the draft bills did not do enough to recognise the importance of natural gas and were too favourable to the coal industry.

The brakes are therefore on all efforts to regulate climate change in the U.S. Given the federal government's strict policy of harmonization with the U.S., Canada's efforts to create national climate change legislation are therefore also on hold as well. Until progress is made south of the border, emissions in Canada will most likely be regulated at the provincial or regional level, if at all.

Lobby group challenges California's Low Carbon Fuel Standard in court

The National Petrochemical & Refiners Association ("NPRA") is asking a court to strike down California's Low Carbon Fuel Standard ("LCFS"). The LCFS will make it harder to sell certain fuels, including those derived from Alberta's oil sand, in California. NPRA is attacking the LCFS principally on constitutional grounds, arguing that California lacks the jurisdiction to make laws that pertain to inter-state commerce. The case could be one to watch as Canada's provinces and federal government contemplate emissions reduction schemes whose effects will cross jurisdictional boundaries.

The LCFS is intended to achieve at least 10 percent in the carbon intensity of California's transportation fuels by 2020. Under the regulation, every type of fuel is assigned a carbon intensity value (measured in CO2-equivalent gram per unit of energy). Fuel providers must ensure that the mix of fuels they sell into the California market meets, on average, a declining standard for greenhouse gas emissions intensity. The LCFS therefore creates a strong disincentive to buy fuels that have a high carbon intensity.

Under the regulation, the carbon intensity of a fuel is derived with reference to the lifecycle emissions associated with the fuel (coloquially referred to as "well head to wheels" emissions). Fuels derived from Alberta's oil sands, the output of which is deemed to be "high carbon-intensity crude oil" ("HCICO"), are deemed to have particularly high lifecycle emissions, making them much less attractive under the LCFS. In their complaint (at paragraph 61), the NRPA asserts that the LCFS thereby "creates a barrier to the sale of transportation fuel derived from oil extracted by certain processes, and in certain regions, including Canada" and that "the barrier to HCICO oil is designed, as a practical matter, to make it economically infeasible to import HCICO to California."

NRPA takes particular issue with such extra-jurisdictional impacts of the LCFS. Article I, Section 8, Clause 3 of the United States Constitution (the "Commerce Clause") provides that the US Congress has the jurisdiction to "regulate Commerce with foreign Nations, and among the several States, and with the Indian tribes." There is a line of cases in the US that stand for the proposition that there exists a converse "dormant Commerce Clause" that prohibits states from passing laws that burden or discriminate against interstate commerce. The NRPA complains that the LCFS does exactly that by making judgments about activities that occur wholly outside of California. The NRPA therefore seeks to have the law struck down as being contrary to the US constitution.

The NRPA's motivation is not earth shattering. It is generally opposed to legislation that burdens its members, which include such oil giants as Shell and BP, both of which have significant oil sands interest, but both of which have also denied supporting the litigation). Their constitutional argument, however, should be much more interesting to Canadian legal observers.

Sections 91 and 92 of Canada's constitution also divide jurisdiction between the federal and provincial governments. Given that the constitution was penned in 1892, it is not surprising that low carbon fuel standards and other environmental matters are not expressly discussed in the division of powers sections. Past cases involving environmental laws, including the Canadian Environmental Protection Act (under which the federal government proposes to enact its pending GHG regulations), have focused on the tension between the federal power with respect to criminal law and the provincial power with respect to property and civil rights. However, the federal government's powers with respect to tax, trade and commerce, and peace, order and good governance could also become relevant to the economic regulation of emissions, as could be the provincial power with respect to direct taxation.

There is therefore ample scope for constitutional litigation in Canada with respect to greenhouse gas emissions regulations, whether enacted provincially or federally. NRPA's complaint could therefore foreshadow similar actions north of the border.

Alberta adjusts CCS spending timeline in 2010 Budget

The Government of Alberta unveiled its 2010 Budget on Tuesday. The budget continues to provide funding for carbon capture and storage ("CCS") projects, although at a slower pace than previously planned.

In last year's budget, the government planned to spend the first $800 million of its $2 billion of CCS funding by the end of the 2011-2012 fiscal year. That figure has been scaled back to $300 million in the 2010 Budget ($500 million over the next 3 years), with $100 million allocated for the coming fiscal year.

The Edmonton Journal reports that Alberta Minister of Energy Ron Liepert emphasized that the government is still committed to providing the full $2 billion in funding. However, he explained that the spending timeline had been adjusted because the private sector has not been ready to push ahead with the four projects to be funded by the government.

Recall that Alberta announced in 2009 that four projects would received CCS funding. The winning private sector proponents propose to:

• retro-fit CCS onto a coal-fired generating plant under construction west of Edmonton;
• install CCS technology on an oil sands upgrader;
• turn deep coal deposits into clean burning synfuel; and
• transport carbon dioxide from a fertilizer plant and proposed upgrader east of Edmonton to oil fields in east-central Alberta to enhance recoveries.

According to 2010 Budget documents, the projects will remove more than five million tonnes of carbon dioxide per year once fully operational in 2015. The 2010 Budget notes that this is equivalent to taking approximately one million vehicles off the road.

However, Alberta's greenhouse gas emissions grew by more than 5 million tonnes in the period from 2004 to 2007 (according to the Alberta Environment Report on 2007 Greenhouse Gas Emissions). If CCS is to make a significant and timely contribution to the mitigation of emissions in Alberta, both the private sector and the government should remain committed to moving forward with the projects as quickly as possible.

Minister Prentice Confirms Canada's Commitment to Copenhagen

On the heels of Canada's weekend confirmation of its emissions targets to the United Nations (17% reduction by 2020 relative to 2005 levels), Minister Prentice spoke to the University of Calgary Public Policy and School of Business today about climate change, the impact of the Copenhagen Accord, the importance of clean technology and innovation and Alberta's oil sands.

Copenhagen Accord

The Minister affirmed Canada's support for the Copenhagen Accord today and attempted to define, from Canada's perspective, the importance of the outcome of the December meetings in Denmark. The Minister remarked:

'What was achieved at Copenhagen, frankly, is not well understood. Neither is the fundamental importance of the outcome. That's partly because climate change has become such an ideological issue that media reports were often confusing, and sensationalized. And that made an already challenging process, even more challenging. The agreement forged during that intense two-week period in December, represents a major turning point. For Canada and for each of the other nations that signed it.

The Copenhagen Accord is what the federal government has advocated for more than three years and what we negotiated to accomplish for a year. And we firmly support it. It accords with the principles that we have enunciated, sometimes unpopularily, at the climate change table".

The Minister's confirmed that Canada has been continuing on the same path of emissions reductions and harmonization with the United States. He further outlined the major reasons why the Copenhagen Accord was a success for Canada:

1. The Accord has the support of the United States, meaning that Canada's objective of aligning our policy with that of the U.S. now has a reinforced framework.

2. The Accord creates a "functional, international community with one shared goal - addressing climate change in a principled, comprehensive fashion. As a respected, fully-engaged member of that community, Canada is not alone in facing that challenge".

3. The Minister affirmed that the Canadian Government under its current leadership is entirely committed to implementing the Accord, something that previous governments were not willing, by their own admission, to do with the Kyoto Protocol. Minister Prentice remarked that his Government "will act on the Copenhagen Accord because it is consistent with Canada's stated position on climate change and because it moves us closer to our ultimate goal of becoming a Clean Energy Super Power. It is also a practical document, one that acknowledges that there can be more than one way to proceed in addressing climate change. It accommodates the specific constraints of certain countries while allowing them to capitalize on their strengths".

Seventeen Percent by 2020 - An Ambitious Target

The Canadian Government inscribed its target to reduce greenhouse gas emissions with the United Nations on the weekend: a 17 per cent reduction by 2020 from the base year of 2005. The target, which has been adjusted from 20 per cent by 2020 relative to 2006 levels, now exactly aligns with those inscribed by the United States to the United Nations.

In his speech, the Minister stressed the pointlessness of "Canada and Canadian businesses to strike out on their own, to set and to pursue target that will ultimately create barriers to trade and put us at a competitive disadvantage". He chided Quebec's recent vehicle regulations as being evidence of this "folly".

Seventeen percent by 2020 is an ambitious target. Why? Because Canada will have to "dig deeper to achieve the same end":

1. Canada already burns less coal to generate electricty than the United States;

2. Our equipment and machinery is generally newer and more energy efficient;

3. Canada's "cold climate and sprawling geography typically mean significantly higher operating costs for Canadian companies".

Technology and Innovation

How are we going to do it? The answer, according to the Minister, is to focus on technology and innovation. Since 2007 the Canadian Government has invested in a range of ecoAction programs, many of which promote the use of new technologies. In 2009, Canada's Economic Action Plan included billions of dollars in spending on initiatives like the Clean Energy Fund and the Green Infrastructure Fund. They provide close to $2 billion for the development of promising clean energy technologies and green infrastructure projects. This is in addition to the clean energy technology initiatives that Alberta has undertaken provincially - the $2 billion Alberta CCS spend, the Climate Change and Emissions Management Fund are examples.

The Oil Sands

The Minister also directly addressed the question of Alberta's rich oil sands reserves by reiterating Canada's support of their continued expansion. "[T]he oil sands are one of Canada's greatest resource endowments and developed responsibly", he said, and "hold the promise to be a driving engine of the Canadian economy, ensuring prosperity and a high quality of life for our children and our grandchildren".

However, the Minister tempered his remarks and concluded that Canada and Alberta need to be vigilant:

"The oil sands must be developed in an environmentally responsible manner and the Government of Canada will ensure that oil sands development lives up to our stated objective to be a "clean energy superpower"...The development of the oil sands and the environmental footprint of these industrial activities have become an international issue and as such, they now transcend the interests of any single corporation. What is at issue on the international stage is our reputation as a country. Accordingly, we need to up our game, in terms of both environmental vigilance and in terms of our communication efforts.

For those of you who doubt that the Government of Canada lacks either the willingness or the authority to protect our national interests as a "clean energy superpower", think again. We do and we will. And in our efforts we will expect and we will secure the co-operation of those private interests which are developing the oil sands. Consider it a responsibility that accompanies the right to develop these valuable Canadian resources".

All in all 2009 was a good news story for Canada on the climate change front. The Minister closed his speech with a list of Canada's accomplishments, topped by the success of the Copenhagen Accord for our nation. He's right. It was.

$559 million in Green Infrastructure Investments announced for Greater Montreal Area

Following last week's similar announcement for Québec City, Ms. Line Beauchamp, Minister of Sustainable Development, Environment and Parks, and Mr. Steven Blaney, MP for Lévis-Bellechasse, today announced joint federal-provincial support for major Green Infrastructure Projects in the Greater Montreal Area (the "Projects").

The Projects represent an overall investment of $559 million and involve the construction of two facilities for organic waste treatment using anaerobic digestion, two composting centers and one pilot organic waste pretreatment facility, at a cost of close to $213 million. In addition, three more organic waste treatment facilities which would be constructed in Laval, Longueuil and Montreal's South Shore would benefit from additional joint federal-provincial financing of approximately $180 million, with the balance to be financed via municipal contributions.

The Projects will allow for the treatment of a large part of the organic waste generated in the Greater Montreal Area, including Laval and Montreal's South Shore. The biomethanization process used in the facilities will allow for the treatment of table scraps, septic sludge and organic waste from homes, factories and institutions, while the composting process will also treat table scraps, leaves and grass clippings produced in the municipalities and agglomerations. Ultimately, these Projects will limit the amount of waste sent to municipal landfill sites and allow, in the case of anaerobic digestion, for the production of bioenergy to replace fossil fuel and combustibles, thus reducing greenhouse gas emissions (GGEs).

Of the overall investment, the Government of Canada has committed to contribute close to $150 million, or up to one third of eligible costs. The federal contribution to the Project will be provided through the new, $1-billion, five-year, nation-wide Green Infrastructure Fund, which is part of Canada's Economic Action Plan announced in the January 2009 Budget. The Green Infrastructure Fund supports sustainable energy generation and transmission, as well as wastewater treatment and solid waste management at the municipal level.

As for the Government of Québec, it is to fund approximately $165 million of the Projects. The provincial contribution is being granted under the province's Program for the Treatment of Organic Matter through Biomethanization and Composting (French-only) (the "Program") which benefits from a total investment of about $650 million, of which at least $187 million is to come from the Government of Québec. Projects funded under the Program are to create approximately 5,200 direct and indirect jobs. The Program aims to implement one of the major components of Québec's new Management of Residual Materials Policy (French-only) by progressively banning the landfilling of organic matter by 2020, while contributing to the achievement of the province's GHG emissions reduction target.

The federal government is also evaluating other biomethanization projects to be undertaken in the province of Québec under the Green Infrastructure Fund. The total federal investment in these biomethanization projects could reach more than $170 million.

Canada files new emissions reduction targets with the U.N.

CBC reports that the federal government formally notified the United Nations that it plans to reduce emissions by 17% from 2005 levels by 2020. As recently as December during the climate change conference in Copenhagen, Canada's target had been a 20% reduction from 2006 levels by 2020. The change may amount to a "distinction without a difference", but has nevertheless frustrated many who want to see Canada be more aggressive in its efforts to combat climate change.

The new target is identical to that submitted to the UN by the United States. It is therefore consistent with the federal government's oft-repeated goal of aligning Canada's climate change policy with that of the U.S. (not surprisingly, Canada submitted its target one day after the U.S. had done so). In sharp contrast, the European Union has confirmed it commitment to cut emissions 20% from 1990 levels by 2020 and has reiterated that it will raise the reduction target to 30% if other large emitters set similar targets.

It is unclear whether Canada's new target is materially different from the old, as both the base year and the percentage reduction changed. Prime Minister Harper had previously said that Canada's old target was virtually identical to the new target.

Few are surprised by the change. Even as he presented the old target to the world in the run-up to Copenhagen, the Prime Minister reserved the right to "make some minor adjustments" to the target. Late last week, Environment Minister Jim Prentice teed up the change by emphasizing that the government wanted to "see our targets and the American targets equated, we want to see our base years equated."

The announcement has many in the environmental community incensed. Dave Martin, a climate and energy coordinator with Greenpeace, told the Toronto Star that the change was further evidence that "we're heading in exactly the opposite direction that we need to head." The new targets are equivalent to a 2.5% increase in emissions from 1990 levels. Canada's obligation under the Kyoto Protocol was to reduce emissions by 3% from 1990 levels by 2012.

More importantly, Mr. Martin expressed frustration that, "not only have they [the federal government] reneged on the target that they adopted a couple of years ago, they have also failed to put in place the regulations that they promised last year."

The failure to implement emission reduction legislation has plagued Canada, both under the Liberal government that signed the Kyoto Protocol and under the current Conservative government. Hopefully the latest target will not be just another international promise that Canada is unwilling or unable to keep domestically.