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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.

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.

Canada qualifies its stated emissions reduction goals

In remarks that are consistent with Canada's declared position over the past several months, federal Environment Minister Jim Prentice emphasized to the Globe and Mail that Canada's top priority is harmonizing its approach to regulating greenhouse gasses with that of the U.S. Minister Prentice clarified that such harmonization extends to the setting of reduction targets: "By definition, that means we will want to see our targets and the American targets equated, we want to see our base years equated, and we condition our position [on targets] as requiring commensurate U.S. effort."

In Copenhagen in December, Canada declared its target to be a reduction of 20% from 2006 levels by 2020, which it believed to be equivalent to the U.S.'s declared goal of a reduction of 17% from 2005 levels by 2020.

However, some expect that the U.S. may soften its target to help pass the draft climate change bill (which is currently languishing in the Senate). Minister Prentice's comments suggest that Canada would follow suit.

Minister Prentice also said that Canada will likely follow the overall approach to regulation adopted in the U.S. If the Waxman-Markey bill dies in the Senate, the Obama administration may turn to the Environmental Protection Agency to act on its endangerment finding by regulating emissions under the Clean Air Act.

Critics lament the Minister's comments, fearing that the federal government's strategy of following the U.S. is as much a tactic for further delaying the regulation of large emitters in Canada.

Climate change to continue to be a challenging issue for Canada

Three recent reports begin to illustrate the difficulties that Canada will have in addressing the climate change issue in coming months. The first encourages Canada to take a comprehensive approach to the regulation of greenhouse gas emissions. The other two highlight divergent regional views that will make negotiating a comprehensive approach extremely difficult. The climate change debate in Canada is therefore expected to intensify this year. Hopefully, the country will find a solution that works across the confederation, and that could serve as a model abroad.

Call for a comprehensive approach

The first report, entitled Getting the Balance Right: The Oil Sands, Exporting and Sustainability, was prepared by the Conference Board of Canada. As stated in the accompanying press release, one of the report's conclusions is that "Alberta's oil sands should not be singled out as the source of Canada's poor record on greenhouse gas emissions." Instead, the report calls for improved regulation of "every link in the energy value chain."

The environmental community did not object to the notion of a comprehensive approach to GHG regulation. As reported by the Canadian Press, Simon Dyer, oilsands program director for the environmental think-tank Pembina Institute, agreed that "We need meaningful greenhouse gas reduction policies that apply to all polluters" provided that there is "no special deal for the oilsands." As reported last fall, the federal government views the oil sands as a trade exposed" industry that may warrant special treatment under cap-and-trade, although Ottawa has not yet finalized its policy.

Interestingly, having concluded that the oil sands should not be singled out, the report recommended that "emissions from vehicles merit priority treatment." The recommendation was based on the fact that the transportation sector accounts for 27% of Canadian GHG emissions while the oil sands accounts for only 5%. However, the report acknowledges that oil sands production is expected to double in the next decade, meaning that even if emissions intensity can be decreased, the oil sands contribution to national emissions will continue to grow.

Simmering below the surface of the report is a growing debate between the provinces about climate change, generally, and the oil sands, specifically (witness the back and forth between Quebec City and Ottawa this week). The Conference Board report acknowledges that Alberta in particular will "capture a significant share of direct benefits of oil sands development." Other provinces want to guard against oil sands producers socializing the environmental costs of the projects across the entire country, which could occur in part if Alberta does not bear a proportionate burden for reducing Canada's emissions (environmental effects aside, provinces whose economies depend on a cheap Canadian dollar to drive exports are no doubt concerned about expanding the country's sensitivity to the global price of oil, as the price of oil and the strength of the Canadian dollar tend to be positively correlated).

The debate is likely to get even more heated in the coming year.

Divergent views across the country

The debate will intensify in part because Canadians do not agree about the reality of climate change or the risk it poses, as illustrated in two recent polls.

The first poll was conducted by Angus Reid last December. As reported in the Calgary Herald, the poll found that 31% of Albertans believe that global warming is a theory that has not yet been proven while only 41% of them believe that climate change is a fact and that it is mostly caused by emissions from vehicles and industrial facilities.

These views stand in sharp contrast to those held across the country. Nationally, only 17% believe climate change to be a theory, while 56% accept that it is caused by emissions from human activities. The keepers of the oil sands therefore do share the same conviction as their neighbours about the existence of the problem.

Even those Albertans who perceive a problem do not necessarily agree about its severity. The other recent poll was a Canadian Defence & Foreign Affairs Institute survey conducted by the Innovative Research Group (the "CDFAI Poll"). The CDFAI poll concluded that a majority of Canadians view climate change as a critical threat to the vital interests of the country in the next 10 years, making climate change the most important threat in the views of Canadians (other threats in the Top 5 were international terrorism, increasing number of immigrants and refugees, globalization, and potential epidemics). Again, the CDFAI Poll found that the perception of climate change as a threat varied sharply across the country. For example, a full 62% of Quebecers ranked climate change as a critical threat. In contrast, only 28% of Albertans did so.

As Duane Bratt, a political scientist at Mount Royal University, put it, these diverging views bode "very poorly and it's because the issue of climate change cuts into the common narrative of Alberta in the federal system." He explained "When you hear Albertans getting upset about the response of particularly (Quebec Premier) Jean Charest, it gets thrown into equalization payments, it gets into Quebec special status and Confederation. It gets framed as an issue of consumers versus producers, that instead of putting the burden on consumers - which the majority live in Ontario and Quebec - they are putting the onus on carbon producers, which singles out Alberta, Saskatchewan and Newfoundland."

Challenge and opportunity

Responding to climate change therefore simultaneously requires a national consensus and aggravates issues that tug at Canada's constitutional seams. We therefore expect to see intense and at times acrimonious debate about the issue across country this year. However, we remain optimistic that Canada can arrive at a workable solution, particularly given that the confederation has survived more than one constitutional/federalist skirmish in the past.

In many ways, Canada's situation is representative of the global issues that make climate change such a formidable problem. Disparities in historical emissions, resource wealth, consumption, production, and exposure to the effects of climate change were all barriers in the Copenhagen process. Should Canada be able to develop an approach to climate change that reconcile the different interests of its provinces, it may be able to play a constructive role in addressing the problem globally.

Canadian government announces nineteen successful projects in response to a call for proposals under the Renewable and Clean Energy portion of the Clean Energy Fund

The Honourable Lisa Raitt, Canada's Minister of Natural Resources, today announced support for nineteen (19) projects selected in response to a call for proposals under the Renewable and Clean Energy portion of the Clean Energy Fund. Up to $146 million will be invested over five (5) years to support the demonstration of renewable and clean energy across the country, including integrated community energy solutions, smart grid technology, and renewable applications with solar, wind, tidal and geothermal energy.

Under the Clean Energy Fund, part of the Government of Canada's Economic Action Plan (Budget 2009), the government is to invest almost $1 billion over five (5) years in research, development and demonstration projects to advance Canadian leadership in clean energy technologies. This includes large-scale carbon capture and storage demonstration projects, three (3) of which have already been announced totaling $466 million from the fund, as well as smaller-scale demonstration projects of renewable and alternative energy technologies such as those announced today. Total investments under the Clean Energy Fund for large and small demonstration projects are to benefit Canada's economy by leveraging nearly $3.5 billion in further investments by industry and other levels of government.

The Government is now inviting the project proponents to begin negotiations toward formal contribution agreements to set the conditions under which funding will be delivered. The funding amounts are expected to range from $2.5 million to $20 million for each project. However, until a written contribution agreement is signed by both parties, no commitment or obligation exists on the part of the Government of Canada to make a financial contribution to these projects.

Successful Project Descriptions

A) Projects expected to receive $2.5-$5 million

1. Biomass-based Urban Central Heating Demonstration
Lead proponent: SSQ, Société immobilière Inc.
Strategic Area: Buildings/Community Energy Systems
Location: Québec, Québec
Purpose: La Cité Verte is an innovative real estate project, which combines various initiatives related to sustainable development such as renewable energy utilization, energy efficient design, the management of water consumption, energy and waste management. The funding will support the installation of a biomass and wood-based district heating system. This project combines a variety of technologies and partners.

2. Utility-scale Electricity Storage Demonstration using New and Re-purposed Lithium Ion Automotive Batteries
Lead proponent: CEATI International Inc.
Strategic Area: Electricity Storage
Location: Toronto and Cornwall, Ontario, and Manitoba
Purpose: This project will address electricity storage for renewable and high-density urban applications. The project will demonstrate utility-scale electricity storage systems using new and re-purposed automotive batteries. This concept will reduce cost for electric vehicle batteries providing a future market to meet urban electricity demand using automotive batteries.

3. Energy Management Business Intelligence Platform Development and Demonstration
Lead proponent: Power Measurement Ltd.
Strategic Area: Smart Grid
Location: Commercial buildings in Calgary, Alberta, Ontario and BCIT in Burnaby, British Columbia
Purpose: This project will develop and demonstrate smart grid technology, voluntary load curtailment and peak shaving in a commercial building setting. Most projects of this type to date have focused on residences. This technology will also enable tenants to voluntarily reduce their demand based on real-time price signals.

4. Wind and Storage Demonstration in a First Nations Community
Lead proponent: Cowessess First Nation
Strategic Area: Wind/Storage
Location: Cowessess, Saskatchewan
Purpose: This project aims to demonstrate a combined wind and storage energy system in a First Nation community. The successful demonstration would prove this system as a model for other First Nation's communities across Canada.

5. Bioenergy Optimization Program Demonstration
Lead proponent: Manitoba Hydro
Strategic Area: Bioenergy
Location: Five locations in Manitoba
Purpose: This project is comprised of five different bioenergy systems at five different project sites. The project demonstrates collaboration between utility companies and customers. It is anticipated that the project will help to remove the perceived barrier of technical and operational risk and will promote the wide-scale adoption of bioenergy systems in Canada.

6. Offshore Wave Energy Demonstration
Lead proponent: SyncWave Systems Inc.
Strategic Area: Marine/Hydro
Location: Offshore Central Vancouver Island near Tofino, British Columbia
Purpose: This project will demonstrate the performance, operations and life cycle of a pre-commercial 100-kW wave energy device in ocean conditions typical of British Columbia's open coast. Canada has potentially significant wave energy resources, and it is important for Canada to participate in demonstrations to further the technology, understanding of ocean conditions and the regulatory environment.

7. Demonstration of Waste-heat Recovery at Compressor Stations
Lead proponent: Great Northern Power Corp.
Strategic Area: Hybrid Systems/Northern
Location: Compressor Stations in Alberta and British Columbia
Purpose: This project plans to demonstrate waste-heat recovery systems on a variety of stationary, reciprocating engines greater than 1,000 hp. A successful demonstration has the opportunity to lead to commercialization and wide-scale adoption of this technology at compressor stations and other industrial applications across Canada.

8. Residential Implementation of Solar-thermal Heating Systems
Lead proponent: Enbridge Gas Distribution Inc.
Strategic Area: Buildings/Solar
Location: Greater Toronto Area, Ontario
Purpose: The project will use different types of solar collectors and storage technologies to verify and compare their costs, performance and technical qualities. The project has the ability to validate the technology and provide integrated systems at a lower cost to consumers, thereby allowing greater market penetration.

9. Food and Yard Waste Anaerobic Digestion to Electricity Demonstration
Lead proponent: Harvest Power Canada Ltd.
Strategic Area: Bioenergy
Location: Fraser Richmond Soil and Fibre, British Columbia
Purpose: This project would be Canada's first high-efficiency system for producing up to 1 MW of renewable energy from food and yard waste. If successful, this technology has the potential to be rapidly deployed across Canada as a mechanism to divert food wastes from landfills and produce renewable energy.

B) Projects expected to receive $5-$10 million

10. Demonstration of Heat and Power from Biomass Gasification
Lead proponent: Nexterra Systems Corp.
Strategic Area: Bioenergy
Location: UBC Point Grey Campus, Vancouver, British Columbia
Purpose: This project will showcase biomass gasification integrated with an internal combustion engine generator in a novel, small-scale combined heat and power demonstration suited for on-site applications at public institutions, industrial facilities, and northern and remote Canadian communities. The project has the potential to overcome the difficulty of gas clean up and opens up the possibility of significant replication in Canada and overseas.

11. Energy Storage and Demand Response for Near-capacity Substation
Lead proponent: BC Hydro
Strategic Area: Smart Grid/Electricity Storage
Location: Golden and Field, British Columbia
Purpose: This project demonstrates the integration of energy storage as a mechanism for reducing electricity demand at near-peak capacity substations. This type of solution has the ability to be used in other remote communities where the grid reliability is low and the cost of the transmission line upgrade is uneconomical.

12. Interactive Smart Zone Demonstration in Québec
Lead proponent: Hydro-Québec - Institut de recherche
Strategic Area: Smart Grid
Location: Boucherville, Québec
Purpose: This project will ensure the installation of an interactive network area in a neighbourhood of Boucherville. This will demonstrate different technologies and concepts related to modernization of electrical networks, in particular the deployment of infrastructure for charging electric and hybrid rechargeable vehicles.

13. Biomass and Coal Co-firing Demonstration in Coal Plants
Lead proponent: Nova Scotia Power
Strategic Area: Bioenergy
Location: Coal Plants in Nova Scotia
Purpose: This demonstration project aims to determine optimum fuel blends for the potential co-firing of wood-based biomass with coal as a mechanism to partially replace fossil fuels with sustainable energy sources in coal plants. If successful, there is potential for wide-scale implementation across Canada and the United States.

C) Projects expected to receive $10-$20 million

14. Tidal Energy Project in the Bay of Fundy
Lead proponent: Fundy Ocean Research Centre for Energy (FORCE)
Strategic Area: Marine/Hydro
Location: Minas Passage, Bay of Fundy, Nova Scotia
Purpose: The project plans to validate the performance and resilience of tidal current turbines in the Minas Passage of the Bay of Fundy. This will be the first Canadian deployment of commercial-scale tidal turbines. The project has the potential to advance tidal energy in Canada, provide economic impacts in the Atlantic region and place Canada as a world leader in marine renewable energy.

15. Northern Application of a Geothermal District Heating System
Lead proponent: City of Yellowknife
Strategic Area: Northern/Community Energy System
Location: Yellowknife, Northwest Territories
Purpose: The City of Yellowknife is in advanced stages of project engineering and plans to install a district heating system by extracting heat from the abandoned Con Mine. This project has the potential to provide a cost effective and a more environmentally friendly alternative to fossil fuel based heat. The information that will come out of this project on the effect of extracting ground-source heat from an existing aquifer and its associated long-term heat capacity will help determine if this technology could be replicated in other northern communities.

16. Electricity Load Control Demonstration
Lead proponent: New Brunswick Power Corporation
Strategic Area: Smart Grid
Location: Four maritime communities in New Brunswick, Nova Scotia and Prince Edward Island
Purpose: Traditionally, to accommodate the intermittent nature of wind power, other generation sources are required to follow the net effect of variation in load and wind power production. This project focuses on the integration between smart grid technologies, customer loads and intermittent renewables in a region with potentially significant renewable electricity capacity. It will allow utilities to better understand how customers will react to smart grid and which loads can be controlled by real-time demand balancing in up to 750 buildings, thereby assisting these utilities to capitalize on renewable resources in the region.

17. A 9-MW Wind Technology Research and Development Park
Lead proponent: Wind Energy Institute of Canada
Strategic Area: Wind/Storage
Location: Prince Edward Island
Purpose: The 9-MW wind park proposed will be the first wind/storage combination in Prince Edward Island. The project's research base has a strong focus on information dissemination and would be a good base for supporting additional wind research.

18. Demonstration of Fish-friendly and VLH Turbines in Existing Low-head Water-control Dams
Lead proponent: Eco Joule Inc.
Strategic Area: Marine/Hydro
Location: Mississippi River System, Ontario
Purpose: This project will demonstrate three in-stream hydro technologies including fish-friendly, low-head hydro turbines along an existing water-controlled river system in Ontario. It has the opportunity to prove the technology concept, demonstrate cooperation with a conservation organization, and reduce the barriers to commercialization.

19. Community-based Geothermal Demonstration in a Remote First Nations Community
Lead proponent: Borealis GeoPower Inc./Acho Dene Koe First Nation
Strategic Area: Hybrid Systems/Northern
Location: Fort Liard, Northwest Territories
Purpose: This project will demonstrate how a northern community can use a geothermal resource to generate electricity and heat, thereby reducing the entire community's fossil fuel demand and energy costs. A successful demonstration will provide a model for other northern and First Nations communities with available geothermal resources.

Joint Announcement of an Investment of up to $20 million to develop a Pilot Biorefinery in Thunder Bay

Today, the Honourable Tony Clement, Federal Minister of Industry, on behalf of the Honourable Lisa Raitt, Canada's Minister of Natural Resources, along with the Honourable Michael Gravelle, Ontario Minister of Northern Development, Mines, and Forestry, announced funding of up to $20 million to develop a forest biorefinery. The pilot project will test forest biomass for use in energy and next-generation forest products. The initial phase of the pilot project involves a feasibility study that will provide a complete analysis of the biorefinery's functions, including a pre-commercial process to extract wood fibres; identify market opportunities; assess output capacity of the demonstration plant; and determine full project costs.

An agreement was also reached by all partners to increase the research capacity and knowledge in the region, which will help Thunder Bay's reputation as a leading centre for bioeconomy research and innovation.

Of the project and agreement, Minister Gravelle was quoted as saying "The diversification of the forest industry in Ontario, including emerging innovative biofuel, is key to strengthening Ontario's forest sector now and into the future [...] we created the Centre for Research and Innovation in the Bio-Economy to bring business, government and communities together to develop new economic opportunities and help ensure a bright future for Northern Ontarians."

Located in Thunder Bay, the Centre for Research and Innovation in the Bio-Economy, or CRIBE, is a not-for-profit organization developed by the Ontario Ministry of Research and Innovation, which focuses on commercializing new forest products and technologies by working with leading researchers and industry. The province is currently investing $25 million in the CRIBE, which intends to attract world-class researchers and industry leaders to develop the next generation of renewable forestry bio-products.

Forest bio-products contribute an estimated $1 billion to Canada's economy and could one day be as important as the conventional forest economy.

Oil sands a "trade exposed" industry that may warrant special treatment under cap-and-trade

The federal government may be contemplating special treatment for the oil sands under its yet-to-be-unveiled greenhouse gas regime (see e.g., here, here, and here). Cabinet documents obtained by the CBC suggest that the goals of the Conservative's Turning the Corner plan may be abandonned and that the oil sands will be subject to much less demanding reduction targets.

Environment Minister Jim Prentice responded that any such documents do not represent the government's current position. However, he acknowledged the need give careful thought to "trade exposed" industries, noting that such thought is being given in the U.S. "A key feature of the Waxman-Markey legislation is the treatment accorded to what are referred to in the United States as trade-exposed industries," he said. "And this is something that we will need to consider on the Canadian side of the border."

There is speculation that the special treatment could take the form of tax incentives outside of the planned cap-and-trade regime.

However, in a letter to the Toronto Star, Minister Prentice emphasized that the "government has not yet made any decisions with regard to trade-exposed sectors."

The notion of protecting "trade exposed" industries under cap-and-trade schemes is hardly a new one. Much of the debate about whether emissions allowances should be distributed for free or auctioned is informed by similar considerations. "Trade exposed" industries consistently argue that they need free allowances to avoid losing their international competitive advantage.

Certainly, any global or continental deal will have to strive to keep the playing field within specific industries as level as possible. If not, trade wars will no doubt ensue.

For Canada's federal government, an equally contentious issue will be keeping domestic competition fair between industries (and provinces). Alberta still smarts from the wealth transfer brought about by the old National Energy Program. Albertans will fiercely resist any cap-and-trade scheme that is seen to generate revenue in Alberta (either by way of credit auctions or alternative compliance payments) and distribute it to other provinces. In contrast, those outside of Alberta and Saskatchewan are very wary of any special treatment given to the tar sands. They would prefer to see all industries be subjected pay an equal price on carbon.

As discussed previously, provincial battle lines are already being drawn. Lurking in the background is an unanswered question as to whether the federal government can stretch its constitutional authority over criminal matters to enact market-based regulation of carbon emissions. If Prime Minister Harper and Minister Prentice find striking a deal in Copenhagen hard, just wait until they come home to a country that loves its constitutional battles.

Canada under pressure to turn GHG policy talk into action

A key theme of the federal government's climate change strategy in the past few months has been to align Canada closely with the U.S. In so doing, the government's goal is to ensure that our vital trade relationship with the U.S. is maintained. Harmonization with the U.S. is seen as a key competitive advantage for Canada. However, a new report from PowerUP Canada concludes that "Canada is not matching U.S. efforts, that our delay in doing so already has serious implications, and that every moment we fall further behind increases the cost and missed opportunity for Canadians."

The following are the reports key observations:

• Canada's global warming emissions are growing significantly while U.S. emissions are declining.
• Every moment of delay means that Canada is starting from further and further behind although nominally aiming for the same finish line.
• The U.S. government is providing unprecedented levels of support to clean energy and efficiency while Canada's primary programs are expiring
• The U.S. is outspending Canada as much as 14-1 per capita on renewable energy.
• Moving forward, the U.S. is aiming for deeper carbon cuts than Canada's "target" by orders of magnitude. Although Canadian and U.S. targets proposed at Copenhagen are superficially similar, the U.S. "target" does not include many of the programs before the legislative branch and none of its executive branch programs. Canada has no program to meet its proposed cuts and past policy proposals were deemed inadequate by independent government and academic auditors.
• The U.S. federal government has accelerated to unprecedented levels of action on carbon restrictions, efficiency and clean energy in the past year while the Canadian federal government is "not even trying" to match U.S. efforts.

If Canada's only goal in harmonizing with the U.S. is to avoid punitive border adjustments (i.e., carbon tariffs), the above conclusions suggest that setting similar reduction targets for the purposes of the Copenhagen negotiation may not get the job done. Even if Canada matches the US's Copenhagen target, the US may make even deeper emissions cuts and may nevertheless be inclined to protect its industry from its (relatively) dirty neighbour to the north. If Canada's goals also include ensuring that Canada competes in a clean energy, carbon constrained world, the above conclusions also suggest that Canada is being seriously outpaced by the US.

In a related note, Green Cross International's Climate Change Task Force and PowerUP Canada (again) delivered a letter to Prime Minister Stephen Harper calling on him to "dispel perceptions of defeatism" about the climate change file and to "rally the Canadian people" to build an economy powered by clean energy.

The letter, which was jointly signed by Mikhail Gorbachev, The Rt. Hon. Kim Campbell and prominent Canadian business leaders, scientists and artists, again focuses on the growing "clean energy" competitiveness gap: "Currently Canada does not have a consistent price signal or sustained national incentives for the deployment of clean energy. Recent studies by the UN and HSBC show that Canada lags the G20 in deploying green stimulus. Canada is missing the economic opportunity of the twenty-first century."

Regardless of what Canada commits to internationally, it appears that the federal government has much work to do domestically on the climate change and green energy file.

Copenhagen - What Happened Today

It's really nothing new.

The talks in Copenhagen seem to be confirming the status quo. Developing countries are still looking for someone to pay for climate change so they can continue growth. They are looking to the developed world to do this. Today some African nations walked out of the talks in protest over discussions to let the Kyoto Protocol expire and begin with a new treaty, one to which all countries are bound.

What does it really mean? It has to do with money.

Under Kyoto developing nations have no emissions reduction requirements. Countries to the Kyoto Protocol are to reduce their emissions or purchase international offsets if they don't (clearly it's not entirely this simple, but those are the basics). The purchase of these offsets (which for most industrialized nations are necessary in order to get their emissions below the cap) essentially amount to financial assistance by the developed to the developing world.

The developing nations are not accountable for emissions under Kyoto, nor is the United States, which neither signed nor ratified the treaty. If a new treaty is made, then most developed nations argue that in order to be effective and to involve the U.S., it must also bind the developing world. The developing world isn't particularly keen on this (see our previous blogs commenting on India and China). It would also mean that the financial assistance would stop.

The United States is very clear - for them to buy in, all nations must participate. Canada agrees. However, despite that Canada contributes only about 2% of global emissions, it appears to becoming an international climate change target. Today Canada received two fossil awards (the presentation was shown on the big screen outside the Bella Centre to the amassed crowd of registants) and was the subject of a climate change "hoax" where Canada's emissions reduction goals were falsely identified in a phony news release.

It's not productive. Minister Prentice's Communications director pointed out as much to the press when asked to comment on the incident today. And Canada's reduction target continues to align with that of the United States. The Minister has been saying this for months.

Needless to say, it's still not clear what will come from these negotiations at this point. The Americans know that a binding international treaty will require them to walk a fine line between committing resources to finance the low carbon economy - both domestically and internationally - and what Congress has an appetite for.

Whether the negotiations result in an extension of Kyoto, the favoured option of developing nations, or an entirely new agreement, the favoured option of Canada remains to be seen. We'll know more in the next few days of "Hopenhagen", as they're calling it around here.

Countdown to Copenhagen: Feds bid adieu to intensity-based targets

Finally.

The federal government has announced that its much anticipated climate change program will not be based on emissions intensity targets. Responding to a question from question from Bloc Quebecois MP Bernard Bigras, Environment Minister Jim Prentice said, "we are talking about a cap-and-trade system, a continental cap-and-trade system that involves absolute emission reductions, not intensity targets." The change is a welcome one for both the environmental and business communities. It is also well timed, given Canada's declared strategy for the negotiations in Copenhagen.

Ever since tabling its Turning the Corner plan, the Conservative party has been under fire for proposing to limit emissions per unit of production instead of absolute emissions. Environmentalists feared that even if the targets were met, Canada's total emissions could rise as productive output grew. In contrast, a cap based on absolute targets provides direct control over total emissions, regardless of economic growth, and is thus a more certain way to address climate change.

The business community will also be relieved by the change. The costs of complying with a cap-and-trade system depend significantly on the size of the market in which carbon credits can be traded. Bigger and more diverse markets tend to result in lower compliance costs. A critical feature of Canada's plan is therefore to ensure that our cap-and-trade market is integrated with that of the U.S. However, there was significant doubt that intensity-based carbon credits would have been recognized in the U.S. The move to a regime based on absolute targets should help ensure that homegrown carbon credits are fungible and tradable with those used south of the border.

It is the need to integrate with the U.S. that most likely drove the Conservatives to change their tune. The timing of the announcement, just a few days before the opening of COP 15 in Copenhagen, is certainly intended to reinforce our solidarity with the U.S., whose lead Canada has consistently said it would follow in the negotiations.

Government of Canada Funds Alberta Carbon Trunk Line Carbon Capture and Storage Project

Today, the Canadian government announced $63 million of project funding support for the Alberta Carbon Trunk Line (ACTL) Project, a fully integrated, large-scale carbon capture and storage (CCS) project in Alberta.

The Honourable Lisa Raitt, Federal Minister of Natural Resources declared that "This innovative project further demonstrates Canada's international leadership in carbon capture and storage technology."

The ACTL Project, led by Enhance Energy in partnership with North West Upgrading, will be capable of gathering CO2 from several sources in the Alberta's Industrial Heartland and transporting the CO2 to existing mature oil fields throughout South-Central Alberta. These oilfields will see significant increases in production as CO2 is permanently stored in the reservoir. The capture and permanent storage of CO2 will result in significant reductions in emissions of greenhouse gases in Alberta. The initial supply of CO2 will come from North West Upgrading Inc. and Agrium Inc. The ACTL Project has the potential to facilitate permanent storage of up to two billion tonnes of CO2 when operating at full capacity. The impact potential is equivalent to taking 2.6 million cars off the road annually.

"As industry looks for a way to effectively deal with their CO2 emissions by keeping them out of the atmosphere, we are offering a much needed solution - a safe and secure storage destination for CO2," said Susan Cole, President and CEO, Enhance Energy.

$30 million of the project is funded through the $1-billion Federal Clean Energy Fund, with the remaining $33 million coming from the ecoENERGY Technology Initiative. The Clean Energy Fund is advancing Canada's leadership on clean energy technologies and the reduction of greenhouse gas emissions from energy production. According to the Canada-Alberta ecoENERGY CCS Task Force report, CCS technology could allow Canada to cut its greenhouse gas emissions by almost three-quarters of Canada's current annual emissions.

Minister Prentice Talks Climate Change; PM Says He'll Go to Denmark

Minister Prentice believes that in order for the international community to reach a new framework to deal with climate change, the U.S. must "get on board".

Speaking to a packed room on November 13 in Edmonton, the Minister spoke about climate change on the global stage and about the road to the UNFCCC Climate Change Conference in Copenhagen, which begins in less than a month. The Minister's key message during the speech was that in order for Copenhagen, the "mother of all negotiations" to result in a meaningful frameworks to address the stabilizing of greenhouse gases in the atmosphere, the United States has to "make a substantial effort going forward".

The Minister's other key message hit a bit closer to home:

"If the US does not make a substantial effort going forward, there is nothing Canada can do. Our own mitigation efforts will be futile - as a practical matter, we should probably focus on adaptation.

If we do more than the US, we will suffer economic pain for no real environmental gain - economic pain that could impede our ability to invest in new clean technologies.

But if we do less, we will risk facing new border barriers into the American market.

In short, we need a substantial effort from the United States; and a comparable effort from Canada, so we can create an effective North American climate change regime with national policies that are harmonized, consistent and free from conflict. A continental system composed of national policies and regulations that are equal in value and of similar effect, so we foster fair competition and maintain free trade in the integrated North American market".

The crux of his comments? That a harmonized (although not identical) climate change framework is absolutely crucial for Canada and for the U.S.

Why?

1. We share a common environment;

2. Our economies are integrated. The Minister remarked, "many firms in such key sectors as aerospace and automotive do not so much compete with each other as cooperate, being suppliers to, and customers of each other, somewhere on complex supply chains"

3. Canada's energy supply = security of energy for the United States - "[w]e are not just the single largest supplier to the American market of oil, natural gas, hydroelectricity and uranium - we are an indispensable supplier to the land-locked northern tier states"

4. Our pipelines and power grids transcend the border.

The Minister also pointed to a number of cross border harmonization initiatives, such as identical tail pipe emissions standards, the fact that both countries are busy preparing national cap and trade systems, and commitments on both sides of the border to clean energy technology.

But ultimately, his remarks confirmed that both Canada and the United States, while committed to addressing the effects of climate change, will not do so at the expense of the economy. The Minister's philosophy and one that is shared by his U.S. counterparts is to "do no harm - to avoid measures, no matter how well-intentioned, that would cause Canadian firms to be not just down in 2009, but out by 2010". What does this mean in terms of reductions? The American Clean Energy and Security Act has passed the House, and the Kerry/Boxer legislation has now commenced its journey through the Senate. The former sets the target of 17% less than 2005 levels by 2020; the latter currently talks of 20%. The Minister confirmed "[t]hat Both are similar to our own 2020 target of 20% less than 2006 levels".

Those dectractors who assert that Canada should be reducing its emissions by 25-40% less than 1990 levels are not focused on the economic consequences to our country. Minister Prentice addressed these critics and said "to say the least, reducing 2020 emissions in Canada by 25-40% from 1990 levels is easier said than done. The impact on the overall economy would be dire. In economic context, reductions of that magnitude equal an amount far in excess of all the emissions generated from all transportation sources in Canada".

Are the critics prepared to put away not only their own cars, but the cars of their relatives and everyone else they know, for good? To stop flying anywhere? Stop taking the bus? Probably not. And if the solution is to purchase international offsets to meet our emissions targets, are they comfortable with billions and billions leaving the country every year? We have to have a reasonable response to climate change in Canada - and it is reasonable that our system be consistent with that of our largest trading partner and not cause economic hardship to a nation of 35 million people.

So what will happen in Copenhagen? Canada's position is pretty clear. The United States' position is also increasingly clear - everyone, not just the developed nations, has to be a party to an international convention. That includes China and India, whose positions have really not shifted in the months leading up to the conference. Small concessions have been made, but really, the message is still "we're going to do what we want".

But, as Copenhagen draws ever closer, it appears that the international community is taking it more and more seriously. This morning the Edmonton Journal reported that there is increasing pressure on world leaders, including the U.S. President, to attend the conference. Prime Minister Stephen Harper's aides confirmed that if others are there, he'll likely attend as well.

With all these variables, the conference is December is shaping up to be very interesting. Stay tuned for on the ground coverage from Denmark.

Canada will face significant challenges in Copenhagen

Canada will face significant negotiating hurdles in Copenhagen as world leaders attempt to negotiate a successor to the Kyoto Protocol this December. While the world is begrudingly acknowledging that no treaty will be concluded in Copenhagen, the negotiations will give countries the opportunity to define their positions for climate change negotiations that will continue into 2011. Previews of Canada's positions have generally not been received well, particularly by developing nations.

As it stands, Canada will face four principal negotiating challenges in Copenhagen:

1) Canada's track record under Kyoto

Canada committed to reduce its greenhouse gas emissions by 6% from 1990 levels by 2012 under the Kyoto Protocol. Neither the current Conservative government nor its Liberal predecessor made any progress towards this goal. In fact, Canada's emissions are currently tracking about 26% above 1990 levels. These facts are well-known around the world. Canada therefore risks being perceived both as a climate villain (at least when emissions are measured on a per-capita basis) and as a country that has difficulty following through on its international commitments.

2) The state of Canada's domestic initiatives

Many countries are seeking to strengthen their negotiating position in Copenhagen by passing significant domestic climate change legislation before December (see e.g., India's recent announcements, which attempt to mandate emissions reductions indirectly through energy efficiency).

By contrast, the federal government's Turning the Corner plan, which was originally scheduled to take effect in 2011, continues to languish. Canada's Minister of the Environment Jim Prentice has suggested several times this year that the government intended to produce comprehensive climate change policies before Copenhagen. However, Le Devoir, a Quebec newspaper, reported two weeks ago that Mr. Prentice said the government no longer intends to do so. The continued failure of the federal government to advance the climate change file is likely related to the next two issues.

3) The US's lack of progress

Following the strategy of many countries, President Barack Obama has attempted to enact meaningful climate change legislation before Copenhagen. While the Waxman-Markey bill made its way through the House of Representatives (although by no means unscathed), it remains bogged down in the Senate. The US will not finalize its domestic strategy for managing climate change before December and will therefore not be in a position to agree to any definitive international agreement.

The only definitive position that Ottawa has adopted with regard to the file is that it will not do anything to jeopardize its trading relationship with the US - in other words, Canada will follow the lead of the US. Given the delays in Washington, Canada has been unable to finalize its own domestic lesgilation and will likely not be able to agree to anything substantive in Copenhagen.

4) The expected cost of climate change legislation

Surprisingly, the Canadian federal government has never undertaken a comprehensive study of the economic impact of proposed climate change legislation (or of failing to mitigate climate change). In a report sponsored by TD Bank Financial Group, the Pembina Institute and the David Suzuki Foundation commissioned the economic modelling firm M.K. Jaccard and Associates Inc. to conduct an in-depth study of federal and provincial government policies to allow Canada to meet a "2 degree Celsius target" by reducing emissions to 25 per cent below the 1990 level by 2020. The report concludes that Canada's national GDP growth would slow from about 2.4 percent annually to 2.1 percent annually as a result of policies required to achieve the country's stated climate change objectives. However, growth in Alberta and Saskatchewan would have to be curtailed significantly more than in other provinces, as the oil and gas sector and coal-fired electricity plants in these provinces contribute disproportionately to Canada's overall emissions.

The report has triggered tremendous backlash both from these provinces, who invoked the spectre of a wealth transfer worse than under the much hated National Energy Plan, and from the federal Conservative government, whose power is anchored in the West. Alberta Minister of the Environment Rob Renner called the report "divisive". Minister Prentice called its conclusions "irresponsible and divisive and the economic costs unacceptable". TD Bank his since distanced itself from the report, saying that it does not endorse the conclusions.

The report nevertheless highlighted two issues. First, addressing climate change will not be cheap. Second, it will require the federal government to reconcile strongly divergent positions in the provinces (for further evidence of the heightened emotions that only Canadians can bring to questions of federalism, see this editorial in today's Toronto Star, which questions "how the oilsands is a Canadian problem when it comes to emissions, but an Albertan birthright when it comes to talk about the wealth it creates"). Having addressed neither issue domestically, Canada will be unable to deal with analogous issues under a multilateral international treaty.

Implications for Copenhagen

So what will Canada do in Copenhagen? Canada's historical role in such negotiations has been to act as a middle power that can help mediate negotiations between some of the bigger players. In Copenhagen, it appears that Canada will adopt a firm position characterized by:

• a desire to follow the US;
• a need to protect its resource driven economy; and
• an unwillingness to make emissions reduction commitments that are not also undertaken by developing economies like China, Brazil and India.

This approach has already been received poorly by many, as evidenced in part by reports earlier this fall that developing nations walked out on Canada during discussions regarding the basic form of the post-Kyoto agreement. Minister Prentice appears to be girding himself for similar reactions in the coming months. In a recent interview with the Montreal Gazette, Minister Prentice said "if the price of having strong, capable, tough negotiators at the table is being singled out and given 'fossil of the year' awards, then so be it. Bring it on."

Industry and NGOs call for comprehensive, nation-wide cap-and-trade rules

A coaltion of industry and environmental groups recently held a "ENGO-Industry Cap-and-Trade Dialogue" to discuss the appropriate trajectory for Canadian greenhouse gas regulation. In a joint statement, the group called for regulations that are:

• comprehensive;
• nation-wide;
• simple and readily implemented;
• transparent and that seek to ensure accountability;
• compatible with systems in other jurisdictions; and
• predictable but adaptable.

As discussed in an earluier posting, there has been recent concern that federal Minister of the Environment Jim Prentice may be under pressure to create a system that includes special treatment for Alberta's oil sands. In particular, some worry that the oil sands would be subject to an intensity-based cap, while other sectors would labour under a more stringent absolute emissions cap. The joint statement addressed the question of absolute targets versus intensity-based targets directly:

""The cap and trade system should place an absolute, national cap on covered emissions. Having sectors with different cap types (i.e. absolute and intensity) could create equity issues as well as fungibility issues that may impair trading efficiency. Intensity measures, while not suitable for determining the cap type, could be useful and should be considered for measuring sector and facility performance.""

The recurring debate as to whether allowances should be given away or auctioned was also addressed:

""Over time the cap-and-trade system should transition from providing some allowances free of charge to requiring the auctioning of all allowances. The speed of the transition will depend on many factors, and will require the balancing of economic, equity and environmental considerations.""

Perhaps what is most interesting about the joint statement is who made it. The participants include companies from the pulp and paper, energy, electricity, chemical and mining sectors, all of which tend to be large emitters of GHGs. The participants were the following:

• Catalyst Paper Corporation;
• David Suzuki Foundation;
• Direct Energy;
• Dow Canada;
• DuPont Canada;
• ENMAX;
• Environmental Defence;
• Forest Ethics;
• Pembina Institute;
• Royal Bank of Canada;
• Rio Tinto;
• Sierra Club Canada;
• Spectra Energy;
• Sustainable Prosperity;
• The Toronto-Dominion Bank; and
• World Wildlife Fund (WWF) - Canada.

The joint statement is in many ways further evidence that industry accepts emissions regulations as being inevitable, and now wants government to get on with implementation.

223 Proponents Apply for CCEMC Funding

The Climate Change and Emissions Management (CCEMC) Corporation ("CCEMC") issued its 2009 Call for Proposals: Initial Expression of Interest Stage (the "EOI") on August 5, 2009. The response to the EOI has been, to say the least, overwhelming. According to the CCEMC website, 223 proponents have requested funding from the CCEMC for a total ask of $1.6 Billion Dollars.

This is astounding news. Why you ask? Keep reading.

What Does It Mean?

1. The response to the EOI has been overwhelming. Remember that the CCEMC was only incorporated in February. The Climate Change and Emissions Management Fund Administration Regulation, which delegates the powers, duties and functions of the Minister of Environment (Alberta) to the CCEMC was only enacted in May, 2009. That in less than a year the CCEMC has been able to request EOIs and receive responses from 223 proponents is staggering.

2. The sheer number of proponents and amount of the ask demonstrates how interested Albertans and Industry in Alberta are in climate change technology and initiatives. There's a lot going on in Alberta right now in the area of climate change initiatives as evidenced by the fact 223 proponents have applied for funding.

3. The number of proponents and the success of this first EOI shows that Alberta Environment and the Government of Alberta were absolutely right in anticipating and recognizing the importance of establishing a climate change technology fund and the structure of the CCEMC. (For more information on the importance and uniqueness of the Climate Change and Emissions Management Fund, click here.

4. The CCEMC has up to $120 million for project funding for the 2009 Call for Proposals. Up to 50 percent of monies will be invested in green energy production, 20 percent in energy conservation and energy efficiency and 30 percent in implementing carbon capture and storage. Although there is only $120 Million available at this time, there will be further rounds of calls for proposals as more funds are received from the current and future compliance years. The CCEMC will consider the EOIs and the funding envelopes outlined above and select the very best for the full proposal stage.

5. The fact that the CCEMC is through the first stage in its process for calling for projects is a first in Canada and is clearly the most significant event in the world of climate change innovation in this country. The model for climate change funding in Alberta is working to create action.

The evaluation of the EOIs received by the CCEMC is currently in progress. Proponents whose projects are being selected to submit full project proposals will be notified by November 13, 2009. An annoucement of those selected to submit full project proposals will be made shortly thereafter....just in time for the UNFCCC Conference of Parties in Copenhagen in December. Alberta will truly have the technology fund showpiece at the conference and has much to be proud of.

Canadian Ambassador to US: Oilsands Get Disproportionate Amount of Criticism

Canada's Ambassador to the United States, Gary Doer, who is a former NDP Premier of Manitoba, stated yesterday that the oilsands are facing a disproportionate amount of criticism in the climate change debate. Mr. Doer argues that North America is missing the big picture on global warming if Canada is singled out as the chief emissions culprit, the Montreal Gazette reported this morning.

"One of the concerns that I have is that it represents so little of the emissions in North America. It's getting a disproportionate amount of chatter," Gary Doer said in an interview yesterday with Canwest News Service. "The question is: How much do the oilsands represent as a percentage of emissions in North America? It's a very small amount. If we don't deal with all sources of emissions, we are not going to have a solution that's comprehensive."

Exactly.

The oilsands are much maligned. Greenpeace is up there trying to block production (and recently got sued by Suncor for its efforts), activists are tying themselves to machines, and natural gas lobbyist groups in the US are pointing their fingers at the oilsands. But do you know what the chief source of carbon emissions in North America is? It's not oilsands. It's not SUVs and trucks, tailpipes or dryer vents.

It's coal.

What are we doing about it? If you've been following our blogs, you'll see that Alberta and Canada have just made a $769 million pledge to a carbon capture and storage project for a coal thermal plant - the technology used at the plant will be the first of its kind in the world. The US is presently conducting a $14 million study to see if they should spend $1 billion on CCS for coal thermal plants in the US. It's a step in the right direction. Emissions from coal thermal plants in North America are about sixty times higher than the emisisons from the oilsands and coal is the fastest growing fossil fuel being produced (World Watch Institute, October 15, 2009). According to the Canadian Association of Petroleum Producers, the oilsands only account for about five per cent of Canada's overall greenhouse gas emissions - a much smaller number when all of North America is taken into account.

David Jacobsen, the new US Ambassador to Canada, met with Ambassador Doer in Winnipeg on Monday, after a trip through the oilsands last week. Ambassador Jacobsen, who called Canada "a pillar in the energy security of the United States" , acknowledges that the oilsands must be part of the equation. Canada's new US Ambassador seems to agree, stating "[y]ou've got to look at everything. How do you reduce emissions from coal? How do you increase the use of renewables? How do you have the increase in energy efficiency?" All of these items have to be on the agenda. The fact that one project (oilsands) is discussed means that we've missed the big picture".

Big picture indeed. The big picture actually includes China and India, particularly if Copenhagen is really going to amount to a meaningful climate change treaty. China is constructing coal plants at a frentic pace and has the world's third largest coal reserves, after the US and Russia. Because China now uses more coal than the United States, Europe and Japan combined, it the world's largest emitter of gases that are warming the planet. Why is everyone so concerned with the oilsands, when the real question is - what is China going to do about climate change?

China has a script they stick to which basically goes something like this - the rest of you got to do it, now it's our turn - too bad if you don't like it. China is setting its self up as the advocate of the developing world (intensity targets tied to GNP), but meanwhile as China points fingers and constructs power plants, the Maldives, the lowest country in the world, could wind up entirely underwater.

Shouldn't Greenpeace be more worried about that?

Another $769 Million in CCS Funding Announced

Like Alberta, Canada is putting its money where it's mouth is. On October 14, 2009 Prime Minister Stephen Harper traveled to Wabamun, Alberta, the site of the Keephills Power Plant, to announce $769 in funding for carbon capture and storage. The pledge will retrofit Keephills, a thermal coal power plant on the shores of one of the Edmonton areas largest lakes. Alberta will spend $436 million over the next 15 years on the project, with most of the money coming from its $2-billion Carbon Capture and Storage Fund. Ottawa is kicking in $343 million from its Clean Energy Fund.

"Our government is determined that Canada remain a world leader in in the use of this state-of-the-art technology," the Prime Minister said, adding "Carbon capture and storage could not only drastically reduce our emissions but by exporting it to other countries we could also make a major contribution to the reduction of global emissions".

The announcement comes on the heels of last week's Alberta/Canada announcment that the governments were spending $865 million on the Shell Quest project. The October 14 annoucement relates to a letter of intent the Alberta government has signed with Transalta Utitlities, who owns Keephills, to build a pioneer project, which Premier Ed Stelmach says will be the first of its kind in the world. The Premier remarked "[i]t'll be the first major CCS project to involve coal-fired power generation and the potential for such a project is enormous. Coal is the most abundant fossil fuel and the most commonly used source of electricity in the world". Alberta gets about 2/3 of its power from coal fired sources - about 6400 megawatts. The technology developed in the Keephills project has the potential to be used to retrofit other coal fired plants around the world.

Clearly both the Alberta and Canadian governments recognize that the time for action is now. With Copenhagen in a couple of very short months, Canada will have many good news stories to share with the world. With last week's major CCS announcement, the CCEMC and its administration of Alberta's Climate Change Emissions Management Fund and now this additional commitment, Canada and Alberta have demonstrated a huge financial and strategic commitment to addressing climate change (more so than the US?).

What will others be bringing to the table in December?

$865 MILLION in CCS Funding Announced Today

The Alberta and Federal Governments formally announced $865 of funding for a commercial carbon capture and storage project today. Shell Canada was "first out of the gate in the carbon capture effort [today], winning pledges of $865 million in provincial and federal aid for its Quest pilot project", the Edmonton Journal reports. The funding was announced by Alberta Energy Minister Mel Knight and federal Natural Resources Minister Lisa Raitt who said "the most viable emissions-reducing technology for fossil fuels is carbon capture and storage. The government of Canada is delivering results by supporting new, clean technology innovation, positioning Canada as a leader in this technology development and resulting in significant benefits for our environment".

We've blogged a number of times that Alberta, with its small population of 3.6 million, is leading the way, certainly within Canada, but perhaps in North America, in directing funds to address climate change. The announcment today is the first "spend" from Alberta's $2 billion CCS Fund. The federal government has a $1 billion Clean Energy Fund. $850 million of the Clean Energy Fund can be used to developing commercially viable technologies including CCS.

Alberta has signed a letter of intent with Shell to contribute $745 million in funding for the Quest CCS project over the next 15 years. Ottawa kicked in an additional $120 million through the Clean Energy Fund.

Shell Canada spokesman Graham Boje praised the province and federal government "for their leadership and vision on advancing the deployment of CCS...finding ways to reduce greenhouse gas emissions is one of the most important challenges facing society, and developing a substantial CCS capability with governments and key stakeholders is one of our greatest priorities".

Shell Quest aims to store up to 1.2 million tonnes of CO2 per year from its current upgrader in Fort Saskatchewan and that upgrader's expansion, which is under construction. The existing upgrader produces 155,000 barrells of synthetic oil per day and 1.5 million tonnes of CO2 per year. The expansion will produce an additional 100,000 barrells per day with proportionate CO2 emissions.

It's October. It can't be a coincidence that this annoucement comes a mere 59 days before the Conference of the Parties starts in Copenhagen, Denmark. Right now, CCS is one of Canada's good news climate change stories. But if you're thinking that CCS is the only thing in Alberta's bag of climate change tricks, think again.

Don't forget that Alberta has this unique creature called the Climate Change and Emissions Management Fund, which is administered by the CCEMC. The CCEMC closed its 2009 Call for Proposals: Initial Expression of Interest Stage on September 30. Stayed tuned in the next few days to learn more about the EOI process.

The Clean Energy Dialogue Continues...

Energy/Environment High on Priority List for New US Ambassador to Canada

We have blogged many times about the Clean Energy Dialogue between Canada and the United States, which was begun when the U.S. President made his first official vist to Canada back in February. Looks like the Clean Energy Dialogue continues. Barack Obama's new envoy to Canada, US Ambassador David Jacobson, who officially started his term on Friday, said energy and environment issues are high on the agenda in discussions between the two countries.

After a ceremony at Rideau Hall with Governor General Michaele Jean where his credentials were formally accepted, the US Ambassador said "I also believe that the issues that predominate in the relationship between the United States and Canada are the kind of issues that I have spent a lifetime dealing with".

Canada A Pillar of Energy Security

In his remarks, Mr. Jacobsen acknowledged that U.S. and Canadian energy security and environmental concerns would be closely linked and up for discussion in the near future.

While U.S. lawmakers released a cap and trade bill into the Senate last week which includes measures smacking of protectionism, Mr. Jacobsen indicated he would soon start to participate in ongoing discussions about these measures, although added that he believed the talks have so far been constructive and cordial.

"Canada is a pillar in the energy security of the United States," he said. "There are also environmental issues that we all know about that are getting more and more important every day, and I expect that I will spend a lot of time dealing with those."

Another Chicago Connection

Mr. Jacobson is a former lawyer, who, like John Podesta, an influential member of the President's transition team and advocate of cap and trade, is also from the President's hometown of Chicago. Mr. Jacobson had been serving in the White House as an advisor on diplomatic postings.

What Does It Mean?

With China on the hunt to buy into Alberta's oilsands, which, let's face it, are the key to energy security for both Canada and the United States in the decades to come, and with the appointment of David Jacobsen, who seems to realize this, it is certainly a very interesting time to be in Ottawa! Perhaps protectionism may have to take a back seat to ensuring Americans have a safe and secure supply of energy.

We'll see. It may all become more clear in December when the world convenes in Denmark.

Waste-to-biofuels plant to use residual heat and synthetic gas from its process as heating and cooling energy for residents and institutions on outskirts of Edmonton

Enerkem, a waste-to-biofuels and green chemicals technology company, today jointly announced a community energy initiative that will heat a Strathcona County neighbourhood, using the residual heat and synthetic gas from its process employed at its Edmonton waste-to-biofuels plant. On hand for the joint announcement were Alberta Environment Minister Rob Renner, City of Edmonton Mayor Stephen Mandel, and Strathcona County Mayor Cathy Olesen.
Enerkem's community energy project received $7.45 million grant funding from the Government of Alberta from the Clean Air and Climate Change-Technology and Innovation Program, under Alberta's share of the Canada ecoTrust. The project was selected because of its great potential in reducing greenhouse gas emissions for the Edmonton Region, by providing a clean alternative source of energy.
The Enerkem GreenField Alberta Biofuels plant will provide the residual heat and synthetic gas from its process as heating and cooling energy for residents and institutions in the Emerald Hills area. Strathcona County will use the innovative alternative to natural gas in a heating loop in Sherwood Park. Once operational in 2012, the Enerkem renewable energy project will reduce greenhouse gas (GHG) emissions by about 7,000 tonnes per year.

Chinese Launch Voluntary Carbon Standard

We have blogged a number of times that if the world is going to make meaningful inroads to the global reduction of emissions, the discussions at Copenhagen in December will have to include real contribution from developing nations, specifically India and China.

China had an interesting announcement today. The Chinese government announced that China will launch a framework for voluntary emissions trading in the global voluntary carbon market. The China-Bejing Environmental Exchange will be a government backed platform for trading carbon in the Chinese voluntary carbon market.

China is the world's top producer of greenhouse gas emissions, in terms of total emissions, although its per capita emissions are far below that of the United States. In previous months, China has been pretty steadfast in its opposition to a global cap on greenhouse gas emissions, excusing itself in the name of opportunity and advancement, much like India has done. Nevertheless, voluntary carbon standards are a step in the right general direction.

According to Reuters, "[t]rade in the global voluntary market, mostly driven by companies looking to reduce their carbon footprints ahead of expected emissions rules, more than doubled last year to more than $700 million". Voluntary carbon standards provide a framework for polluters to get emissions cuts verified and for the creation of credits that can be sold in voluntary carbon markets.

The announcement today comes on the heels of China's assertion on September 22 that it would tie emisions reductions to economic growth. Given these recent announcements and the fact that China seems to be ramping UP to Copenhagen and not down, we'll have to keep a close eye on Chinese climate change policy in the coming months to see how their policy might drive how Copenhagen discussions unfold. More importantly, are these Chinese announcements the real thing or is the Great Wall really just a Great Hype? More tomorrow.

BC's Northwest Transmission Line Project to receive up to $130 million under the Green Infrastructure Fund

Almost one year ago, British Columbia Premier Gordon Campbell announced that the Province would start the environmental assessment process and First Nations consultation on the Northwest Transmission Line, which consists of a 287 kV line which would extend 335 kilometres into the Northwest portion of the province from Terrace to Meziadin Junction and north to Bob Quinn Lake.

The estimated $404 million project which is expected to be ready for construction in early 2010 has been given a serious boost as a result of yesterday's announcement by the federal government that it has been selected as a priority for funding of up to $130 million under the Green Infrastructure Fund, conditional upon the signing of a contribution agreement with the British Columbia government under the fund.

The Northwest Transmission Line will provide multiple benefits:

As the area surrounding the project has a significant potential to generate green power, local communities will be able to access clean electricity in the future, reducing their reliance on diesel generation and resulting greenhouse gas emissions. There is currently an estimated 2,000 MW of renewable energy in the area from small hydro, geothermal, wind and biomass sources and the project could immediately serve a number of potential generation projects representing approximately 500 MW being considered under British Columbia's current Clean Power Call.

The project also provides access to the electricity grid for potential customers, which in turn will support and promote economic diversification in the area. According to the Mining Association of BC, the project has the potential to attract $15 billion in new capital investments and create almost 11,000 jobs.

Lastly, construction of the transmission line will be a key step in a potential interconnection between southeast Alaska and the North American transmission grid via British Columbia.

US to tighten mileage standards and regulate CO2 emissions from vehicles

By 2016, U.S. automakers may be required to raise the fuel efficiency of their vehicles to a fleet-wide average to 35.5 miles per gallon while lowering CO2 emissions intensity to a fleet-wide average of 250 grams per mile. Manufacturers of passenger cars, light-duty-trucks, and medium-duty passenger vehicles will have to implement technological improvements to improve efficiency by about 5% per year, beginning in 2012. If approved, this national standard would represent a significant incremental strengthening of regulations that has the potential to help address climate change, reduce dependency on foreign oil, and create jobs. Given the integration of the North American auto industry, it will also be relevant to Canadian players in the sector.

The proposal ((the details of which are available online) was jointly drafted by the U.S. Department of Transportation's National Highway Transportation Safety Authority ("NHTSA") and the Environmental Protection Agency ("EPA"). According to the joint notice released by the two agencies, the plan "is consistent with the President's announcement on May 19, 2009 of a National Fuel Efficiency Policy of establishing consistent, harmonized, and streamlined requirements that would reduce greenhouse gas emissions and improve fuel economy for all new cars and light-duty trucks sold in the United States." The proposal was developed with input from automakers, union leaders, environmentalists, and state and local leaders.

Division of regulatory responsibility

Under the program, mile-per-gallon requirements will be enacted under the NHTSA Corporate Average Fuel Economy Standards. The grams per mile requirements will be enacted under the Clean Air Act by the EPA pursuant to its authority (and obligation) to regulate greenhouse gases as recognized in 549 U.S. 497 (2007).

In Massachusetts v. EPA, the Supreme Court opined that the direct linkage between fuel efficiency and tailpipe emissions, and the DOT's recognized authority to regulate the former, "in no way licenses EPA to shirk its environmental responsibilities. EPA has been charged with protecting the public"s 'health' and 'welfare', a statutory obligation wholly independent of DOT's mandate to promote energy efficiency." The Court concluded that "[t]he two obligations may overlap, but there is no reason to think the two agencies cannot both administer their obligations and yet avoid inconsistency."

Expected benefits

The program is forecasted to deliver the following benefits:

• reduce total carbon dioxide equivalent emissions by approximately 950 million metric tons over the lifetime of the vehicles sold in model years 2012 through 2016;
• reduce GHG emissions from the U.S. light-duty fleet by approximately 21 % by 2030 over the level that would occur in the absence of the program;
• save about 1.8 billion barrels of oil savings over the lifetime of vehicles sold in model years 2012 through 2016;
• improve energy security, given that light-duty vehicles are about 95 percent dependent on oil-based fuels;
• produce a net economic benefit of about $250 billion at a 3% discount rate, or $195 billion at a 7% discount rate.

The EPA and NHTSA estimate that the average cost increase for a model year 2016 vehicle due to the program will be less than US$1,100.

The program is also expected to be the stick that complements carrots offered under financial stimulus programs directed at the auto sector. Manufacturers will have a specific technical problem to tackle with the assistance of stimulus dollars.

Flexibility or loopholes

In response to concerns expressed by the auto sector, the EPA included features in the emissions part of the program that are being described by some of offering "flexibility" and by others as constituting "loopholes". Specifically, the program includes averaging, banking, trading ("ABT") provisions.

Averaging means that manufacturers will calculate production-weighted fleet average emissions at the end of the model year and compare their fleet average with a fleet average standard to determine compliance. If a manufacturer's average is better than the average standard, credits will be created that can be used in four ways:

• remedy deficits in previous compliance years;
• bank for use in future compliance years;
• transfer to other compliance category within the manufacturer's operations; or
• trade to other manufacturers.

According to the EPA, the ABT provisions are "generally consistent with those included in the CAFE program" (although the CAFE program limits the use of credits in some circumstances) and has "been an important part of many mobile source programs under Clean Air Act Title II, both for fuels programs as well as for engine and vehicle program." The EPA notes that "ABT is an integral part of the standard setting itself, and is not just an add-on to help reduce costs. In many cases, ABT resolves issues of lead-time or technical feasibility, allowing EPA to set a standard that is either numerically more stringent or goes into effect earlier than could have been justified otherwise."

Implications for Canada

Back in March 2009, Environment Minister Jim Prentice indicated that Canada would likely follow the U.S.'s lead: "At this point in the United States, it would appear as though they are headed toward a 35 mile a gallon standard by 2020 and that would start to come into effect in the 2011 model year...We've essentially been prepared to go in that same direction...what we're striving for is a North American standard because we know there's only one North American automobile industry."

Canadian auto and parts manufacturers should therefore expect to be required to meet the same standard. Given the integration of the industry across North America, they will have to do so whether or not Canada enacts similar regulations.

Canadians players may be at somewhat of a competitive disadvantage given the scale of the stimulus money that will likely be made available to their U.S. competitors.

Western Premiers Sign MOU on CCS Technology and Policy

The Premiers of Alberta, Saskatchewan and Manitoba held a joint cabinet meeting in Calgary on September 11, 2009. During the meetings, the provinces signed two key agreements, including a Memorandum of Understanding on Carbon Capture and Storage Technology and Policy, which "focuses on advancing co-operation on energy research and technology". Also highlighted were the concepts of "strengthening internal trade, innovation and international marketing, further developing Canada-U.S. relations and committing to improvin pension coverage for workers".

Of the MOU, Premier Stelmach remarked "collaboration in the West has best positioned our provinces to lead Canada both economically and in the development of clean energy technologies such as carbon capture and storage. By joining forces with B.C. and Saskatchewan, we can better develop and deploy this innovative technology, helping to meet climate change objectives and making us international leaders in this technology".

The second key agreement, the "Western Economic Partnership" is an interprovincial trade agreement designed to be the largest barrier-free trade and investement market in Canada.

The CCS MOU is the next in a series of steps Alberta has taken to advance CCS technology and deployment. Alberta announced its $2 billion CCS fund in 2008. The monies in the CCS fund are in addition to monies in the province's Climate Change and Emissions Management Fund, which is administered by the CCEMC. For the 2009 Call for Proposals, 30% of available funds may be used to advance CCS technologies and innovation.

When Canada goes to Copenhagen in a few months, this newest announcement by the Western provinces will be another point of climate change achievement.

We will continue to keep you posted about the Memorandum of Understanding among the three provinces. Stay tuned!

Premiers McGuinty and Charest reassured by Minister Prentice

Early this week, we reported on federal Environment Minsiter Jim Prenctice's cross-country tour to discuss his plans for federal climate change regulations. That tour hit Toronto this week, but did not evoke the negative reaction that has been reported in other parts of the country. The Toronto Star reports that Ontario Premier Dalton McGuinty and Quebec Premier Jean Charest said that Environment Minister Jim Prentice has privately told them the upcoming federal scheme to reduce greenhouse-gas emissions would be fair to their provinces.

Premier McGuinty was reassured that the proposed federal system:

• will be compatible with the U.S. system;
• will not place Ontario at a disadvantage in comparison to other parts of Canada;
• will not disproportionately burden Ontario;
• will not cause a transfer of wealth from Ontario to other parts of the country.

Premier Charest agreed, but continues to take issue with Ottawa's insistence on using 2006 as the base year for emissions, instead of the internationally recognized 1990 baseline.

Minister Prentice clarified that there has "never been any suggestion on my part that the oil sands or any industry would receive special treatment in any of my consultations." However, he did not specifically exclude the possibility that some industries could be subject to hard caps while others, notably the oil and gas sector, may be required to meet intensity-based targets.

Quebec and Ontario's primary concern appears to be harmonizing with the U.S. to avoid any adverse trade consequences.

Two-tier GHG emissions regime for Canada?

The federal government has committed to releasing a comprehensive plan for addressing climate change in advance of the meeting in Copenhagen at the end of this year. The Toronto Star reports that federal Environment Minister Jim Prentice is currently pitching a two-tier emissions management regime as Ottawa's preferred approach. Under a two-tier system, greenhouse gases would be managed at the sectoral level, with a hard cap applying to most sectors but intensity-based targets applying to the oil and gas sector.

Such an approach is motivated by Canada's most intractable climate change question: what should be done about the oil sands? The governments of Alberta and, to an increasing extent, Saskatchewan argue strongly that the oil and gas sector deserves special treatment under any national emissions management regime. They argue that a uniform, national system would impose harmful costs on their economies and could unfairly transfer huge amounts of wealth to the remaining provinces and territories (like the former National Energy Plan).

Those committed to addressing climate change counter that the oil sands are a disproportionately large source of the country's greenhouse gas emissions. Intensity targets in no way guarantee absolute emissions reductions as total emissions can rise with increased production. According oil sands special (i.e., more lenient) treatment could therefore completely undermine Canada's ability to deal with climate change in a meaningful way. Such special treatment would also be especially hard to justify given that the oil and gas sector is so heavily concentrated in just 2 provinces.

Minister Prentice has been pitching the concept to industry and provincial leaders across the country. The Star quotes Andrei Marcu, a Toronto-based board member with the International Emissions Trading Association, as saying that "he's getting a bad reaction...everywhere but in Alberta and Saskatchewan." That bad reaction is likely about to get worse has Mr. Prentice prepares to meet with both Ontario and Quebec in Toronto this week. Ontario and Quebec, as well as British Columbia, have declared their strong preference for a system based on hard caps. Quebec's Environment Minister Line Beauchamp told Montreal's Le Devoir that her province opposes preferential treatment for the oil sands and will make its opposition known in the run-up to Copenhagen.

At some level, provincial governments must sympathize with the enormity of the challenge faced by Minister Prentice. At a three-day summit earlier this summer, provincial premiers avoided the climate change issue almost entirely, agreeing only that Canada would be "well served to work with the United States on a continental approach." Environmentalists were hugely disappointed at the premiers' lack of engagement at what had been billed as the "Showndown in Regina."

Mr. Marcu also predicts that introducing intensity targets for the oil and gas sector would not be "acceptable for integration to the U.S." Earlier this month, the federal government made a joint declaration with the US and Mexico regarding the integration of the North American carbon credit market. Introducing intensity based credits in Canada could poison the well and cause the US and Mexico to reconsider their position.

Cynics suggest that Minister Prentice's two-tier suggestion is a deliberate concession to the federal Conservative's base of power in the face of an increasingly likely fall election. It will no doubt have a polarizing effect on the country. Nevertheless, Minister Prentice remains confident that he will find a position that is acceptable to all provinces and territories.

Five U.S. states ask Senate to leave climate change legislation up to them

The attorney generals of California, Arizona, Connecticut, New Jersey, and Delaware wrote to the Senate this week asking that their states be permitted to enforce their own emissions regulations. The attorney generals do not want federal legislation scrapped. Rather they want to be able to impose stricter limits on greenhouse gases than will be included in the federal legislation. The move may foreshadow similar tensions that could arise between Canadian provinces and Ottawa.

The appeal went out to both proponents and opponents of climate change legislation in the Senate. The letter was addressed to Senate leaders including:

• Harry Reid (D-Nevada), Senate Majority Leader, who is convinced of the need to addresss climate change;
• Barbara Boxer (D-California), the lead proponent and author of the senate proposal;
• Mitch McConnell (R-Kentucky), Republican Senate leader, who has consistently voiced concern about the cost of a cap-and-trade system; and
• James Inhofe (R-Oklahoma), an outspoken climate change sceptic.

Each of the 5 states is already a member of either the Western Climate Initiative ("WCI") or theRegional Greenhouse Gas Initiative ("RGGI") and has therefore already made significant investments in regional cap-and-trade systems. Both the WCI, which is under development, and RGGI, which is operational, were undertaken in response to the Bush Administration's inaction on the climate change file.

The letter notes that "allowing states to go beyond federal minimum requirements - which is the model of most existing federal environmental statutes - has worked well to improve the nation's environment over the past four decades and stimulated innovation through creative state experimentation."

Foreshadowing Canadian disputes?

Similarly, provincial governments may not see eye to eye with Ottawa about what constitute appropriate limits on greenhouse gas emissions. Alberta, which is the only province with GHG regulations in place, has already expressed concern that federal regulation would unduly burden the oil patch and could result in a wealth transfer of a magnitude not seen since the much maligned National Energy Program.

Such disagreements in Canada may be resolved by political negotiation or through "equivalency agreements" (which are allowable under the Canada Environmental Protection Act, the statute upon which Ottawa is likely to rely when enacting GHG regulations). However, they could also lead to constitutional challenges in the courts.

While the constitution provides for a clear division of powers between the provincial and federal governments on many issues, it is silent on environmental regulation. In the past, the Supreme Court of Canada has ruled that the federal government can share jurisdiction over the environment with the provinces. However some question whether the conclusions of the germinal Hydro Quebec case, which hinge on the federal government's jurisdiction over criminal matters, would apply to the economic regulation of GHGs through a cap-and-trade system.

Other issues raised is the letter

The letter also advocated for other improvements to the bill, including:

• strong federal oversight of the carbon markets: "having seen the tremendous potential for damaging market manipulation in the recent housing market meltdown and the California energy crisis of 2000-01, we believe that strict regulation, oversight, and enforcement of these new markets is critical";
• state enforcement authority: "Because the allowance and derivatives markets will be susceptible to fraud at multiple levels - from facility emissions reporting through allowance commodity trading - federal enforcement must be augmented by state and local enforcement resources.";
• more oversight and transparency of agricultural and forestry offsets: "It is critical that agricultural and forestry offsets be held to the same standards of accountability and transparency as other types of offsets";
• less curtailment of EPA authority: "NSR and NSPS authorities allow EPA to impose feasible and cost effective controls on facilities, such as requiring coal-fired power plants to adopt the most efficient technologies, which can be important complements to the cap- and-trade provisions of the bill. This is the complementary approach that has proven so successful for the Clean Air Act's acid rain trading program."

The letter therefore calls for greater powers both for Washington and for state governments. Given the enormous scope and widespread implications of climate change legislation, this type of cooperative approach may be essential.

Canadian leaders, take note!

A Changing Climate Position in China?

A couple of weeks ago, we reported that a number of US Senators had written a letter to President Obama urging (insisting?) that U.S. climate legislation include a "border adjustment mechanism". In an article for Point Carbon , we also noted that China and India, both of which are classified by the UN as developing nations, were not going to be especially pleased with what really amounts to a US tariff on imports. We also predicted that if one country was to eventually capitulate to international pressure on its climate change policy, it would be China.

Are we going to start to see signs of that?

Back on August 5, China's Climate Change Ambassador (seems like everyone has one of these positions now), Yu Qingtai, said that China is looking to halt its emissions as soon as possible, although not at the expense of pulling its tens of millions of people out of poverty. If this seems like a similar tune the Indian government has been singing, that's because it is. You'll recall that the Indian Environment Minister said basically the same thing on July 31.

However, the Chinese position may be slightly softer. According to Reuters, Yu Qingtai also said that "China was willing to thrash out emissions-cutting targets for rich nations at U.N.-led talks later this year, dropping an earlier demand for a reduction of at least 40 percent". Although China is one of the nations advocating for climate funds from developed nations, according to Yu Qingtai, "there is no one in the world who is more keen than us to see China reach its emissions peak as early as possible".

Last week, a study published by some of China's top climate policy advisors concluded that it was feasible for China to peak its emissions by 2030. Although the report does not represent official Chinese policy, it is among several reports out of China which estimate emissions reductions in China in the next 20 years. An article from the Centre for American Progress, the D.C. based think tank headed by John Podesta is optimistic that China's position on climate change is moving in the general direction of the developed world.

Julian Wong from the CAP, reports:

China may announce its next five-year plan as early as this year, and many expect that it will contain even stronger commitments and perhaps incorporate some measure of carbon reductions in the form of benchmarks for reducing carbon intensity. China's State Council, led by Premier Wen Jiabao, last week laid down the objective of incorporating climate change considerations into "the medium and long-term development strategies and plans of government at every level." Also, Sun Qin, the vice chief of the National Energy Administration said he expects the government to complete a comprehensive plan for new and low-carbon energy development by the end of the year. A low-carbon strategy will be a central thread in China's ongoing economic development strategy.

China is also hinting at increased flexibility in the negotiation process. Su Wei, director-general of the climate change office within the National Development and Reform Commission, China's main economic planning agency, has signaled a change in tone, saying, "China will not continue growing emissions without limit or insist that all nations must have the same per-capita emissions. If we did that, this earth would be ruined." China maintains its hard line that developed countries are historically responsible for climate change, but climate envoy Yu has also backed off somewhat from China's previous demands that all developed countries commit to 40 percent reductions in carbon emissions by 2020, saying that, "[a] concrete figure has to be decided by the negotiations; we will get a result in Copenhagen."

This doesn't mean that China is all of a sudden going to abandon its domestic policy and international position on emissions reductions, but it does seem to signal that China may be more flexible than other developing nations. With the world's second highest greenhouse gas emissions, it should be.

SDTC announces opening of new round of funding

Sustainable Technology Development Canada ("SDTC") will be accepting Statements of Interest ("SOIs") from September 2 to October 21, 2009.

SDTC was created to fund development and demonstration projects, which SDTC also describes as prokecst that take technologies out of the laboratory and prove them in real-world test situations. SDTC funding is not available for primary research and development or for initial proof of concept projects. Applicants must therefore demonstrate that:

• the proposed project is technically sound and undertaken by an applicant with the necessary technical, financial and management capacity;
• the proposed project will be undertaken in a collaborative and innovative manner;
• the new technology and related intellectual property will be diffused in a timely manner in the relevant market sectors; and
• the funding is necessary to ensure that the project proceeds in a manner to ensure broad benefits to Canadians nationally or regionally

Projects must pertain to one of the following primary sectors of Canada's economy:

• Energy Exploration, Production, Transmission and Distribution
• Power Generation
• Energy utilization
• Transportation
• Agriculture, Forestry and Mining
• Waste Management
• Cross-sectoral

To date, SDTC has provided over $376 million in funding to 154 projects. A breakdown by sector is posted here.

Note that SDTC is also running an open call for projects for its $500 million NextGen BioFuels Fund. To be eligible, projects must:

• be a First-of-Kind facility that primarily produces a next-generation renewable fuel at large demonstration-scale;
• be located in Canada;
• use feedstocks that are or could be representative of Canadian biomass; and
• have demonstrated its technology at pre-commercial scale.

NAFTA partners commit to integrating continental emissions trading market

On August 10 in Guadalajara, Mexico, Prime Minister Harper, President Obama, and President Calderón signed a joint North American Leaders' Declaration on Climate Change and Clean Energy. The declaration contains the seeds of a continental market for carbon credits, but falls short of promising a truly integrated cap-and-trade scheme. It also includes some other items that are receiving mixed reviews from stakeholders. Undoubtedly, the declaration fits into each country's plans for the negotiations in Copenhagen this fall.

A (somewhat) integrated scheme

Although soft pedaled somewhat by Prime Minister Harper in a subsequent statement, the announcement nevertheless represents a significant victory for Canada. Since the early days of the Obama presidency, Ottawa has been pursuing Washington to commit to a North American scheme. The much touted Clean Energy Dialogue fell short of such a commitment. The Guadalajara declaration represents something much closer to a commitment to work together in managing greenhouse gas emissions.

However, the declaration is clearly not a promise to implement an EU ETS-style integrated emissions management regime. Rather, the countries will remain responsible for establishing domestic emissions management rules, as evidence in the following two points of the declaration:

• We will work together as we set and implement our own ambitious mid-term and long-term goals to reduce national and North American emissions;
• We will work together to develop our respective low-carbon growth plans;

Reference to "our own" goals and "our respective" plans suggest that the countries will retain control over their domestic regulatory regimes, particularly the setting of a cap on emissions (but may share ideas for the same with their NAFTA partners). There may therefore be no legal integration of the North American emissions cap.

However, the declaration appears to contemplate legal integration of the "trade" component of the three countries domestic cap-and-trade systems. The following two points contemplate the development of a cross border market for carbon credits.

• We will develop comparable approaches to measuring, reporting, and verifying emissions reductions, including cooperating in implementing facility-level greenhouse gas reporting throughout the region;
• We will build capacity and infrastructure with a view to facilitate future cooperation in emissions trading systems.

The first of these points appears intended to provide for a level of fungibility of credits, where credits generated in one jurisdiction could be recognized as being equivalent for compliance purposes in another jurisdiction. The second point directly addresses the potential to enable cross border trading of emissions credits.

Interestingly, the declaration draws no distinction between emissions allowances (i.e., the emissions permits that would be distributed by regulators and would be used to implement an emissions cap) and carbon offsets (i.e., credits that are generated as a result of emissions reductions undertaken by entities not subject to the cap and that may be sold to regulated entities for compliance purposes). However, federal Environment Minister Jim Prentice was reported by the Globe and Mail as predicting that the countries would focus initially on the cross border trade of offsets.

A focus on offsets would not be surprising. Carbon offsets are viewed as a policy tool for reducing the overall cost of complying with a cap on emissions. Rather than undertake expensive capital improvements to reduce emissions, regulated players have the option of purchasing offsets from entities that can voluntarily reduce emissions at lower costs. By creating a continental wide market for offsets, the three countries may be able to lower the overall cost of a cap-and-trade system by increasing the supply of offsets.

The possibility of an integrated offset market brings with it the promises and risks inherent in international trade. On the one hand, the U.S. could be a huge market for offsets created by Canadian offset project developers. On the other hand, the opportunity could quickly shrink if the U.S. imposed import restrictions on the number of offsets that could be sourced from Canada (the Waxman-Markey bill already contemplates such a limit) or if Mexico grabs a disproportionate share of the market by supplying offsets at prices that Canadians cannot beat.

Other aspects of the declaration

Proponents of large infrastructure investment will be pleased to see that the declaration also includes commitments to develop a North American smart grid and to cooperate on regional carbon capture and storage initiatives.

Environmentalists are already bristling at absence of firm reduction targets and the inclusion of "wiggle room" in the declaration. For example, the preamble includes the statement that "we support a global goal of reducing global emissions by at least 50% compared to 1990 or more recent years by 2050, with developed countries reducing emissions by at least 80% compared to 1990 or more recent years by 2050" [emphasis added]. The year 1990 is internationally recognized base year for measuring emissions reductions under the Kyoto Protocol. Reference to "more recent years" leaves open the possibility that the NAFTA countries will set less demanding 2050 targets based on later reference years (that have higher baseline emissions).

On the road to Copenhagen

The Guadalajara declaration is almost certainly a component of each of the NAFTA country's negotiating strategy in the run up to Copenhagen. For the U.S., it is evidence that Washington is open to international cooperation on the climate change issue. For Canada, it is likely an attempt to align the country with one of the biggest players at the Copenhagen negotiating table. To get full value of that strategic alignment, however, Canada will have to make good on its promise to table a meaningful domestic emissions regulation proposal before November.

Hillary Clinton faces dilemma about Enbridge's Alberta Clipper pipeline project

Earlier this year, federal Environment Minister Jim Prentice described environmental, energy and economic policy as "parallel roads to the same destination." For Enbridge, which is seeking approval for the U.S. leg of its 1,600 km Alberta Clipper pipeline, that destination may soon be the desk of Hillary Clinton. The Financial Times reported this week that the U.S. Secretary of State is expected to decide as early as this month whether or not to approve the proposal.

The proposal is a stark example of the difficulties of balancing environmental, energy and economic policy.

On the one hand, getting access several hundred thousand extra barrels a day of fuel from its friendly neighbour to the north would certain help the U.S. improve its energy security. Laying several hundred kilometers of pipe would also create a lot of jobs for Minnesotans.

On the other hand, the tar sands have been roundly criticised for the above-average greenhouse gas emissions associated with extracting and upgrading bitumen (as well as for other environmental impacts). Particularly given President Obama's focus on addressing climate change, the U.S. is under significant pressure to avoid increasing its reliance on the tar sands, which could be characterized as "inconsistent with limiting climate change." As discussed in our analysis of the Waxman-Markey bill, there is a fear that even if the pipeline is built, the "border adjustment" mechanism in the bill could later be used to impose carbon tariffs that would kill the value of the investment. Concern over the lifecycle carbon content of the oil sands output is not new: even President Bush, who was much less concerned about the climate change issue, wanted to fetter U.S. federal agencies from buying vehicle fuel derived from non-conventional sources like the tar sands (see our posting here).

What will Mrs. Clinton do? Perhaps delay the decision and allow the parallel roads to converge in Copenhagen. Stay tuned.

Canada's GHG system to be "comparable" to that of US

In an interview with the Globe and Mail, Canadian Envrionment Minister Jim Prentice said that Ottawa will be very mindful of Washington when enacting Canadian greenhouse gas emissions management regulations. The U.S. intends to establish a cap-and-trade system pursuant to the American Clean Energy and Security Act (more commonly known as the Waxman-Markey Bill, discussed in our recent bulletin), if enacted into law. Mr. Prentice said that Canada's system "will not be identical to the United States...but it will be comparable."

The Waxman-Markey Bill contemplates the imposition of "border adjustment charges" on energy-intensive goods imported from countries without emissions caps that are comparable to the U.S. cap. When asked about the risk that such carbon tariffs posed for Canadian businesses, Mr. Prentice replied that "[t]he trade implications only apply if Canada does not have a commensurate system and, in fact, everything we are doing is to ensure we do have a commensurate system."

However, harmonizing Canadian regulations with those of the U.S. could prove to be a major political challenge for the federal Conservatives. Alberta in particular is concerned that the U.S. approach will result in huge additional costs for the emission-intensive oil sands sector. Albertans have a deep-seated suspicion of any federal energy policy that places a disproportionate burden on Alberta. Despite an avowedly great working relationship between Mr. Prentice and Alberta Environment Minister Rob Renner, Ottawa and Alberta are likely to find themselves increasingly at odds over the issue of climate change.

The U.S. is cognizant of the issue. President Barack Obama articulated it as follows: "What we know is that oilsands creates a big carbon footprint. So the dilemma that Canada faces, the United States faces, and China and the entire world faces is, how do we obtain the energy that we need to grow our economies in a way that is not rapidly accelerating climate change?" Stay tuned to find out.

Canada's climate change credibility suffers on world stage

In recent weeks, Canada has been repeatedly criticised abroad for the position it is taking with respect to climate change.

First, WWF and Allianz, a global insurer and financial institution, released a report ranking Canada's climate change performance last amongst the G8 countries. An interactive version of the report summarizes Canada's performance as follows:

"Canada ranks last of all G8 countries. The country's total greenhouse has emissions are steadily increasing, and would now need to drop by over 32% to meet Canada's emissions reduction target of 6% [from 1990 levels] by 2012 set by the Kyoto Protocol. Canada's per capita emissions are among the highest in the world. A plan to curb emissions was developed last year, but has bot been implemented. Largely due to Canada's use of hydro power, the country's CO2 emission per kWh are the lowest in the G8."

Canada's scorecard provides additional detail. With respect to the development of the oil sands, the report concludes that "neither provincial nor planned federal regulation will reduce overall emissions." With respect to Canada's stance in international negotiations, the report concludes that Canada has abandoned its Kyoto commitments and is "generally slowing rather than advancing the international negotiation process by introducing a focus on national circumstances."

The latter sentiment was echoed by Sir David King, the UK's former Chief Scientific Adviser, at the World Conference of Science Journalists. The Times reports that he warned that Canada and Japan are blocking a possible deal on climate change at the Copenhagen summit. Sir David lauded the US, saying that the "Americans are now fully engaged" and noting that it is no longer possible "to hide behind the US's intransigence on climate change."

Reuters reports that France recently released a position paper that was equally critical of Canada, calling for Canada to "take on commitments which are at least on a par with the EU's, compared with 1990 levels." As mentioned in the WWF/Allianz report, Canada is currently emitting 26% above 1990 levels, whereas it committed to being 6% below 1990 levels by 2012. The French discussion paper came as a surprise to the Canadian government, which had not had an opportunity to review it before it was released.

Finally, Canada also appears to have passed (for now) on membership in the International Renewable Energy Agency ("IRENA"). On June 29, 22 new states signed on to IRENA, including long-time holdouts Japan and the U.S., bringing the total number of country signatories to 136. Canada did not join, even though a private member's motion to join the IRENA was passed 146 in favour and 141 against on June 17. IRENA's mission is as follows:

"IRENA aspires to become the main driving force for promoting a rapid transition towards the widespread and sustainable use of renewable energy on a global scale. As the global voice for renewable energies, IRENA envisages providing practical advice and support for both industrialised and developing countries, thereby helping to improve frameworks and build capacity. Moreover, the Agency intends to facilitate access to all relevant information, including reliable data on the potentials for renewable energy, best practices, effective financial mechanisms, and state-of-the-art technological expertise."

Clean Energy Dialogue Roundtable Meeting Concludes

The Clean Energy Dialogue between Canada and the United States continued this week as meetings between the two nations wrapped up in Washington.

The public-private meeting, held June 29-30 at the Department of Energy Headquarters in Washington, DC, brought together industry and government leaders to expand bilateral clean energy cooperation.

US Energy Secretary Steven Chu expressed optimism following the talks, stating that "by working together to develop clean energy technologies and combat climate change, the United States and Canada can spark an economic recovery that will benefit both of our nations."

The Clean Energy Dialogue was announced in February 2009 following the first meeting between Prime Minister Stephen Harper and President Barack Obama in Ottawa. Established with the intention of expanding clean energy research and development in the United States and Canada, the Clean Energy Dialogue strives to develop and deploy clean energy technology; and build a more efficient energy grid based on clean and renewable energy in an effort to reduce greenhouse gases and combat climate change.

The meeting marks a significant advancement in implementing Canada's Climate Change Plan and Economic Action Plan, both aimed at supporting a cleaner more sustainable environment. Through promised collaboration on specific areas such as biofuels, clean engines, and energy efficiency, the Clean Energy Dialogue will help Canada meet its greenhouse gas emissions reduction targets and aid its commitment to ensure that 90 percent of electricity be provided by non-emitting sources by 2020.

Discussions at the Roundtable meeting involved the initial development of an Action Plan to be presented to Minister Prentice and Secretary Chu in mid-July. The expected deadline to present a finalized joint Action Plan on Clean Energy to Prime Minister Harper and President Obama is August 2009. Consultation with the provinces and private sector leaders will continue over the next few months to achieve such goal. If all of these milestones are met, momentum towards Copenhagen in December will be at an all time high.

We will continue to monitor the Clean Energy Dialogue and will report back to you regarding the Action Plan and provincial consultations as information becomes available.

With assitance from Corie Flett, Summer Student.

Davis LLP releases Climate Change Law Bulletin on the proposed Canadian Offset System

As discussed previously, Canada's Environment Minister Jim Prentice announced on June 10 that the Federal Government will be moving forward with its Offset System for Greenhouse Gases. On June 12, the government released two draft guides for the proposed system: Program Rules and Guidance Project Proponents and Program Rules and Verification and Guidance for Verification Bodies. The new documents provide details for those looking to enter the carbon market and describe the government's plan for the certification and issuance of offset credits for greenhouse gas reductions. Issue 8 of the Davis LLP Climate Change Law Bulletin summarizes these new guidance documents and discusses what they mean for Canadian businesses.

The two new guidance documents complement the draft Guide for Protocol Developers for Canada's Offset System for Greenhouse Gases, released last August (and discussed here), which proposed requirements for developing offset protocols under the federal system. All three Offset System guides are expected to be finalized by fall of 2009.

The Harmonization of Climate Change

Since you've been waiting with bated breath to find out what we had to say next about the federal and provincial climate change policies, we didn't want to keep you in suspense. We blogged on Monday that the provinces are throwing together climate change legislation faster than you can say "greenhouse gases".

In related news, yesterday the Globe and Mail reported that the Alberta Conservatives are taking their federal counterparts to task over energy and environment, treatment of the oil sands and other federal government policies. The controversy arises after speaking notes prepared for Conservative MLAs to raise with federal MPs in their home ridings found their way into media hands.

A significant bone of contention for Alberta's governing party appears to be with respect to the federal government's climate change policies as they relate to coal-fired electricity. In a meeting with media on April 29, Minister Prentice was asked about what types of regulations Canada would be rolling out with respect to climate change, and specifically what its policy around thermal-coal would be. The Minister replied that any new coal-fired plants will have to be neutral in terms of emissions, (which means they must have the ability to inject the carbon dioxide at the source underground). He also indicated that once coal-fired electricity plants that have come to the end of their useful lives, and have been fully depreciated, they will be decommissioned and replaced with more environmentally friendly options.

Unfortunately, the announcement appears to have been the first time the information was relayed to Alberta. Why is this so significant for Alberta in particular? Alberta relies on coal for electricity. Virtually all of the country's 27 coal plants are here. We do not have hydro in Alberta and we rely only minimally on renewables, so thermal coal is rather important for keeping the lights on. A policy such as the one outlined by the Minister means that Alberta may "shoulder the biggest burden in complying with these regulations - and depending on how they are formulated, they could have a significant impact on the health of the provincial economy". Premier Stelmach may agree. He was quoted in the Globe article as saying "You cannot ask Albertans to carry the burden of equalization, and then also penalize them for producing the wealth that allows us to make such a massive contribution to the programs that Canadians enjoy".

While the Globe story points to the issue as being one of a frayed relationship between Alberta and Ottawa, really the problem is one of harmony of regulation, not relationship.

As Canadians, we are seeking solutions to climate change at the provincial level - this is good. But it's also challenging. Each province's emissions profile is different from the next and given its industry, Alberta's situation is particularly hard to address. Intraprovincial carbon trading, for example, is a desirable mechanism, but regulations in BC are so vastly different from those in Alberta or Ontario that they will be difficult to align. You could be trading apples for oranges. The longer the provinces have to grow and develop their own programs, the harder it's going to be to allow the various systems to operate in concert.

What will drive harmonization? Probably not climate change, but rather industry (national corporations are the same whether they are operating in PEI or Saskatchewan after all) and intra-provincial trade. Degrees of harmony have to be created.

We're just beginning to explore this topic here on the blog. Stay tuned to see our thoughts on how harmony will be achieved and how the constitutional issue will be addressed.

Dandelions are Springing Up Everywhere

We blogged the other day that Canada is pushing back its target start date for the regulation of emissions at the federal level to align more closely with the American schedule. In a discussion with media from London on May 28, Minister Prentice indicated that the GHG reduction targets would be in effect as late as 2012 in order to ensure they were aligned with the system south of the border. The Turning the Corner Plan called for targets to be developed in 2008 and come into force in 2010.

In a speech to the CD Howe Institute on June 4, the Minister remarked "[w]e will outline the full suite of policies that relate to all major sources of emissions this year, in 2009. I have said this, this will happen time and time again and it will happen by the time we reach the international table at Copenhagen. The process then of drafting the detailed regulations under CEPA will consume much of 2010, the following year. In some cases - the tailpipe emission standards being the obvious illustration - we have already started that process, but 2010 will be the year in which the regulations are drawn together. The regulations will be drafted with a view to an application date of January 1, 2011 and they will be brought into force thereafter on a sector by sector basis. We will make individual decisions on a sector by sector basis in terms of the application date for those".

The critics used to complain that Canada was moving forward without a plan and now they critics bitterly declare that Canada is lagging behind. Isn't that ironic given a year ago we were busily lambasting the U.S. for their lack of climate change initiatives. Canada lagging behind? I don't think so - we're moving forward, just not cohesively.

What is the consequence of Canada pulling back at the federal level (and what, exactly, is the meaning of the blog title), you ask? While the federal government waits for its biggest trading partner to define its domestic targets, regulatory frameworks addressing climate change are springing up all over the place like dandelions on a prairie field.

Alberta's emissions reduction targets were introduced in 2007. BC brought in a carbon tax last year. Ontario passed the Green Energy Act this year and has recently introduced a cap and trade bill (although the implementation date has been pushed back to 2012). So has Quebec. Saskatchewan introduced comprehensive climate change legislation in May. We're expecting that the Maritime provinces and Manitoba, which have established action plans already, will follow suit with regulatory frameworks soon.

All of these provincial frameworks have an opportunity to emerge because the federal framework is being delayed. But are the provinces going to bump into one another? What if you're a corporation operating in B.C., Quebec, Alberta and Ontario - what do you do? Are the provinces on a collision course with the federal government? Where's it all going?

We have some thoughts about that. Stay tuned the next couple of days and we'll explore it.

Canada, Ontario push out start of climate change regulations

Both the federal and Ontario provincial governments have decided to delay regulations that would mandate reductions in greenhouse gas emissions. The modified schedules more closely align with the expected legislative timetable south of the border.

Federal announcement

Federal Minister of the Environment Jim Prentice announced on May 28 that hard emissions targets will now come into effect beginning in 2012 and will be phased in through 2016. The shift to a 2012 start date is consistent with the federal government's strategy of aligning Canadian environmental, energy and economic policy with that of the Obama administration in the U.S. "In terms of our industrial competitiveness, protecting jobs, investments, we will need to ensure that the application dates for Canadian climate change policies are harmonized with the United States," the Globe and Mail reports Mr. Prentice as saying, "or at least that we give close consideration to how and when individual sectors of the American economy will be regulated."

However, the new timeline is a significant departure from that set out in the federal Turning the Corner plan, which called for regulations to take effect on January 1, 2010. The 2012 start date means that Canada will have no regulations in place before the end of the first commitment period under the Kyoto Protocol, Canada's targets for which Prime Minister Harper has described as unachievable since his campaign for office in 2006. Critics note that the change is out of step with the fierce urgency of now recently highlighted by a group of Nobel laureates.

Some suggest that the announcement will hurt Canada's credibility during the negotiations in Copenhagen later this year (see e.g., Climate Action Network Canada and the Pembina Institute). However, Mr. Prentice made it clear that the government will make public "a full suite of policies that relate to all sources of greenhouse gas emissions" before Copenhagen.

Ontario's acknowledgement

Also on May 28, Ontario's Minister of the Environment John Gerretsen acknowledged that the provincial Liberals had pushed back their cap-and-trade implementation date to 2012. The acknowledgement followed the tabling of framework legislation for the proposed cap-and-trade system.

2012 coincides with the expected start of the first phase of a cap-and-trade regime under the Western Climate Initiative, of which Ontario is a member. However, the new start date is two years later than the 2010 date in the Ontario-Quebec cap-and-trade MOU signed almost exactly a year ago.

The need for the delay is attributed to the change in administration in the US and to delays in Ottawa. However, Ontario Premier Dalton McGuinty had previously declared that Ontario should move faster than Ottawa and Washington, saying, "we want to ensure that we have in place a framework at least, before we can even talk about putting a price on carbon ... that allows Ontario businesses to know where the future's going to be and so that we can influence the debate which I think will unfold."

Minister Prentice Concludes International Climate Change Trip

Environment Minister, Jim Prentice, concluded a series of important international climate change discussions today in London. The Minister participated in the World Business Summit on Climate Change in Copenhagen, the Major Economies Forum in Paris, and a carbon capture and storage conference in Bergen. The Minister ended his trip in London, where he had extensive discussions his UK counterpart, the Rt Hon David Miliband.

All roads continue to lead to Copenhagen, as we've been saying for a number of months (see here, here and in particular here. In a May 24 speech at the World Business Summit, to which he was invited by the Danish Minister, Minister Prentice remarked:

"I think the fundamental question for business leaders here today is how do we build confidence and momentum towards Copenhagen, and in particular for the business leaders and the companies [those business leaders] represent, what responsibility do you have and what role do you play in that process".

The Minister also indicated to that he is optimistic about the prospect of achieving international agreement on climate change strategy in Copenhagen and cautioned leaders about "green protectionism".

The Minister confirmed to media this morning that Canada's climate change policy would be unveiled in advance of Copenhagen and reiterated Canada's commitment to 20% by 2020 relative to 2006 levels. He advised that the specific domestic approach would be tabled first in Canada and then at the international level.

One of the most important points to come out of the discussion this morning, is the continental approach to climate change, which Minister Prentice has previously indicated is so vital.

Canada's trading relationship with the United States is the biggest trading relationship in the world. Clearly any federal climate change strategy must work in concert with the U.S. approach to climate change. Any policies which Canada develops to address climate change must also reflect Canada's national interest. We have blogged many times about meaningfulness of co-operation on both a North American and global basis. In his remarks to the media today, Minister Prentice further reiterated these important points.

However, the Minister also stressed that while Canada's climate policy must be concordant with that of its neighbour to the south, it does not mean that the policies will be exactly the same all the time. Minister Prentice gave fuel economy standards as an example of where it is in Canada's best interest to mirror that of the United States - the auto industry is truly cross border and having identical fuel standards makes sense. But there are other areas, electricity generation, for example he said, where they are not the same. The Minister asserted that while Canada's policies would work on an equivalent basis with those of the U.S., they need not be identical. For the time being, the United States has not yet arrived at a domestic policy or target. As a result, it is difficult for "Canada to define continental solutions".

What Canada's policy will ultimately be is important. But what is truly and fundamentally important is making progress - how will we find real solutions for climate change? The answer: Technology. Transformative change will only be able to occur through investments in technology. In his Copenhagen speech, Minister Prentice emphasized this point:

"[T]he challenge before us is all about technology. That just cannot be overemphasized, because we're talking fundamentally about a transformation of the capital stock, the technological investments in our society. This will take time. It will take massive investments...".

"Massive" investments in technology and transformative change have already started. Canada, and Alberta in particular, has already demonstrated it is serious. The Canadian government has pledged $1 billion to carbon capture and storage technologies. The Alberta government another $2 billion.

Perhaps the most unique sources of funding is the Climate Change and Emissions Management Fund.. The $122.4 million from 2007 and 2008 compliance years will be specifically allocated for purposes related to the reduction of emissions or improving the ability to adapt to climate change. With all these investments in transformative technology, we are leading the way.

Canada Continues to Co-operate on Climate Change

We have blogged many times about Canada's commitment to address climate change both continentally and internationally. Today we explore how the co-operation continues.

May 24, 2009 represented the official commencement of the international energy efficiency framework. Energy leaders from around the world met in Rome for the G-8 Energy Ministers Meeting to launch the International Partnership for Energy Efficiency Cooperation (IPEEC), a high-level forum for facilitating improvements in global energy efficiency and encouraging market implementation of key energy efficiency technologies. The signatories included the entire Group of 8 (G8), which consists of Canada, France, Germany, Italy, Japan, the Russian Federation, the United Kingdom, and the United States, as well as key emerging economies, including Brazil, China, India, Mexico, and the Republic of Korea.

Discussions about IPEEC began in June 2008, when the G8 countries, China, India, South Korea and the European Community decided to establish the International Partnership for Energy Efficiency Cooperation, at the Energy Ministerial meeting hosted by Japan. The signing of the IPEEC terms of reference on May 24, 2009 put the discussions into action.

The purpose of the partnership is to facilitate those actions that yield high energy efficiency gains in recognition that improving energy saving and energy efficiency is one of the quickest, greenest, and most cost-effective ways to address energy security and climate change and ensure economic growth.

IPEEC will provide a forum for discussion, among developing, transitional and industrial nations to engage in consultation and exchange of information on a voluntary basis. It will not develop or adopt standards or efficiency goals for the partners.

It was decided at the May 24, 2009 meeting that the first order of business for IPEEC would be to establish a Sustainable Buildings Network, a compilation and summary of national energy efficiency action plans, an inventory and review of international energy efficiency initiatives and improved methods for measuring and verifying progress towards domestic energy efficiency goals.

The launch of IPEEC comes in response to conclusions at G8 Environment Minister's Meeting that countries begin processes with the ultimate goal of a global platform on low CO2 impact technology.

Canada's participation at the IPEEC meetings is further evidence of its commitment to co-operation on a global level to address climate change. Copenhagen is 6 months away - wonder what impact this co-operation will have by then? We'll keep you posted.

Jennifer Cleall and Corie Flett, Summer Student

Canada announces details of $1 billion clean energy fund

The government of Canada announced the details of the $1 billion clean energy fund it announced in February. A statement issued by the Minister of Natural Resources Lisa Raitt revealed that the fund will be allocated as follows:

• $650 million to support large scale carbon capture and storage ("CCS") demonstration projects;
• $200 million to support smaller-scale demonstration projects of renewable and alternative energy technologies; and
• $150 million to support research and pre-demonstration pilot projects "ranging from next generation renewable and cleaner energy systems to new technologies to address environmental challenges in the oil sands such as water use and tailings"

Additional details are available on the Ministry of Natural Resources website. The government has already issued a request for proposals for smaller-scale demonstration projects.

That the majority of the money is allocated to CCS is not surprising given the quantity of emissions from coal-fired generation and oil sands projects, particularly in the province of Alberta. The US has recently hinted that it may ban or impose large tariffs on oil imports from carbon-intensive sources like the oil sands. CCS could effectively clean up the emissions profile of upgraded and refined bitumen and preserve the export market.

The fund is also consistent with Canada's Clean Energy Dialogue with the US (discussed here, here, and here).

Obama Sets a Shorter Timeline for Tailpipe Emissions

We have blogged a couple of times about proposed new standards for tailpipe emissions in Canada and the United States. Yesterday, President Obama's administration announced plans to put those standards into practice in 2016, four years earlier than originally expected. The program covers the 2012 model year through to the 2016 model year and, according to the White House website, "ultimately requires an average fuel economy standard of 35.5 mpg in 2016".

In his speech, the President asserted that the new standards would have a projected reduction in oil consumption of 1.8 billion barrels over the life of the program, "more oil than [the United States] imported last year from Saudi Arabia, Venezuela, Libya, and Nigeria combined". How much oil is this? In 2008 the U.S. imported 3,570,848 thousand barrels of crude oil. Of those barrels, the U.S. imported from a total of 42 different countries. The top 5 importing countries were: Canada (19.8%), Saudi Arabia (15.4%), Mexico (11.8%), Venezuela (10.6%), and Nigeria (9.4%) for a total of 67% of its imports. Of the countries mentioned by the President above, the United States imported about 0.7% of its oil from Libya in 2008. "[M]ore oil than the [United States] imported last year from Saudi Arabia, Venezuela, Libya and Nigeria combined" is equal to about 36.1% of U.S. yearly imports.

What does this mean for Canada? Environment Canada previously announced new emissions standards for Canada. Minister Prentice has said"what we're striving for is a North American standard because we know there's only one North American automobile industry". Today, the Minister confirmed that the Canadian government will match the new standards. According to the Globe and Mail, "Michael Martin, Canada's lead negotiator on international climate change talks, said the new auto standards will be one part of a 'suite of policies' that Canada will be adopting before" Copenhagen in December. This is further evidence of Canada's commitment to address climate change in North America.

We will be carefully monitoring what other policies are in that suite...

Quebec tables cap-and-trade bill

The government of the Province of Quebec has tabled Bill 42 to introduce a cap-and-trade system in the province. The Globe and Mail reports that the bill may be passed as early as June, with reporting obligations beginning next fall. The first caps will be implemented for the period of 2012 to 2015.

The Globe quotes Quebec Environment Minister Line Beauchamp as saying, "we hope Quebec's participation in this common market with Ontario, Manitoba, British Columbia will incite the federal government to co-operate with the provinces to develop a Canadian carbon market compatible with what is taking place elsewhere in the world."

Ontario is apparently set to follow suit in the coming weeks. Ontario Premier Dalton McGuinty recently said, "we [the leaders of Ontario and Quebec] both agree that we have an opportunity, even a responsibility here in Canada, to put in place a carbon-exchange register that will, one way or another, serve as kind of a pilot project that the federal government and maybe even the government in Washington can use as a base for a national program."

Ontario and Quebec signed an accord last year to implement a joint cap and trade scheme. Along with Manitoba and British Columbia, they are also members of the Western Climate Initiative ("WCI"), which is committed to implementing a regional scheme by 2012.

The announcements follow on a report by the federal Environmental Commissioner (discussed here) that is critical of the federal government's existing emissions reduction plans. Ottawa has been signalling recently that it may update its plan to achieve its goals of protecting Canada's interests while harmonizing to the greatest extent possible with developments south of the border.

Environment Commissioner Strikes Again

The Office of the Auditor General today released "Chapter 2 - Kyoto Protocol Implementation Act - 2009 Spring Report of the Commissioner of the Environment and Sustainable Development" today. We blogged back in February>back in February after the annual report was released, that the Environment Commissioner entirely missed the point - that he could have used the report to recommend that the Canadian Government establish sensible measurement tools and accords on Climate Change which can be used in all jurisdictions in Canada.

Did he miss it again?

There are four findings and recommendations in the Report:

• The 2007 and 2008 climate change plans do not include all of the information required under subsection 5. (1) of the Kyoto Protocol Implementation Act. The Report recommends that the upcoming climate change plans include the information required.
• That for all of the three plans examined by the Commissioner, the plans are not fully transparent. For example, they do not disclose how expected reductions in greenhouse gas emissions might be affected by such uncertain factors as future economic conditions. The Report recommends that Environment Canada describe in the annual climate change plans the quantitative or qualitative uncertainties related to the expected GHG emission reductions of each measure.
• While Environment Canada has a system in place to report on Canada's total greenhouse gas emissions, it has no system for reporting the actual emission reductions achieved from each measure in the annual climate change plans. The Report questions why emissions reductions can be forecasted in advance, but not measured after the fact. The Report recommends that Environment Canada clearly indicate how it will measure actual emission reductions for each of the GHG emission reduction measures in the plans. Where no such measurement takes place, the rationale should be provided for why expected emission reductions can be estimated in advance but corresponding actual reductions cannot be measured after the fact.
• That Environment Canada could not demonstrate that the emission reductions expected under the Regulatory Framework for Industrial Greenhouse Gas Emissions are based on an adequate rationale and that the climate change plans overstate the reductions that can be reasonably expected from the Regulatory Framework during the Kyoto period (2008 to 2012). The Report recommends that projected greenhouse gas emission levels in Canada for each year from 2008 to 2012 should be reported for each measure in the annual climate change plan.

Environment Canada was given the opportunity to respond to the Report and accepted the first three of the recommendations outlined above. It did not accept the fourth recommendation, that climate change plans overstate the reductions and asserted that the monitoring of actual GHG emission reductions could be technically unfeasible and that reductions could be impossible to attribute to a specific measure.

We will be monitoring further developments on this topic.

Introducing the Climate Change and Emissions Management (CCEMC) Corporation

Alberta Environment announced today that the Climate Change and Emissions Management (CCEMC) Corporation ("CCEMC") will manage and administer the Climate Change and Emissions Management Fund. The CCEMC is a not-for-profit corporation which is arm's length and independent from government.

Alberta is one of the few jurisdictions in North America with a functional climate change regulatory system. In enacting the Climate Change and Emissions Management Act (the "Act"), Alberta was first in North American to pass climate change legislation requiring industry to reduce emissions below a set threshold.

Large emitters have three compliance options under the Act:

1. Make facility improvements to reduce emissions below the required threshold

2. Purchase Alberta-based carbon offset credits; or

3. Pay $15 for every tonne over target into the Fund.

The Climate Change and Emissions Management Fund (the "Fund"), which is established under the Act, is a critical element of Alberta's long term Climate Change Strategy to achieve provincial and national greenhouse gas reductions targets. Its unique characteristic as a compliance mechanism under targeted climate change legislation makes it singular in the world. Monies flowing into the Fund are segregated and targeted specifically to addressing climate change.

Under the Alberta model, the Ministry of Environment collects monies paid into the Fund from specified emitters. These monies do not form part of the General Revenue of the Province of Alberta and cannot be diverted for other objects. Rather, these may only be used to satisfy the purposes of the Fund set out in the Act.

The Act provides that the Fund may only be used for purposes related to reducing emissions of specified gases or contributing to Alberta's ability to adapt to climate change. The CCEMC is aligned with the purposes of the Fund set forth in the Act. The Minister of Environment will maintain responsibility for receiving payments from industry and transferring the dollars to the CCEMC. The CCEMC will invest money collected from industry into initiatives and projects that support technologies to reduce greenhouse gas emissions and improve the ability to adapt to climate change.

It is expected that the CCEMC will begin accepting funding proposals in the second half of fiscal 2009/2010. Eric Newell has been named as the Chair of the CCEMC - Mr. Newell is the recipient of the Order of Canada and has extensive experience in industry.

Robert A. Seidel, Q.C., who is the National Managing Partner of Davis LLP and Jennifer Cleall are legal advisors to the Climate Change and Emissions Management (CCEMC) Corporation.

New Legislation Under Alberta's Climate Change Regulatory Framework

Further to yesterday's blog announcing that the Climate Change and Emissions Management (CCEMC) Corporation would be administering the Climate Change and Emissions Management Fund, the Alberta Government has also passed the Climate Change and Emissions Management Fund Administration Regulation, AR 120/2009.

The Regulation is passed pursuant to the Climate Change and Emissions Management Act , which permits the Lieutenant Governor in Council to make regulations "respecting the establishment or designation of delegated authorities (s. 60(1)(u) and "respecting the delegation to one or more delegated authorities of the performance of any of the Minister's duties or functions, or the exercise of any of the Minister's powers, under this Act or the regulations, other than a power to make regulations and a power to delegate" (s. 60(1)(v)(ii)).

Section 1 of the Regulation designates the CCEMC as a delegated authority. Section 3 of the Regulation delegates the "performance of the Minister's duties and functions and the exercise of the Minister's powers in respect of holding, administering and making payments of the money paid to the Corporation from the Fund under section 4(1) to the CCEMC. The Regulation also permits the Minister to pay all or some of the Fund to the CCEMC and states that the money paid to the CCEMC from the Fund "belongs to the Corporation" (s. 4(2)).

Other provisions of the Regulation address reporting requirements, compliance with FOIPP and the inspection and audit abilities of the crown.

Robert A. Seidel, Q.C., who is National Managing Partner of Davis LLP and Jennifer Cleall are legal advisors to the CCEMC.

Federal government may phase out coal-fired generation; impose cap-and-trade on existing plants

The federal government intends to enact regulations to phase out coal-fired generation in Canada. In an interview with the Globe and Mail, federal Environment Minister Jim Prentice indicated that government's "concept is that, as these facilities are fully amortized and their useful life fully expended, they would not be replaced with coal."

Any new coal-fired plants will have to include carbon capture and storage ("CCS") technology to make them emissions free. However, CCS technology is unproven and expected to be prohibitively expensive. The CCS requirement may therefore render coal uneconomical.

Mr. Prenctice also said that the federal government plans to impose absolute greenhouse gas emission limits on existing coal-fired power plants. Utilities would be able to purchase additional credits to cover emissions that exceeded the prescribed caps. It is unclear whether this cap-and-trade system will apply only to coal-fired generation, to electricity generation more generally, or to industry as a whole as part of a revised Turning the Corner plan.

As with many proposed climate change policies, the impacts of the above would not fall evenly on the provinces. Quebec and British Columbia are powered predominantly by hydro. Ontario relies on hydro and nuclear for its baseload and has already legislated the phase-out of its coal plants. Alberta and Saskatchewan are likely to be hit hardest, both because of their higher dependence on coal-fired power and because they sit atop huge coal deposits.

Nevertheless, the Globe and Mail quoted Brian Vaasjo, VP of Alberta-based Epcor Power LP as saying that they "are absolutely supportive" of the proposal. Epcor has already invested millions in new combustion technology and has applied with Enbridge Inc. for government funding of two proposed CCS projects (see our posting).

Mr. Prenctice did not specify exactly how the regulations would be implemented. However, the federal government has previously indicated that it would implement climate change regulations as amendments to the Canadian Environmental Protection Act ("CEPA"). If any of the provinces take a dim view of the regulations, they may seek to challenge the constitutionality of the federal government's plan. The Supreme Court ruled in R. v. Hydro-Québec that the federal government can regulate environmental matters under its criminal law power. Noted constitutional scholar Peter Hogg has opined that Hydro Quebec would apply to cap-and-trade regulations enacted under CEPA. However, the economic regulation of emissions (i.e., in part through market-based mechanisms) may not fit as neatly into the criminal law power as did the prohibition enforced by a penal sanction that was considered in Hydro Quebec.

BC tops ranking of climate change policies by Sustainable Prosperity

BC's carbon tax scored highest on a ranking of 5 climate change policies by Ottawa-based think tank Sustainable Prosperity. Policies were ranked based on eight principles that Sustainable Propserity believes are necessary for an effective climate change policy. Not even BC achieved a perfect score, suggesting that all Canadian jurisdictions have room for improvement.

The complete ranking, with scores based on the above, is as follows:

• BC: 87% compatible with the Sustainable Prosperity principles;
• Quebec: 65%;
• Western Climate Initiative: 48%;
• Federal Turning the Corner: 48%; and
• Alberta: 30%.

Many Canadian provinces have yet to implement or even propose any meaningful climate change plan and were thus not ranked.

Policies were ranked based on eight principles that Sustainable Prosperity believes are necessary for an effective climate change policy:
1. Comprehensive: across all sources and sizes of emissions with no exemptions;
2. Nation-wide: a federal framework is needed to establish a minimum carbon price across the country;
3. Simple and readily implemented: avoiding complex rules and exemptions, and with a short lead time to come into effect;
4. Transparent and accountable: to ensure its integrity, any new policy must be accompanied by a clear analysis of its expected economic and environmental effects, including a clear accounting of amount and use of any revenues raised;
5. Complemented by other measures such as improving the efficiency of vehicles, homes and appliances, and promoting technology research and development where a price signal alone is insufficient;
6. Environmentally effective in meeting the jurisdiction's medium and long-term emissions reduction targets;
7. Ultimately comparable to carbon prices in other countries; and
8. Predictable but adaptable to provide investment certainty but respond to changing scientific knowledge, international agreements, or unanticipated emissions reduction responses.

There were some common themes in the analysis of the 5 climate change policies:

• Systems with widely-scoped offset programs, like those included in Alberta's plan, Turning the Corner, and the WCI, were penalized. Sustainable Prosperity believes that offsets are prone to manipulation and may thus undermine the environmental effectiveness of a policy;
• Intensity-based targets, such as those that are (or were) part of Turning the Corner and Alberta's system, were viewed as a dubious approach to achieving absolute emissions reductions;
• Carbon taxes had an edge over cap-and-trade and baseline-and-credit systems in that they can be implemented through existing administrative bodies; and
• Sustainable Prosperity prefers a coordinated national approach to the issue of climate change, a preference that benefited only the Turning the Corner plan.

Additional reporting is available from the Globe and Mail.

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.

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.

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.

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.

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.

An International Climate Forum

Multi-national cooperation with respect to climate change and clean energy is an idea that was recently embraced by Canada and the United States when both countries began the Clean Energy Dialogue.

The idea of an international collaborative approach to climate change is one that is supported not only by the President, the Prime Minister and Canada's Environment Minister, but as the writer blogged last week, the U.S. Energy Secretary, Steven Chu, as well.

President Obama has taken the idea of international cooperation one step further.

On March 28, the President announced the Major Economies Forum on Energy and Climate, with the group's first meeting set in Washington in April, followed by a summit in Italy in July. The leaders of 16 nations, as well as the Secretary-General of the UN have been invited to attend.

The White House commented that the purpose of the forum was to "help generate the political leadership necessary to achieve a successful outcome" at climate change negotiations in Copenhagen in December as well as establish "concrete initiatives and joint ventures that increase the supply of clean energy while cutting greenhouse gas emissions."

Participating nations include: Australia, Brazil, Canada, China, Denmark, the European Union, France, Germany, India, Indonesia, Italy, Japan, Korea, Mexico, Russia, South Africa, the United Kingdom, and the United States.

Canada's participation in the Clean Energy Dialogue and its inclusion in the Forum positions Canada as a leader in the area of international cooperation on climate change. We will be watching for further news of the Forum and for Canadian leaders' comments this week.

Clean Energy Dialogue Finds a Friend in Steven Chu

The Clean Energy Dialogue between Canada and the United States was begun in February after President Obama visited Ottawa. Shortly after the historic meeting, our Environment Minister, Jim Prentice, met with his U.S. counterparts and others in Washington, D.C. to discuss how to move the Clean Energy Dialogue forward.

In interviews this week, Steven Chu, the U.S. Secretary of Energy was asked whether there should be international collaboration on energy research.

Dr. Chu's responded that "there is no reason why [energy research] should be compartmentalized" and said that it was particularly true for carbon capture and storage technology. Dr. Chu also commented:

"If countries actively helped each other, they would also reap the home benefits of using less energy. So any area like that I think is where we should work very hard in a collaborative way - by very collaborative I mean share all intellectual property as much as possible. And in my meetings with counterparts in other countries, when we talk about this they say, yes, we should really do this".

The focus of the Clean Energy Dialogue is the expansion of clean energy research and the deployment of clean energy technology. Both Canada and the United States realize that in order to address climate change new energy technologies must be created. It is not the responsibility of one country to go about this alone. It seems Steven Chu would agree.

CD Howe Institute questions cost effectiveness of biofuels subsidies

The CD Howe Institute recently released "Going Green for Less: Cost-Effective Alternative Energy Sources", a comparative analysis of federal and provincial greenhouse gas ("GHG") mitigation incentive programs (the "Report"). The Report concludes that the government is currently over-investing expensive liquid bio-fuels programs and is under-investing in most cost-effective programs renewable heat and power programs.

The Report analyzes programs for liquid biofuels, renewable power, and renewable heat. The life-cycle emissions mitigation potential of each is measured against the technology that they would most likely replace (e.g., emissions from bio-diesel were compared against those from conventional diesel). The financial incentive for each program is then normalized using the calculated emissions mitigation potential to give a dollar-per-tonne measure of cost effectiveness. The Report acknowledges that the calculations are subject to many assumptions.

The Report summarizes the results as follows:

"The lowest-cost government incentive programs identified are for renewable heat and power technologies such as wind power, solar air and hot water heating, and biomass pellet heating, as well as energy retrofitting strategies. For these programs, mitigation could be realized at $10-to-$60 of government subsidy per tonne of carbon dioxide equivalent (CO2e) offset.

In contrast, the most expensive government incentives were found to be liquid biofuels, which ranged from $295-to-$430/tonne of CO2e for ethanol and $122-to-$175/tonne of CO2e for biodiesel. The federal government's $4.5 billion ecoENERGY program has dedicated over half of the total budget towards liquid biofuels." [emphasis added]

Having concluded that the government has a tendency to place big bets on the wrong technology, the Report recommends a technology-neutral alternative to existing programs. It suggests setting a carbon emissions "bounty" of between $30-50 per tonne CO2e, payable to any technology that could demonstrate verifiable reductions. However, the Report acknowledges that universal price on carbon, such as that established by a carbon tax or cap-and-trade system, would be preferrable to an improved carbon subsidy.

Canadian Climate Change Themes

The Clean Energy Dialogue between Canada and the United States was sparked in February after the Prime Minister met with President Obama. The President's Climate Change advisor, Carole Browner, met with the Minister of Environment to discuss Canada's approach to climate change during those meetings. A couple of weeks later, Canadian Ministers, including the Minister of Environment, traveled to Washington to meet with their American Counterparts. Since then, Jim Prentice has been busy speaking about Canada's response to climate change. A number of themes are emerging from the Minister's remarks:

1. Environment Policies are Instruments of Economic Renewal and Security : The Minister confirmed in a speech to the Institute of Corporate Directors on March 6, that Canada's environmental approach is to "make our national environmental policies positive instruments of economic renew and of national development". Environment policy and energy policy are inexorably linked. Canada has a history of environmental stewardship and has a responsibility to maintain that what at the same time creating wealth and building industry. Maintaining environmental integrity while enhancing our North American energy security is going to be a priority for the Federal government. We will start to see more overlap between Energy policy and Environmental policy.

2. Canada/U.S. Co-operation on Climate Change: This is no surprise. Since the President's visit in February, both the Prime Minister and the Environment Minister have said that Canada and the U.S. need to work together closely to address climate change. Minister Prentice has confirmed that Canada and the U.S. must work closely to build a new carbon economy and to ensure that "our policy and regulatory frameworks are coherent and supportive" and has called the relationship with the United States crucial in the context of the transformation to clean energy. There are a number of subthemes:

(a) Cap and trade: In a speech on February 27, Minister Prentice confirmed that Canada has committed to pursue a North-America-wide cap and trade system and that we will "work closely with the new U.S. administration to build the North American low-carbon economy". He is optimistic that Canada and the United States will arrive at a workable solution that defines "common or similar carbon reduction targets, that creates similar mechanisms to allocation emissions and...provides for the trading of credits on a North American basis".

(b) Fuel efficiency: Minister Prentice told the CBC on March 1 that Canada is prepared to go in the same direction as the United States and that he supports one fuel efficiency standard for the two countries.

(c) New technologies: The Minister remarked that Canada and the United States have a strong and shared interest in promoting the development and deployment of clean energy technologies. The Clean Energy Dialogue will include discussions about Carbon Capture and Storage, an interconnected electricity grid, nuclear energy, wind, solar, hydro and other "more remote renewable sources of energy". Canada's action plan has Canada "on course to reduce domestic greenhouse gas emissions by 20% by 2020 and by 60 to 70% by 2050". In order to achieve these goals, Canada must invest in new technologies.

3. Canada Must be a Leader : Canada is one of the top ten energy consumers in the world. Our challenge is to "stand among the world's elite as a clean energy superpower" and to demonstrate that Canada is a user of clean energy. The Minister told his March 6 audience that the government is "committed to ensure that Canada is actively and constructively engaged in the [Clean Energy Dialogue]" and that it "intends to be a leader and a responsible partner in defining the way forward".

4. International Agreement : both the United States and Canada seem to be setting their sights on Copenhagen in December and both countries believe that in order for climate change policies to be effective domestically, international co-operation is required. Canada's climate change policy is "based on a clear desire to include all of the major emitters in the world". Major emitters would include China and India and other developing nations.

5. Climate Change is Everyone's Responsibility : Although the impetus for climate change has to come from government with active participation and engagement of industry, the responsibility extends to all citizens "from all walks of life". Canada's climate change strategy will involve "how we consume and conserve energy in our homes and in our offices". In his February 27 speech, Minister Prentice remarked:

Thirty years ago, drunk driving was tolerable. It's not anymore. Twenty years ago, it was acceptable to drive without a seatbelt. It's not anymore. Up until a few years ago, Canadians could smoke anywhere in public. They can't anymore. Attitudes shifted. Behaviours changed. The same needs to happen with the environment.

Watch for these themes to start emerging in other departments of the federal government. Climate change is one of the most important issues facing governments today. We'll keep you posted on new developments in Canada. Stay tuned.

And the Clean Energy Dialogue Begins

Our Environment Minister took a trip to Washington to meet with U.S. legislators and to promote the Clean Energy Dialogue this week.

On Monday Minister Prentice met with Senator John Kerry, who is the head of the Senate foreign relations committee. On Tuesday, the Minister met with Energy Secretary Steven Chu, Todd Stern, the special envoy on climate change and Lisa Jackson, the new head of the Environmental Protection Agency.

The Minister's discussions this week in Washington focused on the "expansion of clean energy research and the deployment of clean energy technology".

The Canadian press seemed to expect that the discussions would focus on Alberta's oilsands and not research and technology and the Clean Energy Dialogue. However, the Minister confirmed that the oilsands came up only "tangentially" in his discussions with the American legislators, including with Henry Waxman, the new chairman of the house energy and commerce committee and an ardent environmentalist.

Canada is the largest supplier of energy to the United States. Emissions from the oilsands, which are the subject of some "high minded hypocrisy" this month, are 50-70 times less than the aggregate of the emissions from coal plants in the United States.

America's challenge is clean coal; Canada's may be clean oil. But given that the oilsands were not, by the Minister's account, the focus of his discussions with legislators in Washington, perhaps both Canada and the U.S. recognize that neither country is going to gain any ground by pointing fingers. The right approach is to meet these challenges by looking forward and finding solutions in research and the development of new clean technologies. Isn't that what the Clean Energy Dialogue is for?

Stern offers qualified optimism about quick passage of climate change legislation

Passing climate-change legislation before December would be "an extremely tall order." This was Todd Stern's caution to international government officials gathered at a climate change conference in Washington this week. Nevertheless, Stern added that "nothing would give a more powerful signal to other countries than to see a significant, major, mandatory plan" from the U.S.

Stern (who has been the topic of previous postings) is the Department of State's Special Envoy for Climate. His comments reflect a tension that the Obama administration will have to balance in the coming months. On the one hand, President Obama has committed to moving quickly on the climate change file. The administration also wants to assert U.S. leadership in the international negotiation of a post-Kyoto regime. Specifically, Stern acknowledged that enacting domestic legislation before the negotiations in Copenhagen in December would sent "a powerful signal" to other countries to reduce their emissions (although Stern also said of the Bali roadmap targets, "it's not possible to get that kind of number"). On the other hand, the administration faces significant obstacles to passing legislation by December. The government is already tackling a financial crisis. It may also face strong opposition from representatives (including Democrats) from coal-rich and manufacturing-dependent states. See this article in the Wall Street Journal for more information.

Hopefully the need for expediency will prevail. In recent months, Canada has taken steps to align itself with the new administration on the climate change issue. It would be unfortunate if Canada too went another year without finalizing its plan to reduce emissions.

The Next Step - Minister Prentice Goes to Washington

In the wake of the meeting between Prime Minister Harper and President Obama last week, Minister Prentice is playing his green card and going to Washington. The Environment Minister is one of five cabinet Ministers who are headed to the U.S. capital following the historic meeting. His goal will be to pursue the Clean Energy Dialogue the two leaders announced on Thursday.

The writer blogged last week about the importance of technology and innovation in the Clean Energy Dialogue and about the fact that both countries would be working toward global leadership, which would manifest itself in Copenhagen in 2009.

Minister Prentice confirmed on Thursday that both Canada and the United States will need technology and innovation to transform their industries. He stated that the Clean Energy Dialogue is a step to broadening talks on a joint approach to emissions regulation, fuel standards and energy strategy.

"It's a pivitol year", he said and maintained that Canada, like its neighbour, needs to set up its own framework for regulation and climate change strategies before making its way to Denmark.

He confirmed that Canada will be watching to see how the U.S. designs its approach to climate change, because the economies of the two countries are so closely linked.

What might the U.S. climate change strategy involve?

The American President has already issued a memo to require the EPA to open up the California tail pipe waiver question, issued fuel efficiency guidelines and required appliance manufacturers to green their product. The newly passed U.S. Stimulus Bill allocates billions of dollars to greening the federal vehicle fleet, research for carbon capture and storage, retrofitting homes, developing high speed rail projects, funding wind and solar power initiatives and providing loan guarantees for renewable energy and transmission projects.

In addition to considering the implementation of a cap and trade system, the U.S. climate change strategy might also:

• Use government purchasing power to increase efficiency and renewable energy
• Require the federal government to consider global warming when it conducts environmental assessments on its projects
• Launch a green White House initiative
• Create an energy innovation council to coordinate public and private sector efforts to research, develop, and deploy clean energy technologies at the commercial level
• Provide funding to help technologies designed to lower emissions from coal fired power plants

Minister Prentice says Canada will be watching. We will.

President Obama in Canada: What Just Happened and What Does it Mean

Wow! What is must have been like to have been in Ottawa today when Prime Minister Stephen Harper and President Obama had their much anticipated meeting. How lucky those people happened to be in the Market when the President stopped by for a Beavertail or who cheered on as the he waved to the crowds gathered on Parliament Hill and Wellington Street. What a cool day to be in the capital.

Although the leaders' agenda touched many matters, economy, climate change & the environment and national security (I see a theme here...) were at the centre of comments made by both the President and the Prime Minister after their meeting.

Prime Minister Harper said that the two countries have begun a "Clean-Energy Dialogue", which will see senior officials from both sides of the border working together on the development of clean energy, science and technologies. If you've been paying attention to the comments from our Environment Minister, this will come as no surprise. Although the President confirmed that the U.S. must firm up its own environmental policies before entering into binding agreements with Canada, he said that the "dialogue will move us in the right direction".

Why? Because Economy = Environment/Climate Change = National Security and both the U.S. and Canada recognize that. The goal of the Clean-Energy Dialogue will be to position the U.S. and Canada at the forefront of global leadership on "clean energy" and climate change.

How? By focusing on:

1. Technology
2. Innovation
3. Energy research
4. Carbon capture and storage
5. Renewable Energy

The governments of both countries will have to collaborate to pursue technology and innovation to fight climate change, stimulate the economy and preserve national security. The Clean-Energy Dialogue will bring private enterprise and science together with government funds to develop new technologies to combat global warming and lead the world from economic crisis.

Seems to me that huge dollars will be involved and government intervention on both sides of the border will be required in order to put the Clean-Energy Dialogue partners on the road to the Green Economy. Right now, that road is leading to Copenhagen.

Environment Commissioner Misses the Point

The writer sits in awe of the speed of the top down policy on Climate Change developing in the U.S.. Meanwhile, back in Canada…

Britain was once described as a "nation of shop keepers"; Canada continues to earn its proud reputation as a "nation of accountants". In our slow moving, bottom-up world, the Office of the Auditor General tabled the Report of the Commissioner of the Environment and Sustainable Development in the House of Commons on Thursday (February 5, 2009).

Chapter 1 of the Report, "Managing Air Emissions" examined the federal government's toolbox of approaches to managing and controlling air emissions and whether the government has achieved "real, measurable and verifiable results". The remaining 42 pages of the chapter (yes, I read them all... I wonder how many trees died to produce that treatise) lambaste the government for a variety of what some think are insightful and stunning findings on Canada's failure to measure results from funding.

Rubbish. It has been said "an accountant is someone who knows the cost of everything and the value of nothing". Clearly not concerned with bringing value, the Environment Commissioner has reviewed documents, crunched some numbers and then questioned "where did the money go"?.

His boss, the Auditor General, released a number of reports concurrent with the Environment Commissioner's Report, including "A Study of Federal Transfers to Provinces and Territories". The Study explains that one way funds are transferred to provincial coffers is through the use of trusts. Funds are allocated to provinces for a targeted area of provincial responsibility. In order to become eligible to draw on these trust funds, provinces must confirm in writing their understanding of the purposes of the trust and name an authorized agent. From then on, it's up to each province how they want to spend the money. For the Environment Commissioner and the Auditor General, therein lies the problem.

We don't have a trust blog at Davis, but if we did, I'm sure that my colleagues who work in the area of trusts would agree - that's the point of a trust! As the person establishing the trust, you set up some rules in a trust agreement and then give away the money to beneficiaries.

More importantly, our Auditor General looked the wrong way. Instead of looking up, she should be looking down. The Study complains "…once the provinces and territories have established their eligibility to draw funds from the trust, they become accountable in principle to their own citizens, not to the federal government, for how they use the funds" [emphasis mine].

Oh no! Not accountable to their own citizens, surely! Please. Scott Vaughan and Ms. Fraser want to know where the money went. Well, the Provinces know where the money went. Ask them. Danny and Dalton weren't out shopping together. The Provinces spent the money in their own best interests and in accordance with the trust agreements under which the money was allocated.

What's this all got to do with climate change? Either of the two reports could have arrived at a real value proposition: the Canadian Government needs to establish sensible measurement tools and accords on Climate Change which can be used in all jurisdictions in Canada (provincial and federal), and which will also be a model internationally. Guess what? Jim Prentice already knows this... he's indicated that Canada and its southern neighbour are going to have to co-operate to bring about climate change. He wants to "engage the United States of America in pursuing a coordinated approach to the energy and environmental challenges that we both face" and to to help achieve an effective multilateral climate change agreement for the years ahead. At least someone is looking in the right direction.

Budget 2009 - Transformation to a Green Energy Economy

The Conservative Government's 2009 Budget promises billiions of dollars in government spending to help the country ride out the global economic downturn. With the recent U.S. announcements about climate change, did Canada give due consideration to climate change and the environment in the Budget?

The Budget allocates $1 billion dollars to support clean energy technologies. Spread over five years, this includes $150 for research and $850 million for the development and demonstration of promising technologies, including large scale carbon capture and storage (CCS) projects. According to the budget, this support is expected to generate a total investment in clean technologies of at least $2.5 billion over the next five years.

Federal allocations of money to carbon capture and storage are in addition to the Alberta government's $2 billion fund to kick start carbon capture and storage technologies. Between Federal and Alberta monies, funding for CCS could be nearly $3 billion.

In light of the potential of CCS as a means of reducing emissions, the Government has also announced plans to consult with stakeholders to identify specific assets used in CCS which may be eligble for accelerated capital cost allowance. This tax incentive will be used to actively promote investments in certain clean-energy generation techologies.

Another $1 billion dollars will go to the Green Infrastructure Fund over the next five years. This fund will be allocated based on merit to support green infrastructure projects on a cost-shared basis. The Budget states:

"Targeted investments in green infrastructure can improve the quality of the environment and will lead to a more sustainable economy over the longer term. Green infrastructure includes infrastructure that supports a focus on the creation of sustainable energy. Sustainable energy infrastructure, such as modern energy transmission lines, will contribute to improved air quality and lower carbon emissions."

Monies for CCS and the Green Infrastructure Fund are in addition to other funds in the Budget allocated in the area of climate change and Canada's environment, including:

• $1.3 billion over two years to support renovations and energy retrofits that will make Canada's social housing stock more energy efficient, to be split on a 50/50 cost-shared basis with the provinces;
• $300 million over two years to go to the ecoENERGY Retrofit program to support an additional 200,000 energy-saving home retrofits;
• $85 million over two years for key Arctic research stations, and $2 million over two years for a feasibility study for a world-class Arctic research station;
• $80.5 million over the next two years to manage and assess federal contaminated sites, which will facilitate remediation work totaling an estimated $165 million over the next two years and contribute to an improved environment as well as employment opportunities;
• $75 million for national parks; and
• $10 million in 2009-2010 to improve the government's annual reporting on key environmental indicators such as clean air, clean water and greenhouse gas emissions.

All of these initiatives demonstrate the Government's commitment to the environment - and these are Federal initiatives. Provincial budgets, including Alberta's, are coming soon and will include their own environmental and climate change initiatives. We will be keeping a close eye on them.

Canada's Commitment to Climate Change

On January 20, 2009 the Honourable Jim Prentice, Minister of the Environment for Canada, gave a speech in Toronto to the Canadian Council of Chief Executives. The speech focussed on Canada's climate change objectives and policy in 2009 and beyond. The Minister confirmed what many climate change insiders already suspected - that Canada would be evolving from an intensity based performance standard to a cap and trade regulatory regime.

The speech was timely. As Minister Prentice stood before his audience, President Obama's inauguration was taking place in Washington. Cap and Trade, the favoured method for regulating emissions by the new American President, places hard caps on emitters to keep their emissions below specified levels. Minister Prentice clearly recognizes that under the Obama administration, the US is "re-engaging on multilateral climate change negotiations, creating the opportunity for…a North American regulatory regime and a level playing field that will alleviate past concerns about Canadian competiveness”.

How will the Canadian government proceed? Minister Prentice outlined 3 ideas which are at the forefront of the Government's strategy to deal with climate change: (1) endeavour to "do no harm” and avoid measures which would cause Canadian firms to be "not just down by also out”; (2) seek to ensure that federal policies are co-ordinated - climate change regulation would work in tandem with, for example tax policy, tariff policy and technology policy; (3) seek coordination and harmonization between federal and provincial governments and policies.

Minister Prentice also stressed that it is developed nations, like Canada and the United States working together with other developed nations, who will lead the world to cut emissions, with developing nations following suit. Without securing meaningful participation from the Big Five of China, India, Brazil, South Africa and Mexico, efforts of the developed world will be "well-intentioned folly” in the realm of climate change.

To achieve leadership in this area and central to Minister Prentice's speech was his desire to see one shared target between Canada and the United States akin to the collective commitment of the European Union. When President Obama makes his first official state visit to Canada in the upcoming weeks, Minister Prentice hopes that "one of the many points of agreement for action will be commencing a co-operative, bilateral approach to the environment and to energy in ways that spur economic recovery and renewal”.

All roads will lead to the Copenhagen Climate Conference in December, 2009. It's an exciting time. With its natural resources and new technology initiatives in the realm of carbon capture and storage, energy conservation and efficiency and greening energy production, and with Minister Prentice's bright and forward thinking leadership, Canada is poised to be a force to be reckoned with on the world stage.

The full text of the speech is available here: Environment Canada - Media Room

PM appoints new ADM to tackle North American carbon trading scheme

The federal government continues to ramp up its efforts to negotiate a North American emissions trading scheme. Effective January 5, Prime Minister Stephen Harper has appointed Bob Hamilton as a new Associate Deputy Minister of the Environment. While details of the appointment have not been publicized, Point Carbon reports that Mr. Hamilton's responsibilities will be to develop a North American carbon emissions trading scheme with the new US administration.

Minister of the Environment Jim Prentice has previously emphasized that climate change represents the intersection of environmental, energy and economic policy (see previous posting). Mr. Hamilton will help bring the economic perspective to the Ministry of Environment. He was associate secretary of the Treasury Board since August 2008 and had previously worked as a senior assistant deputy minister in the tax policy branch of the Department of Finance between 2003 and 2005.

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.

Federal government announces intention to pursue North American approach to climate change

CBC reported yesterday that newly appointed Minister of International Affairs Lawrence Cannon said that the Canadian government will seek a North American climate change agreement with the new administration of U.S. president-elect Barack Obama. The U.S. federal government is widely expected to implement some form of cap-and-trade regime in the coming years. The cap-and-trade approach would be a significant departure from the Harper government's focus on emissions intensity reduction under former Minister of the Environment John Baird.

Minister Cannon said that he expects that newly-appointed Minister of the Environment Jim Prentice would be active in the file in the coming weeks. Minister Prentice, who was formerly Minister of Industry, will bring pragmatic experience that theToronto Star describes as a keen understanding of "the links between industry, prosperity and resources." Ministers Cannon and Prentice will also be engaging Stockwell Day in the file in his new role as Minister of International Trade.

The prospect of an integrated North American greenhouse gas regime is both promissing and daunting. It holds the promise of being a huge market that will create correspondingly huge opportunities for forward-thinking businesses. However, the level of coordination and negotiation that will be required to bring the system to fruition is very daunting. Skeptics are already grumbling that by hitching itself with the future plans of Washington, Ottawa has merely given itself an excuse to do nothing in the short term.

The announcement calls into question the long term viability of initiatives at the provincial leval (e.g., Alberta's climate change and emissions management regime) and regional level (such as the Western Climate Initiative). It also begs the question of what the federal government will do with its Turning the Corner plan.

Election results: Green Shift shelved, Turning the Corner still on the table

On October 14, 2008, Canada held a federal election that saw the Conservative Party form another minority government. While the Conservatives gained some seats and the parties traded seats in some ridings, the overall balance of power remains much the same as it was before the election. As a result, while Prime Minister Harper may be "pleased with the strengthened mandate we've received", he will still have to work with the Liberals, NDP and Bloc Quebecois to advance his agenda (the Green Party failed to win any seats).

With respect to climate change, the election results mean that the Liberal's Green Shift plan, including a proposed carbon tax, will be shelved for now. The government will likely press ahead with its Turning the Corner plan. It is very likely that the opposition parties will continue to assail the Turning the Corner approach, particularly to the extent that it is based on emissions intensity targets. However, concerns about the economy could mean that the environment will not receive as much attention as it has in recent years.

September 2008 Climate Change Law bulletin now available

Carbon offsets are no longer just a voluntary niche product in Canada. Rather carbon offsets are increasingly becoming a sought-after compliance tool for greenhouse gas emitters who are or will be regulated under provincial, federal and regional emission reduction initiatives. Many new offset projects will have to be implemented in Canada to meet this burgeoning demand. Companies with experience in a wide array of sectors including cattle farming, agriculture, forestry, bioenergy, waste management, methane capture, renewable energy, oil and gas, industrial processes, and transportation may be well poised to profit from this emerging market. Sophisticated regulated emitters may also be motivated to turn a compliance cost into a business opportunity by investing in offset projects. In a market whose scope will be determined by regulation, all market participants should consider taking advantage of immediate opportunities to influence the way that offsets will fit into provincial, federal, and regional emissions reduction initiatives. The September 2008 Climate Change Law bulletin discusses the opportunities to access and influence these emerging markets for carbon offsets.

Ottawa's GHG offset system to include a "fast track" project approval system for first 6 months

submitted by Grant Boyle

On August 9 the federal government published a draft Guide for Protocol Developers for Canada’s Offset System for Greenhouse Gases. The draft Guide will undergo a 60 day consultation period before a final Guide is published. The Guide is intended to provide details on the requirements to complete an Offset System Quantification Protocol and the steps that must be followed to create offset credits under the federal GHG emissions framework.

Projects must take place in Canada, must have started on or after January 1, 2000, must be surplus to all legal requirements (federal, provincial/territorial and regional) and go beyond what is expected from the receipt of other climate change incentives (federal, provincial/territorial). Credits may be issued for reductions achieved after January 1, 2008.

The quantification requirements in the Guide are based on the ISO 14064 standard. The Guide does not provide or recommend an approach to quantify GHG reductions from specific project types and will rely on project proponents to develop and submit their own protocols to Environment Canada for approval, unless the protocol type has already been approved by the Ministry. The approvals process is expected to take 5-8 months.

During the first six months of the operation of the Offset System, Environment Canada will implement a modified and accelerated process to review and approve Offset System Quantification Protocols that are derived from a list of 40 “external protocols” from other systems, including: the Clean Development Mechanism, Alberta’s Specified Gas Emitters Regulation, the California Climate Action Registry, the Greenhouse Gas Abatement Scheme in New South Wales, France’s Offset System, and the Regional Greenhouse Gas Initiative. The Guide includes a proposed list of external protocols for “fast track” approval:

Agriculture
*Including Edible Oils in Cattle Feeding Regimes (Alberta)
*Reducing Days on Feed of Cattle (Alberta)
*Reducing the Slaughter Age of Cattle (Alberta)
*Anaerobic Decomposition of Agricultural Materials (Alberta)
*Livestock Project Reporting Protocol Capturing And Combusting Methane From *Manure Management Systems (California)
*GHG Emission Reductions From Manure Management Systems (CDM)
*Innovative Feeding Of Swine and Storing and Spreading of Swine Manure (Alberta)
*Tillage System Management (Alberta)

Energy Efficiency
*Waste Gas Or Waste Heat Or Waste Pressure Based Energy Systems (CDM)
*Residential Buildings (Alberta)
*Commercial Buildings(Alberta)
*Waste Heat Recovery Projects (Alberta)
*Waste Heat Recovery Project - Streamlined(Alberta)
*Energy Efficiency Projects (Alberta)

Forestry
*Afforestation Projects (Alberta)
*Forest Management (California)

Fossil Fuels
*Industrial Fuel Switching From Coal Or Petroleum Fuels To Natural Gas (CDM)
*Switching From Coal And/Or Petroleum Fuels To Natural Gas In Existing Power Plants For Electricity Generation (CDM)

Geological Sequestration
*Acid Gas Injection (Alberta)
*Enhanced Oil Recovery (Alberta)

Methane
*Landfill Gas Capture And Combustion (Alberta)
*Landfill Project Reporting Protocol Collecting And Combusting Methane From Landfills (California)
*Landfill Gas Project Activities (CDM)
*Coal Bed Methane, Coal Mine Methane And Ventilation Air Methane Capture And Use For Power (Electrical Or Motive) And Heat And/Or Destruction By Flaring Or Catalytic Oxidation (CDM)
*Aerobic Composting (Alberta)
*Aerobic Landfill Bioreactor Projects (Alberta)
*Coalmine Methane and Abandoned Mine Methane Capture and Destruction Projects (General Electric AES)
*Waste Water Treatment Methane Capture and Destruction Projects (General Electric AES)

Renewable Energy
*Biomass to Energy from Biomass Combustion Facilities (Alberta)
*Electricity Generation From Biomass Residues (CDM)
*Run Of River Power Generation (Alberta)
*Solar Power Generation (Alberta)
*Wind Power Generation (Alberta)
*Introduction Of A New Primary District Heating System (CDM)
*Grid Connected Electricity Generation From Renewable Sources (CDM)

Transportation
*For Gravel And Lightly Surfaced Road Re-Surfacing Projects (Alberta)
*For Freight Modal Shifting (Alberta)

Waste
*Recovery & Utilization Of Gas From Oil Wells That Would Otherwise Be Flared (CDM)
*Non-Incineration Thermal Waste Management (Alberta)

Other
*Biofuels Productions And Usage (Alberta)
*Catalytic Reductions Ofn2o Inside The Ammonia Burner Of Nitric Acid Plants (CDM)

Canada back on track with its Kyoto registry

Canada appears to be on track to launch a Kyoto-compliant registry for tracking transactions of greenhosue gas emission reduction credits. Recall from a previous posting that the UNFCCC's Compliance Committee had concluded in April that Canada had not established a registry system as required by the Kyoto Protocol.

Canada subsequently provided additional information about the progress of the registry to the UNFCCC's Enforcement Branch. An independent assessment report deemed the registry to be "sufficiently compliant with the registry requirements." As a result the Enforcement Branch decided to halt its investigation and no longer plans to impose sanctions for non-compliance.

With Canada's registry again on track, regulated entities in Canada may eventually be able to purchase Certified Emissions Reductions ("CERs") from Clean Development Mechanism ("CDM") projects. The federal government's emissions reduction plan contemplates allowing companies to satisfy up to 10% of their reduction obilgations by purchasing CERs.

Canada fails to establish Kyoto registry - CERs may cease to be a compliance option

Posted by Andrew Lord

Canada has failed to comply with its administrative obligations under the Kyoto Protocol. In a report release April 17, 2008, the UNFCCC Compliance Committee concluded that Canada had not established a registry system as required by the Protocol. The registry system is required to track Canada's Assigned Amount Units (i.e., allowances) under Kyoto system and to settle emissions trades under the Kyoto Flexibility Mechanisms (CDM, JI and trading of AAUs).

The report is not a final determination of Canada's compliance. However a "question of implementation" has been formally raised with the Compliance Committee's Enforcement Branch. Should the Enforcement Branch make a final decision that Canada is not complying, it can impose the following sanctions (which were recently imposed on Greece for its non-compliance):

• declare Canada to be in non-compliance;
• require Canada to submit a plan to address the non-compliance within 3 months; and
• prohibit Canada from participating in the Kyoto Flexibility Mechanisms.

This final sanction is the most severe. It would make it impossible for regulated entities in Canada to purchase Certified Emissions Reductions ("CERs") from CDM projects. According to its recently released document "Turning the Corner: An action plan to reduce greenhouse gases and air pollution", the government intends to allow regulated entities to purchase CERs to cover up to 10% of their compliance obligations. By failing to create a Kyoto registry, Canada has frustrated its own intentions in this regard.

Fortunately, the government signed a deal on February 14 with Perrin Quarles Associates to develop the registry this year. Perrin Quarles Associates developed New Zealand's registry and is working on a system for RGGI. Canada may therefore be able to pull itself back into administrative compliance and avoid the sanctions above.

Even if Canada is able to comply with its administrative obligations under Kyoto, it will still face a steep uphill struggle to comply with its substantive emissions reduction obligations. Statistics Canada released data this week showing that Canada's emissions increased by 25% from 1990 to 2005. Reuters UK reports that this increase was the highest of any G8 nation. It is also a leagues away from Canada's Kyoto obligations, which calls for a 6% reduction from 1990 levels by 2012.

Intensity of greenhouse gas debate continues to increase

Submitted by Andrew Lord

The federal government released the details of its plan to reduce industrial greenhouse gases last week. The plan has already drawn a lot of fire from various groups. Much of the criticism focuses on the fact that the Conservative government does not plan to regulate aggregate emissions, but has instead chosen to regulate emissions intensity.

Aggregate emissions are the total emissions of greenhouse gases for a particular industry, sector or country over a given period. Aggregate emissions drive climate change and are the subject of instruments like the Kyoto Protocol. Emissions intensity, by contrast, refers to the quantity of greenhouse gases that may be emitted for a given unit of industrial production. The problem with an emissions intensity based regulation is that aggregate emissions can rise if industrial production rises. Intensity-based targets may therefore not actually mitigate climate change.

The government's focus on emissions intensity is being attacked on at least three fronts: policy, economics and law. First, policy-focused NGOs have been quick to highlight the inherent flaw in the emissions intensity-based approach, pointing out that the plan will not achieve its stated objective of mitigating climate change. For example, Claire Demerse of the Pembina Institute noted that the plan is misleading where it states that the targets will "effectively require oil sands starting operations in 2012 to implement carbon capture and sequestration (CCS)" (as reported by Point Carbon) She notes that the plan actually requires no such thing, but only provides financial incentives for using the technology. Depending on the overall economics of the project, such incentives may be insufficient to prompt the desired mitigating action.

Economists have also criticized the approach as being out of step with the emerging global carbon market. Rik Parkhill, interim co-chief executive officer of the TSX Group said that an "intensity-based system in Canada, apart from being potentially incompatible with other, larger and more liquid markets, could be smaller and less efficient for intensity-based trading that for a system based on trading under a strict cap" (as reported by Reuters). A strict cap on aggregate emissions, such as that imposed under the EU Emissions Trading System, would create the scarcity that is required to establish a reliable and compelling price for carbon. A reliable and compelling price is necessary to create sufficient liquidity in the proposed carbon market. To ensure that Canada is included in a liquid international market, Parkhill anticipates that exchanges and other financial regulators will continue to "lobby hard to make sure that carbon trading systems are wrestled into some form of compatible form on both sides of the pond."

Finally, a decision released by the Federal Court last week turned on the efficacy of emissions intensity based targets. The case concerned a challenge by several NGOs of a joint Alberta-Federal panel's environmental assessment of the proposed Kearl oil sands project. The panel concluded that intensity-based mitigation measures and regulations would be sufficient to ensure that greenhouse gas emissions from the project would not result in significant adverse environmental impacts. The Federal Court took issue with the fact that the panel had not provided cogent reasons in support of that conclusion. The court held that "given the amount of greenhouse gases that will be emitted to the atmosphere and given the evidence presented that the intensity based targets will not address the problem of greenhouse gas emissions, it was incumbent upon the Panel to provide a justification for its recommendation on this particular issue." The court therefore ordered that the matter be remitted to the same panel with the direction to provide a rationale for its conclusion.

In light of all of the above criticism, perhaps the federal government will feel compelled to do the same.

NTREE challenges Canada to set a nation-wide price signal for carbon

Submitted by Andrew Lord.

"Carbon tax in the cards to help cut emissions," announced the Globe and Mail on January 7, 2008. The headline was referring to the recommendations of the National Round Table on the Environment and the Economy ("NTREE") in its new report, "Getting to 2050: Canada's Transition to a Low-emission Future," released the same day. However, the report does not exclusively recommend a carbon tax. Rather, it calls upon the government to "implement a strong, clear, consistent and certain GHG price signal across the entire Canadian economy as soon as possible." That price signal may be in the form of a carbon tax, a cap-and-trade emissions market, or both. The report recognizes that some industrial sectors may not respond effectively to such a price signal. NTREE therefore recommends that the government deploy complementary regulatory policies to ensure that these sectors reduce their emissions.

The report also emphasizes that an integrated approach will be required. NTREE therefore calls on Canada to establish a Canada-wide plan "that leads to better coordination of complementary federal, provincial and territorial GHG emission reduction policies." It also notes that Canada must work in concert with the rest of the world to achieve its goals.

In a not-so-subtle jab at political posturing, NTREE made it clear that the government must not just develop a policy framework, but must also ensure that the policy is actually implemented promptly by government, industry, capital markets and at the consumer level. This call to action is consistent with the recent Deloitte report (discussed in a separate posting) that concludes that regulatory uncertainty is the primary barrier to the development of corporate greenhouse gas management programs.

David McLaughlin, CEO of NTREE, is optimistic that a strong price signal and predictable regulatory regime would Canada to reach its stated goal of reducing emissions by 65% from 2006 levels by 2050. Furthermore, he believes that the economic impact of the transition to a lower-carbon economy would be minimal. However Glen Murray, Chair of the NTREE, noted that the proposed price signal could be most "significant" to Alberta's oil producers and to Ontario's manufacturing sector. The government will have to craft its policies to ensure that all regions in Canada are treated fairly. He also acknowledges that Canada must take care not to put its industry on an "unlevel playing field" with the rest of the world. (The concern that emissions regulations could distort global competitiveness is not a new one. As noted in a separate posting, trade wars may be looming as Europe considers imposing duties on countries outside of the EU who fail to regulate GHG emissions.)

Canada's Environment Minister John Baird released a statement saying that Canada would "consider the roundtable's recommendations" and agreeing that "we must work in concert with the world, that policy certainty beyond the short-term is central, that technology deployment is imperative, and that an integrated approach to climate change and air pollution should be pursued." However, the CBC reports that Mr. Baird remains steadfastly opposed to the idea of a carbon tax. As Mr. Baird is keen to point out, the Conservatives have remained consistent on this point (for example, see this story from almost a year ago). In contrast, the Liberals appear to have softened their objection to a carbon tax, although they would prefer a cap-and-trade system.

Recent Canadian climate change developments

Submitted by Andrew Lord.

Deloitte released a survey entitled "Managing greenhouse gas emissions: Mitigating risks and uncovering opportunities" (PDF) which considers how Canadian companies perceive and are reacting to the climate change issue in Canada. The report notes that climate change issues are "no longer just for the activists" and are "quickly becoming critical factors for corporate strategy and business competition." Shareholders, both individual and institutional, are increasingly pushing their boards to act on climate change issues. However, the survey found that greenhouse gas management continues to be treated by most corporations as an environmental compliance problem and not as a strategic business opportunity. Respondents cited regulatory uncertainty as the primary barrier to the development of integrated greenhouse gas management programs. The more quickly governments, both domestic and foreign, can eliminate that uncertainty, the more quickly corporate leaders will be able to make climate change a strategic priority rather than a regulatory headache.

Canadian Environment Minister John Baird announced during the UN Climate Change Conference in Bali that Canadian companies must submit their 2006 greenhouse gas emissions data to Environment Canada by May 31, 2008. The data will be used to help implement the Conservatives' climate change plan which aims to reduce emissions by 20% by 2020. Establishing a reliable and complete greenhouse gas inventory is a necessary first step in tracking the effectiveness of Canada's climate change plan. However the plan, which Baird touted as "the toughest plan in Canadian history to clean up our air, tackle climate change, and protect our environment," has been heavily criticized by the opposition parties, NGOs and other world leaders. The 20% figure is measured against 2006 emissions levels, whereas the global standard benchmark is 1990 emissions. Canada's target is therefore much less than the 25-40% reduction that the IPCC recently identified as the minimum level of reductions needed to avoid global warming in excess of 2 degree Celsius. Furthermore, the government proposes to advance its goals in the near term by setting emissions intensity targets. Intensity targets, which cap the level of emissions permitted per unit of industrial production, will not necessarily reduce overall reductions if industrial production continues to growth.

Quebec Environment Minister Line Beauchamp announced that Quebec will adopt California's vehicle emissions standards. BC and Manitoba have also committed to adopt the stringent California standards, which are also being implemented by about 16 U.S. states. Harper and Bush both reject calls for their respective federal governments to follow suit.