Avocats chez Davis S.E.N.C.R.L.

New York raids RGGI coffers to pay down deficit

On Wednesday, New York lawmakers approved the transfer of $90 million of Regional Greenhouse Gas Initiative ("RGGI") auction proceeds to help fill the state's $3.16 billion budget deficit. The move sets a very unfortunate precedent in the U.S. Fortunately, Canadian lawmakers appear intent on guarding against similar temptation in provincial climate change regimes.

Covering the power sector in 10 Northeastern and Mid-Atlantic states, RGGI is the United States' first cap-and-trade system. The emission cap, which will decrease by 10% by 2018, is administered by distributing emissions allowances to regulated facilities. Nearly all allowances are auctioned, with the intention that proceeds will be reinvested by the participating states in efficiency, renewable energy, and other clean energy technologies. To date, New York has raked in almost $180.7 million from the sale of allowances under RGGI.

The legislature's decision this week to "re-purpose" these proceeds is unfortunate for at least three related reasons. First, the decision compromises part of the environmental and economic effectiveness of RGGI by halving the amount of RGGI dollars currently available for investment in clean energy and green jobs in the state. As a result, the decision also undermines a key justification for auctioning permits, instead of giving them away for free. Finally, by moving the proceeds into general revenue, the decision lends credence to the criticism that cap-and-trade systems are really cap-and-tax schemes.

New York may therefore have set a precedent that will not only undermine the effectiveness of RGGI, but could also be used to undermine efforts to pass similar cap-and-trade legislation in Washington.

Fortunately, Canadian lawmakers have been more savvy in anticipating the temptation of politicians to dip into funds generated by emission reduction regimes. Under Alberta's Specified Gas Emitters Regulation, regulated entities can comply with emissions targets by paying $15 per tonne into the Climate Change and Emissions Management Fund ("CCEMF"). However, the CCEMF is legally segregated from general revenue, is managed by an arm's length entity (the CCEMC), and may only be used to support climate change mitigation and adaptation projects in the province. The province therefore cannot reallocate that money without rewriting its emissions management laws.

Ontario's cap-and-trade regulation, which was passed this week, contains similar protections. The proceeds of any allowance auctions in Ontario will be designed as "money received for a special purpose" under the Financial Administration Act (Ontario) and will be segregated in a "Greenhouse Gas Reduction Account." Funds from the account will only be available for "costs incurred by the Crown in administering the regulations [...] that relate to greenhouse gases and in carrying out or supporting greenhouse gas reduction initiatives."

U.S. - Canada Clean Energy Dialogue - First Report

Yesterday Canadian Environment Minister Jim Prentice and U.S. Energy Secretary Steven Chu delivered an update on the two nations' clean energy dialogue (CED), which was first announced when President Obama met with Prime Minister Stephen Harper in Ottawa this past February. The release of the report coincided with Prime Minister Harper's meeting in Washington D.C. with President Obama at which energy was on the agenda and after which Harper reminded the U.S. at a press briefing that: "[...] Canada is by far the largest supplier of energy to the United States. And [it is] determined to be a continental partner in dealing with the [...] linked problems of climate change and energy security [...]".

The three key areas on which Harper and Obama had asked their respective delegates to work together on under the auspices of the CED were: (1) The development and deployment of clean energy technology; (2) the building of a more efficient energy grid, based on clean and renewable generation; and (3) expanding R&D into clean energy.

As part of the countries' collaboration on carbon capture and sequestration (CCS), the report states that the countries will expand on existing collaboration in CO2 injection and storage testing, share information from large-scale CCS demonstration projects such as the Weyburn-Midale project in Saskatchewan, in which carbon dioxide is piped from the Great Plains Synfuels plant in North Dakota to an oilfield operated by EnCana and injected for use in enhanced oil recovery. The report goes on to insist on working towards a consistent regulatory framework between the countries, which would include compatible CCS project rules, standards, and monitoring, as well as verification and accounting principles. Bilateral meetings between Canadian and American CCS experts are planned in mid-2010 and 2011 to share best practices and provide updates on joint activities. The two nations intend to form the "Canada-U.S. CCS Collaboration" under the existing Trilateral Energy Science and Technology Agreement, which also includes Mexico and hope to formalize the arrangement through an implementation agreement by the end of 2009.

As a result of the continued growth in electricity demand, collaboration between the two nations regarding the North American power grid will focus on the open exchange of information and electricity research, development and deployment (RD&D), reliability standards, cyber security and interoperability guidelines. Upgrades to the electric power grid will aim to increase its efficiency and promote connection to clean energy sources, as well as the use of clean energy technologies.

Joint commitments regarding Clean Energy RD&D are meant to boost economic opportunities for the CED partners and the two are to develop a "Clean Energy RD&D Collaboration Framework" and a technology roadmap which would allow both nations to meet their respective 2050 greenhouse gas reduction targets. The Framework and Roadmap would notably foster a unique North American market through common codes, standards and incentives, along with collaborative research and development, sharing of information , facilities and scientific infrastructure.

The Canadian Environment Minister and U.S. Energy Secretary are expected to release the next CED report in the spring of 2010, ahead of the next bilateral meetings.

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.

Global carbon market to soften according to Point Carbon

As reported by Carbon Finance, Point Carbon, a leading provider of news and analysis about the carbon market, predicts that the value of the global market will shrink by a third in 2009. They expect the aggregate value of carbon credits to drop to EUR62.6 billion, compared with EUR92 billion in 2008. This is despite a 20% increase in the volume of transactions, an increase which is not nearly as pronounced as the 80% and 200% growth levels seen in the two previous years.

Point Carbon summarizes their findings as follows: "2009 will see a levelling off from the massive growth seen in the carbon market so far. How long this 'breather' will last is, for the most part, a question of how long, and how deep, the recession will play out."

The EU ETS will continue to be the dominant market, with an expected 3.8 billion tonnes to be traded.

2009 will be a leaner year for CDM and JI projects. Primary market transactions are expected to plummet 45% to 300 million tonnes. Combined with a weak CER price, uncertainty about the post-Kyoto framework, and the dry credit markets, this decline may put many projects at risk. Secondary market CER trades are, however, expected to climb 12% to 1.4 billion tonnes.

The Regional Greenhouse Gas Initiative in the northeastern United States will expand to occupy just under 6% of the global market, with an expected trading volume of 339 million tonnes in 2009.