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

BC Green Agenda Hits Big Bump

British Columbia's Energy Plan: A Vision for Clean Energy Leadership hit a bit of a wall yesterday when it was rejected by the BC Utilities Commission as being "not in the public interest" - in other words, it's going to cost a lot of money and we're not interested. British Columbia, which is a member of the U.S. based Western Climate Initiative, had set aggressive GHG emissions reductions targets of 33% below 2007 levels by 2020. The Globe and Mail reported that "[s]ome analysts say the ruling - which shocked the government and the stock market - indicates B.C. has been over-estimating the amount of power the province needs in order to justify the development of independent power projects". A spokeswoman for the Canadian Office of Provincial Employees Union, COPE, stated "[w]e have a very flawed energy plan in this province ... the government cannot continue to exaggerate the need for power".

The BC Energy Plan claimed to put British Columbia at the forefront of environmental and economic leadership, by looking to all forms of clean, alternative energy in meeting British Columbians' needs in the provincial economy. The Plan called for a number of green initiatives, including:

• Zero greenhouse gas emissions from coal fired electricity generation
• All new electricity generation projects will have zero net greenhouse gas emissions
• Ensure clean or renewable electricity generation continues to account for at least 90 per cent of total generation
• Achieve electricity self-sufficiency by 2016
• Generate electricity from mountain pine beetle wood by turning wood waste into energy
• Invest $89 million for fuelling stations and the world's first fleet of 20 fuel cell buses through a federal-provincial partnership

What the report doesn't say is that a massive capital (read: expensive) outlay is going to have to be made in order to implement the plan. But before the plan could be truly put into action, the BC Utilities Commission had to essentially approve it. The Utilities Commission Decision includes a refusal "to allow BC Hydro to downgrade the Burrard Generating Station. Burrard is a conventional thermal plant fuelled by natural gas that supplements hydroelectric generation in years of low water flows". As part of its Energy Plan, BC Hydro wanted to rate that station as capable of producing a maximum of 3,000 gigawatt hours annually. The Utilities Commission disagreed, concluding said the figure should be 5,000 GWh. If the Burrard potential is rated 2,000 GWh higher, then the need for private power would have to drop by the same amount.

It wasn't all bad news for the BC Government. The Commission approved all but $2 million of the $630 million spend requested by BC Hydro, including $418-million on demand side management. The Energy Minister downplayed the significance of the decision and confirmed that the province is committed to producing clean, renewable energy through independent power producers.

However, the decision raises a couple of issues:

1. BC is going to have to take a long look at its targets, whether they are reasonable and whether the need for power is as stated.

2. What does the Utilities Commission's rejection of the clean energy call mean for the future of green energy in BC? What is the tolerance level of British Columbians in terms of the spend? The Utilities Commission doesn't think it's as high as the government does.

3. What's more important - reducing emissions and using "clean" energy or ensuing the economy is stable and humming (no pun intended) along? Not to mention that sustainable/renewable/clean energy projects don't come without their own high environmental cost.

We'll keep you posted on how this is all playing out.

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.

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.

WCI Draft Cap and Trade Design Prioritizes Forestry, Agriculture and Waste Management Offsets

Submitted by Grant Boyle

WCI’s July 2008 draft design recommendations suggest capped emitters will be able to use offset credits to meet 10% of compliance obligations.

Project types under “priority” consideration include: Agriculture (soil sequestration and manure management); Forestry (afforestation/reforestation, forest management, forest preservation/conservation, forest products); and Waste management (landfill gas and wastewater management).

According to the proposal, project types that reduce emissions covered by the cap-and-trade system ( such as electricity projects) would not be eligible to create offsets.

Starting in 2009 WCI Partners will coordinate to develop and approve standard protocols for the project types.

WCI Partners may approve and certify offset projects located throughout Canada, the United States, and Mexico, where projects are subject to comparably rigorous oversight, validation, verification and enforcement as those located within the WCI jurisdictions.

In the case of offset credits under the Kyoto Protocol's Clean Development Mechanism (CDM) and Joint Implementation (JI), the WCI Partners may establish “added criteria to ensure similar rigor to WCI approved/certified offset projects or other requirements”. The WCI Partners are also considering a method that restricts the use of offsets from projects located outside WCI jurisdictions for compliance purposes in the WCI.

WCI releases Draft Design for regional cap-and-trade system

The Western Climate Initiative (“WCI”) released its Draft Design of the Regional Cap-and-Trade Program (the “Draft Design”) on July 23, 2008. The WCI is a partnership of 11 US states and Canadian provinces, including BC, Manitoba, Quebec and Ontario (collectively, the “Partners”) that is developing a regional cap-and-trade system for greenhouse gas emissions. The Draft Design, summarized below, outlines the WCI’s current recommendations for the system and will be subject to public comment in the coming months. The WCI plans to release its final recommendations this fall.

The scope of the Draft Design is more ambitious in many respects than other climate change mitigation plans. The Draft Design contemplates capping the emissions of six greenhouse gases (carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride), whereas the EU ETS cap applies only to carbon dioxide at this time. Under the WCI scheme, facilities emitting more than 25,000 tCO2e would be regulated. This threshold is 75% lower than the 100,000 tCO2e thresholds in the Alberta Specified Gas Emitter Regulations and the federal “Turning the Corner” plan. Like other mitigation plans, the WCI will regulate emissions from electricity generation and industrial facilities (including both combustion and process emissions). However the Draft Design recommends also regulating emissions from residential, commercial, and industrial fuel combustion at facilities below the 25,000 tCO2e thresholds and from transportation fuel combustion. However these sources will not be regulated until the second compliance period. Interestingly, emissions from biofuels and biomass will not count towards the cap, creating an opportunity for such fuels to displace fossil fuels.

Emissions from generating stations and industrial facilities in the WCI region will be regulated at the point of emission. Emissions from electricity imported from non-WCI jurisdictions will be regulated at the first point of distribution in the WCI. Emissions from sources below the 25,000 tCO2e threshold and from transportation fuels will be regulated “up-stream” from the point of emission, for example at the first point at which the fuel is distributed in the WCI region.

An aggregate cap for the entire WCI region will be established for 2012 based on the estimated emissions for that year. The cap will be adjusted in 2015 to account for the additional smaller fixed combustion sources and transportation sources discussed above. The cap will decline steadily from 2012 to 2020 and will be enforced in 3-year compliance periods. The WCI has yet to give any indication what the initial cap or rate of decline will be.

The aggregate cap will be apportioned to each of the WCI Partners. The Draft Design does not describe the specific apportionment methodology, but does state that the methodology “will address factors such as production and consumption of electricity, projected population growth and economic activity, and other factors.” WCI Partners will then be responsible for distributing emissions allowances to regulated entities “as they see fit” and for administering compliance in their respective jurisdictions.

Even though Partners will have significant autonomy in administering their allocation, they will be expected to harmonize their efforts in certain significant respects. The Draft Design suggests that Partners shall “consider standardizing the distribution of allowances over time” to address potential competitiveness issues. Additionally, Partners will be expected to set aside a portion of their allowances for “public purposes”, such as subsidizing renewable energy, R&D, or CCS. Finally, individual Partners agree to auction a portion of their allowances, such allowances must be sold through a “coordinated regional auction process.”

Regulated entities will be allowed to bank allowances, but will not be able to “borrow” from future allocations. Allowances will be tradable not just within a particular Partner’s jurisdiction, but across the entire WCI region. The Draft Design also contemplates the creation and trading of offsets. The treatment of offsets will be discussed in a separate posting.

Of particular relevance to British Columbia, the Draft Design states that “WCI Partners agree that individual jurisdictions may use fiscal measures that contribute to achieving overall comparable GHG emission reductions and internalize the price of carbon as expected through the regional cap-and-trade program for transportation and residential/commercial fuels.” Specifically, the WCI will determine a mechanism for integrating BC’s provincial carbon tax in the regional cap-and-trade program.

Ontario to Jump Onboard the WCI

On July 18, 2008 Ontario’s Premier Dalton McGuinty announced that Ontario is moving from ‘observer’ status to a member of the Western Climate Initiative (WCI), which includes BC, Manitoba, Quebec, Arizona, California, New Mexico, Oregon, Washington, and Utah. The WCI is a group of Canadian provinces and U.S. states banding together in a regional initiative to address climate change. Alaska, Colorado, Idaho, Kansas, Nevada, Wyoming, Saskatchewan and the Mexican states of Sonora Baja California, Chihuahua, Coahuila, Nuevo Leon and Tamaulipas have observer status. The WCI expects to complete design recommendations of a regional, multi-sectoral cap and trade program by August 2008 and roll out the program by 2010.

More details on the WCI can be found in our new Climate Change Law Bulletin - Issue No. 1 (July 1, 2008): Emerging GHG Compliance Emissions Trading Systems in North America.

BC Public Sector may purchase $24 million in offsets to be carbon neutral by 2010

Submitted by Grant Boyle

On June 26 B.C. released its Climate Action Plan, which outlines strategies that will help the province reach 73% of its goal of reducing GHGs 33% by 2020 from 2007 levels. The Plan outlines existing and upcoming policy initiatives that are intended to help reduce emissions from transportation, buildings, waste, agriculture, industry, energy and forestry in the province.

One of the legislated requirements highlighted under the Plan is for the province’s public sector to be carbon neutral by 2010. Under the BC Greenhouse Gas Reduction Act, all provincial ministries, health authorities, school districts, colleges, universities, Crown Corporations and other government agencies must be carbon neutral as early as 2010.

Public sector organizations must publically report emissions, reduce emissions and offset any remaining emissions. The government will set up the Pacific Carbon Trust as a new Crown Corporation to meet public sector demand for offsets. The 2008 Budget provides $24 million to invest in GHG-reduction projects. Although, the government has not indicated what type of offsets the Trust will accept, the Plan says that the initial mandate of the Trust is to offer “credible, low cost offsets” to the public sector. In light of Victoria’s indication that no regulations to implement BC’s Greenhouse Gas Reduction Cap and Trade Act will pass this year, the Pacific Carbon Trust’s mandate could drive the first compliance market for carbon offsets in the province, creating new opportunities for carbon reduction project developers.

The 2008 Budget also allocates around $100 million to support energy efficiency upgrades in public buildings and $15 million for communications tools that reduce the need to travel as measures to reduce emissions from the public sector.

California releases draft climate change plan

On June 26, the California Air Resources Board ("CARB") released the discussion draft of its Climate Change Draft Scoping Plan (the "Draft Scoping Plan"), enacted pursuant to Assembly Bill 32, the California Global Warming Solutions Act of 2006 ("AB 32"). The Draft Scoping Plan sets out California's roadmap for achieving greenhouse gas emissions reductions. Given that California has a history of leading environmental change, and that some of its initiatives are not confined within the state's borders, regulators and businesses operating in Canada, the U.S. and Mexico should pay careful attention to developments in the Golden State.

CARB's goal is to reduce emissions to 1990 levels by 2020, which amounts to approximately a 10% reduction from today's levels. The goal is ambitious, but should still be understood in perspective. Had the United States ratified the Kyoto Protocol, it would have been under an obligation to reduce its emissions to 7% below 1990 levels by 2012. California's long term goal is significantly more ambitious: the Draft Scoping Plan requires an 80% reduction of greenhouse gases from 1990 levels by 2050.

The following are the key elements of CARB's recommendations for achieving those goals:

• Expansion and strengthening of existing energy efficiency programs and building and appliance standards;
• Expansion of the Renewables Portfolio Standard to 33 percent;
• Development of a California cap-and-trade program that links with other WCI Partner programs to create a regional market system;
• Implementation of existing State laws and policies, including California’s clean car standards, goods movement measures, and the Low Carbon Fuel Standard;
• Targeted fees to fund the State’s long-term commitment to AB 32 administration.

CARB has emphasized the need to take a comprehensive and integrated approach to fighting climate change. Its recommendations therefore combine market mechanisms, regulations, voluntary measures, fees, and other policies and programs to reduce greenhouse gas emissions. While CARB will lead the implementation of the plan, every agency, department and division of the state government will be mobilized to put the plan into action. California will also continue to call on businesses and corporations to make climate change part of their fiscal and strategic planning.

While California is once again taking an environmental leadership role, it does not intend to tackle the problem of climate change alone. The state is already cooperating with six other states and B.C., Manitoba and Quebec in the Western Climate Initiative ("WCI") to design a regional greenhouse gas emission reduction program that includes a cap-and-trade approach. CARB intends to design a state-level cap-and-trade system that will integrate with the WCI.

The Scoping Plan is currently just a draft. CARB expects to release a Proposed Scoping Plan in October 2008 that will incorporate feedback about the Draft Scoping Plan. CARB intends to adopt the Proposed Scoping Plan in November after a 45-day comment period. Once the Scoping Plan has been adopted, it will still have to be implemented through regular lawmaking processes.

BC introduces cap-and-trade legislation to complement carbon tax

Submitted by Andrew Lord

Having introduced a significant carbon tax earlier this year, the BC government unveiled a second plank in its aggressive effort to tackle climate change. On April 3, 2008, the BC government introduced Bill 18, Greenhouse Gas Reduction (Cap and Trade) Act (the "Act"). The Act would create a cap-and-trade system for greenhouse gas emissions in the province that could be an effective complement to the carbon tax.

Under the Act, the BC government would issue B.C. Allowance Units ("BCAUs"), each corresponding to a right to emit one tonne of carbon dioxide equivalent, to companies in designated sectors. Those companies would then only be permitted to emit the amount of greenhouse gases for which they held BCAUs. This is the "cap" that makes the policy environmentally effective. Those companies who emit more than their assigned amount of BCAUs would have several alternative compliance options, which together constitute the "trade" element that makes implementing the cap more economically efficient. Such companies could do the following:

• Purchase BCAUs from other companies who were able to cut their emissions below their assigned amounts;
• Purchase Recognized Compliance Units ("RCUs") from other jurisdictions (discussed below);
• Create or acquire BC Emissions Reductions Units ("BCERUs"), which will be generated by projects that avoid or sequester emissions, to offset their excess emissions; or
• Pay an administrative penalty.

The details of the BC cap-and-trade system will be developed in parallel with the Western Climate Initiative (the "WCI"). The WCI, whose signatories include BC, Manitoba, California, Oregon, Washington, New Mexico, Arizona, Utah and Montana, will implement a regional cap-and-trade system. By harmonizing the systems, BC hopes to create increased liquidity for carbon instruments. The Recognized Compliance Units mentioned above are expected to largely be sourced from WCI members.

The Act will also establish the administrative apparatus required to track the allocation and trading of the various units and to approve BCERUs and RCUs.

Carbon taxes and cap-and-trade systems are recognized as two ways of placing a price on carbon. The two approaches are significantly different both in the way they achieve the goal of reducing emissions and also in the breadth with which they may be implemented. With respect to the way a emissions are reduced, carbon taxes put a price on carbon in the expectation that consumers will shift demand away from carbon-intensive products. That price incentive should result in reduced emissions. However the result is not guaranteed, particularly if the price signal is not strong enough. Cap-and-trade systems, by contrast, legislate what amounts to a scarcity of emissions. Combined with measures to create a liquid market, that scarcity results in a price for carbon. However it is the legislated scarcity, and not the price signal, that controls the level of emissions. Because that scarcity can be controlled directly, reduced emissions can be guaranteed to a much greater extent than through carbon taxes. With respect to the breadth with which the two approaches can be implemented, a carbon tax can be implemented for all types of consumers, from big businesses to individuals, and can thus drive down emissions across the economy. In contrast, a cap-and-trade system is complex to administer and is thus better suited for large emitters than for individual consumers.

These counterbalancing differences make a carbon tax and a cap-and-trade system complementary. BC therefore appears to be undertaking a very sophisticated, progressive, and hopefully effective approach to addressing the problem of climate change. Check back here for updates as Bill 18 makes its way through the BC Legislative Assembly.