Climate change compliance in a time of uncertainty

  • May 25, 2018
  • Ann Macaulay

This is a time of uncertainty in the Canadian climate-change compliance area, say lawyers who practise in Alberta’s energy sector.

The federal government adopted the Pan-Canadian Framework on Clean Growth and Climate Change in December 2017 in order to meet its commitments under the 2015 Paris Agreement to set national targets to cut greenhouse gas emissions. It then released the draft Greenhouse Gas Pollution Pricing Act for public comment in January this year. The Act will help to clarify what’s expected of businesses. It proposes a federal carbon-pricing system, including a levy on fossil fuels and an output-based pricing system for industrial facilities.

“The uncertainty of which provinces and territories will be subject to the new Act will last until this fall,” says Cairns Price, Senior Legal Counsel at MEG Energy Corp. in Calgary. The proposed federal legislation, expected to become law this fall, will be implemented in whole or in part next January in any province that does not have a carbon pricing system that meets the federal standard.

The “draft legislative proposal for the federal backstop would apply in the event provincial jurisdictions do not meet the floor carbon price in the federal pan-Canadian framework,” says Price, a panelist on the CBA Environmental Energy & Resources Law Summit’s panel discussing climate change compliance in the energy sector in Winnipeg in May.

The government asked the provinces and territories to notify it by the end of March 2018 whether they plan to follow the federal scheme. Those opting to establish or maintain their own carbon-pricing plans must submit them by Sept.1, after which the federal government will confirm whether the provincial carbon pricing system meets the federal standard, says Price. British Columbia, Alberta, Ontario and Quebec currently have or are implementing their own carbon-pricing systems and it’s anticipated they will try to convince the government that these meet the federal standard.

“Alberta’s government was well ahead of the Pan-Canadian Framework so its energy-sector clients were already responding to Alberta’s Climate Leadership Plan and its new Carbon Competitiveness Incentive Regulation, which came into effect on Jan. 1 of this year,” says Summit panelist John Goetz, who is a principal at EnerNext Partners in Calgary. Under the new regulations, facilities emitting more than one megaton of GHGs were each given output-based allocations based on standards for the type of facility they were operating, he says.

“As the federal program is largely modelled from Alberta’s hybrid carbon levy and output-based allocations program, and since Alberta and the federal government have been working extensively together, Alberta’s Climate Change Office have stated that they expect their program will meet the federal requirements and are expecting to increase their carbon price in line with the federal price. So no conflict or duplication is expected.”

Emission-reduction targets for regulated emitters are nearly twice as large as they were in 2015 – and more than that in some cases – and the price of compliance units has doubled, with more increases coming, says Goetz. “This means these clients are grappling with ways to reduce emissions and compliance costs in any way possible, including engaging in emissions trading and implementing innovative emission reduction technologies.”

In 2007, Alberta became the first Canadian jurisdiction to enact meaningful climate change legislation, says Thomas McInerney, a partner at Bennett Jones LLP in Calgary. “The Specified Gas Emitters Regulation focused on reducing the emissions intensity of large emitters within the province. In the early 2000s, there was considerable momentum regarding climate change legislation at the federal level. The Alberta government saw the writing on the wall and decided they had better occupy the field of play and put a regime in place rather than risk having one imposed on them.” He adds that, “it is clear that in devising the federal carbon pricing backstop, there has been a dialogue between Ottawa and the provinces and Alberta in particular.

“Alberta is addressing climate change on a number of policy fronts, including phasing out coal-fired power generation, promoting renewable energy generation through the Renewable Electricity Program auctions, capping oilsands emissions at 100 MT/year and implementing the carbon levy and the new Carbon Competitiveness Incentive Regulation, which replaces the Specified Gas Emitters Regulation.”

Alberta currently effectively puts a price on carbon through the carbon levy and the CCIR, says McInerney, “with the former taxing heating and transportation fuels within the province and the latter creating an output-based allocation system whereby large emitting facilities are required to reduce their net emissions to the emission levels prescribed for each product that such facilities produce.”

For now, the federal carbon pricing backstop outlined in the Greenhouse Gas Pollution Pricing Act means little for Alberta, as its carbon price exceeds the federally prescribed $10/tonne for 2018, according to McInerney. But there are two circumstances in particular that could bring Alberta into conflict with the federal backstop.

“First, if the provincial elections in 2019 result in a new government, it remains to be seen if such government will maintain the current carbon pricing regime or adopt a more confrontational posture, akin to its neighbour Saskatchewan, which has been opposed to a carbon tax and is currently challenging the legitimacy of the federal backstop, which would impose one in the absence of action by the province.

Second, even if Alberta’s NDP remain in power, the carbon levy and the CCIR, without amendments, will not satisfy the requirements of the federal backstop in 2021 when the backstop’s carbon price escalates to $40/tonne, maxing out at $50/tonne in 2022. “The current Alberta government has made it clear that its climate policies have been implemented on the basis of removing opposition to building a pipeline to tidewater and the federal government’s support in ensuring that this occurs. Accordingly, any failure in getting such pipeline built could result in a very different approach to Alberta climate change policy and carbon pricing in particular.”

Ann Macaulay is a frequent contributor to PracticeLink.