The Federal Government Introduces a Plan to Reduce Greenhouse Gases and Air Pollution
By: Mark Madras and Michelle Fernando

On April 26, 2007, the Federal Government unveiled "Turning the Corner: An Action Plan to Reduce Greenhouse Gases and Air Pollution." The Action Plan provides a regulatory framework for four areas of concern: industrial emissions, transportation, consumer and commercial products, and indoor air quality.

Industrial Air Emissions

The Action Plan proposes that regulations mandate reductions in emissions of greenhouse gases (GHGs) and air pollutants from a number of industrial sectors, namely: electricity generation produced by combustion, oil and gas, forest products, smelting and refining, iron and steel, iron ore pelletizing, potash, cement, lime, and chemicals production.

Regulatory Framework for Greenhouse Gas Emissions

(i) Sectoral Emission Reduction Targets

For existing facilities the Government's proposed emission-intensity reduction target is six per cent each year from 2007 to 2010 and a two per cent annual reduction thereafter. This would result in an emission-intensity reduction of 18 per cent from 2006 levels in 2010, the year that proposed regulations would come into force. The reduction applies only to combustion and non-fixed process emissions. There is no requirement under the Action Plan that pre-defined fixed process emissions (i.e. those that are tied to production and for which there is no alternative technology) be reduced.

For new facilities the Government proposes to grant a three-year grace period to allow them to reach normal operating levels. Upon expiry of the grace period the initial GHG emission-intensity target will be based on a "clean fuel standard." New facilities will be required to improve their emission intensity each year by two per cent.

The Action Plan for GHGs depends heavily on the concept of emission-intensity targets. These are linked to production: for each unit of production the associated emissions must be reduced from 2006 levels. The Government's forecast is that even if the economy grows as expected, absolute reductions in GHGs would occur by 2010, and no later than 2012.

The Action Plan would not bring Canada into compliance with its Kyoto Protocol obligations; however, it is presented as a component of an overall Canadian strategy to reduce GHG emissions relative to 2006 levels by 20 per cent by 2020.

(ii) Compliance Mechanisms

Aside from reducing their emissions through abatement actions, firms would be given a variety of other mechanisms under the Action Plan to meet their obligations under the proposed GHG regulations.

Climate Change Technology Fund

Under the Action Plan firms could meet part of their regulatory obligation to reduce GHG emissions by contributing to a climate change technology fund which would promote the development, deployment and diffusion of technologies that reduce emissions of GHGs.

The Action Plan proposes that firms contribute to the fund at a rate of $15 per tonne of carbon dioxide equivalent from 2010 to 2012 and $20 per tonne beginning in 2013. Thereafter the rate would increase at the rate of growth of nominal GDP. Contributions to this component of the fund would be limited to 70 per cent of the total regulatory obligation in 2010, 65 per cent in 2011, 60 per cent in 2012, 55 per cent in 2013, 50 per cent in 2014, 40 per cent in 2015, 10 per cent in 2016, 10 per cent in 2017 and zero per cent by 2018.

Alongside this component of the fund, the Government is also exploring the possibility of providing credits for Government pre-certified investments in specific projects as well as the possibility of providing an additional five mega-tonnes (Mt) per year from 2010 to 2017 to help finance research and development projects to support transformative technologies.

Emissions Trading

The emissions trading system proposed under the Action Plan comprises the following components:

Inter-Firm Trading: The baseline for each firm is its emission-intensity target. A Firm whose actual emission-intensity is below their target will receive credits equal to the difference between its target and its actual emission intensity multiplied by production that year. The firm could either bank or sell its credits.

Offset System: Offset credits would be issued for verified reductions in GHG emissions that occur outside the regulated sphere. Offset credits could be sold to regulated parties to use for compliance purposes.

Clean Development Mechanism (CDM): The Action Plan proposes that firms will have access to certain types of credits acquired from the Kyoto Protocol's CDM for the purpose of meeting their domestic regulatory obligations. The Government is still in the process of determining eligibility of various types of CDM credits but has already stated that access to such credits would be limited to 10 per cent of each firm's total target.

The Action Plan also indicates that the Federal Government will actively pursue potential linkages with regulatory-based regional trading systems in the U.S. such as the Western Regional Climate Action Initiative and the Regional Greenhouse Gas Initiative. In addition, Canada is also committed to monitoring the development of the international carbon market with a view to possible linkages.

Credit for Early Action

The Action Plan also proposes a one-time allocation of credits to those firms subject to the proposed regulations that took action to reduce GHG emissions between 1992 and 2006. A maximum of 15 Mt would be allocated, with no more than five Mt to be used in any one year.

Regulatory Framework for Air Pollutant Emissions

(i) Sectoral Emission Reduction Targets

Alongside the Government's plan to reduce GHG emissions is its plan to reduce emissions of air pollutants that contribute to smog. The Action Plan proposes national caps for four main smog-forming pollutants:

Pollutant	2015 Projected Emissions (kt)	% Reduction from 2006 Emissions
NOx	600 kt	- 40 per cent
SOx	840 kt	- 55 per cent
VOCs	360 kt	- 45 per cent
PM	160 kt	- 20 per cent

Sectoral emission caps will also be set for each air pollutant of concern in a given sector. Air pollutant targets would be established for the following sectors: alumina; aluminum; base metal smelters; cement; chemicals (including fertilizers); electricity generation produced by combustion; pulp and paper; wood products; iron and steel; iron ore pelletizing; lime; upstream oil and gas; oil sands; petroleum refining; and pipelines.

Sectoral caps will be allocated among facilities during the regulatory development process. The targets will come into effect between 2012 and 2015.

(ii) Compliance Mechanisms

Aside from reducing air pollutants in-house, the Action Plan proposes that there be a domestic cap-and-trade emissions trading system for SOx and NOx. The method of allocating credits under the system would be determined during the regulatory development process. The Action Plan also suggests that the federal government is interested in working with the U.S. to develop a cross-border SOx and NOx emissions trading system.

Compliance, Penalties and Enforcement

As the regulations proposed under the Action Plan would be made under Canadian Environmental Protection Act, 1999, the Federal Government would have at its disposal various enforcement tools (such as tickets, orders, injunctions or prosecutions) under that legislation to ensure compliance.

Transportation

Motor Vehicles

The Federal Government proposes the development of a fuel-efficiency standard with input from all stakeholders beginning with the 2011 model year. The regulations will be made under the Motor Vehicle Fuel Consumption Standards Act and are expected by the end of 2008. The regulations will build on the current Memorandum of Understanding (MOU) between the auto industry and the Government to reduce greenhouse gas emissions by 5.3 Mt by 2010.

Rail

The Action Plan proposes that air emissions from the rail industry be curbed through an MOU between the Ministers of Transport and Environment and the Railway Association of Canada to be replaced in 2010 with a regulatory regime under the Railway Safety Act to take effect in 2011.

Marine

The Action Plan proposes that air emissions from the marine sector be curbed by the Minister of Transport adopting current international standards established by the International Maritime Organization and ensuring their application domestically under the Canada Shipping Act.

Aviation

The Action Plan asserts that the Minister of Transport supports the work of the International Civil Aviation Organization to develop international standards and recommended practices for the reduction of greenhouse gas and air pollutant emissions from aviation sources. The Action Plan suggests that these standards and recommended practices will be considered in the development of domestic regulations under the Aeronautics Act.

On-Road and Off-Road Vehicles and Engines

The Action Plan also states that the Federal Government will develop and implement a series of regulations to reduce air pollutant emissions from on-road and off-road vehicles and engines to align with requirements of the U.S. Environmental Protection Act.

Consumer and Commercial Products

To reduce air emissions from consumer and commercial products, the Federal Government is developing and will implement regulations under the Energy Efficiency Act to include new energy performance standards for 18 currently unregulated products (e.g. commercial clothes washers and commercial washers) and more stringent requirements for 10 currently regulated products (e.g. dishwashers and dehumidifiers). A list of proposed products to be included in the amendments to the Energy Efficiency Regulations has been established along with a schedule setting out the dates by which regulations are expected.

The Action Plan also attempts to reduce VOC emissions from consumer and commercial products. In 2007, the Federal Government will bring forward three regulations to limit VOC content in architectural and industrial maintenance coatings, automotive refinish coatings and selected consumer products to align with requirements in the U.S.

Indoor Air Quality

The Action Plan states only that the Government proposes to develop measures for improving indoor air quality. The Minister of Health in consultation with provincial counterparts will develop a priority list of indoor contaminants that are national in scope and require government action. The Federal Government will collect information on these contaminants under the provisions of CEPA, 1999 to guide decision making.

mark.madras@gowlings.com (416) 862-4296
michelle.fernando@gowlings.com (416) 862-3596

Tidal Power Update
By: Peter Murphy

While plans for new tidal electrical generation capacity in Canada's Bay of Fundy have been stymied, at least partially, by environmental opposition, Russia is testing technology that may lead to the construction of tidal power plants over 10 times more powerful than anything currently in use in the world.

Energy superpowers Canada and Russia share more than generous fossil fuel reserves and a love of hockey. They both have locations that experience some of the world's greatest differences in ocean tides. The largest tidal variance in the world occurs in Canada's Bay of Fundy, with tides as great as 55 feet. The Annapolis Royal Generating Station located in this area produces 18 MW of electricity. Plans to expand the plant's capacity have now been halted due in part to environmental claims that the tidal station has caused shoreline erosion, heavy metal and pesticide contamination and the trapping of marine wildlife.

In Russia, 20 foot tidal variances are experienced in Mezen Bay, in the Arkhangelsk Region. While these tides are only a fraction of those experienced in the Bay of Fundy, environmental concerns do not appear to be a factor here. The Russians point to studies conducted at their Kislaya Guba and Kislogubskaya tidal plants that they say indicate that Russian tidal plants are free of environmental ill effects.

The Russians plan to harness the massive amounts of energy it takes to raise ocean water by 20 feet through use of a new, modular, 1,500 kilowatt turbine developed by Russian engineers and scientists. GidroOGK, a subsidiary of Russia's Unified Energy Systems, is testing the new turbine at the Kislogubskaya tidal power plant in the Barents Sea. "If the effort pays off and tests confirm our predictions this will mean a whole sector of the Russian power industry will get an impulse for development. This experimental unit will become a building brick to an edifice with tens of thousands of megawatts," the CEO of UES, Anatoly Chubais, said.

If the new turbine design passes the field tests, Russia plans to begin construction of a number of giant tidal power plants with capacities of 10 Gigawatts each. Keep in mind that the world's greatest tidal power plant output is currently 240 MW, produced at the Rance Estuary plant near St. Malo, France. Russia plans to construct these new tidal plants on the Sea of Okhotsk (Tugurskaya Tidal Power Plant) and on the White Sea (the Mezenskaya Tidal Power Plant).

peter.murphy@gowlings.com (416) 369-4674

Focus on Pipeline Safety and Environment Report 2000
By: Nicole Chen

The National Energy Board (NEB) recently released a report entitled 'Focus on Safety and Environment: A Comparative Analysis of Pipeline Performance, 2000 – 2005'. This report reviewed the frequency and number of incidents which affected pipeline integrity, safety and the environment. The main objective of the report is to evaluate NEB-regulated companies pipeline performance and compare these performance levels across other jurisdictions.

The key findings in this report are:

• 2005 marked the eighth consecutive year that there have been no fatalities on any NEB-regulated pipelines. Although contractor injuries still continued to occur at a higher frequency than worker injuries, there was an overall decrease in 2005;
• On average, one person was injured for every 200,000 hours worked annually;
• 2005 marked the third consecutive year that there were no reported ruptures on any NEB-regulated pipelines. This was a result that can be primarily attributed to the introduction of Integrity Management Programs within the pipeline industry. The NEB was the first North American regulator to mandate such programs;
• Only one pipeline contact was reported from an unauthorized activity point on the right of way in 2005;
• Very few pipe body releases of liquid hydrocarbon products have been experienced by NEB-regulated pipelines over the past six years; and
• A total of 226 incidents were reported under the OPR-99 incident reporting requirements, with gas releases being the most common incident reported. On average, the NEB receives 38 incident reports per year reportable under the OPR-99.

The data in this report was collected via the OPR-99's mandatory reporting initiative and the voluntary reporting under the Safety Performance Indicators Initiative. Companies that are responsible for roughly 95 percent of the total length of NEB-regulated pipelines volunteered their results, which were then used to demonstrate trends and illustrate some measure of relative performance.

As a result of the analysis in the report, the NEB anticipates extending its analysis of injuries and non-compliance to determine what further actions should be taken to reduce injuries during pipeline construction, operations and maintenance activities. In addition, the NEB intends to develop and collect data on various leading environmental indicators.

In conclusion, the NEB-regulated pipelines were found to have performed consistently when compared with reference organizations across Canada, the United States and overseas jurisdictions. As a whole, the pipeline industry has shown improved safety and environmental performance over the past six years.

For more information, please refer to:
http://www.neb-one.gc.ca/safety/SafetyPerformanceIndicators/
SPI_FocusOnSafety_2000_2005_0703_e.pdf

nicole.chen@gowlings.com (416) 369-4594

Forged Name on Alberta Energy Contract
By: Nicole Chen

A door-to-door salesman has been charged with criminal offences and breaches of Alberta's energy marketing regulation. He worked for an electricity and natural gas marketing company, Alberta Energy Savings Limited Partnership, and had approached an Edmonton senior in September 2006 in an effort to convince her to sign a five-year electricity and natural gas contract.

Upon failing to obtain a signature, he forged the contract using personal information collected from her utility bill. Unbeknownst to him, the name on the bill was the woman's late husband who had died in 1999. When the company discovered the forgery, the salesman was fired and the contract was cancelled. Currently, Albertans have the option of buying electricity and natural gas for their homes, farms or small business and can sign contract with independent contractors or receive energy at a regulated rate. Consumers should be aware that all businesses marketing electricity and natural gas contracts must be licensed by the province and abide by a strict code of conduct.

nicole.chen@gowlings.com (416) 369-4594

Bruce Power Hydrogen Study Secures Important Funding Partner
By: Nicole Chen

The Ontario Centres of Excellence Inc. has joined Bruce Power LP in funding a hydrogen study at the University of Waterloo. The jointly-split $150,000 funding will aid in the search for a climate change solution as clean nuclear power producing clean hydrogen is a power combination for addressing environmental concerns, said Duncan Hawthorne, Bruce Power's CEO.

Bruce Power first announced this study, the Bruce Power Hydrogen Economy Development Study, in July 2006. The study investigates the use of off-peak hydrogen production from nuclear power and distributive electricity. The Canadian Hydrogen Association and the Hydrogen Village joined the program in 2006 as strategic partners.

nicole.chen@gowlings.com (416) 369-4594