IV. Smart Regulation in Environment Canada: Learning by Doing

Environment Canada has a wealth of experience in developing, implementing and refining our regulations and processes for regulatory development. In this section we highlight examples of how Environment Canada has improved its regulatory efforts.¹¹

A. Building Better Regulatory Instruments

1. Protecting Wildlife - Expanding and Mixing the Tool Set

Environment Canada's mandate regarding the protection of wildlife flows from statutes supporting the activities for the conservation of migratory birds and species at risk, protection of wildlife habitat and the regulation of trade in wildlife and wildlife parts. These statutes enable Environment Canada to apply prohibitions as one method to protect wildlife, and complement Canada's vast and expanding system of parks. However, Environment Canada's approach to protecting Canadian wildlife has evolved and diversified over the years.

One mechanism used by Environment Canada is the creation of protected areas, which preserve habitat and restrict activities harmful to wildlife. Environment Canada's protected areas system consists of National Wildlife Areas and Migratory Bird Sanctuaries and in the future with include Marine Wildlife Areas. However, many wildlife species inhabit important ecosystems that are also used by Canadians for other uses. Therefore, Environment Canada has developed several alternative approaches to complement its protected areas system. These include:

• Offering financial incentives to landowners to encourage voluntary conservation efforts;
• Developing partnerships with a broad spectrum of partners to address common conservation objectives;
• Building knowledge and capacity among partners to enable them to make responsible land use decisions; and
• Creating policy/legislative tools to support the conservation efforts of individuals and communities.

For example, through the North American Waterfowl Management Plan (the Plan), Environment Canada has partnered with federal, provincial/state and municipal governments, nongovernmental organisations, private companies and many individuals, to work towards achieving better wetland habitat for the benefit of migratory birds, other wetland-associated species and people. The Plan's unique combination of biology, landscape conservation and partnerships comprise its exemplary conservation legacy.

Working through partnerships is also the key to making stewardship a successful conservation tool in Canada. Environment Canada stewardship initiatives, such as the Habitat Stewardship Program, are used to complement other wildlife protection measures. The compendium document describes these and other alternative approaches used by Environment Canada to protect wildlife.

2. Economic instruments

Recent efforts by Environment Canada to promote the use of economic instruments have been supported by over a decade of research and analysis, as well as some practical, albeit limited, domestic applications. This section provides examples of some early efforts of using economic instruments in Canada.¹²

Methyl Bromide Tradable Permits: In January 1995, Environment Canada introduced a small "cap and trade" scheme to phase out the consumption of methyl bromide, a fumigant and powerful ozone-depleting substance scheduled for complete phase-out by 2005. On a yearly basis, Environment Canada allocates transferable allowances (or permits) to 100 users, based on historical use. The overall cap is ratcheted downwards yearly, and permits are not bankable. While the price of Methyl bromide has increased over the years, the transfer of allowances has enabled a smoother, less costly transition. Moreover, parts of the revenues from the transfer of allowances were funnelled to fund research in alternatives to this ozone-depleting substance. This system has introduced a low-cost alternative to more traditional abatement tools, and has encouraged users to look for alternatives to methyl bromide.

Phasing Out Lead in Gasoline: Lead in the environment is a serious health issue, and in September 1988, the Ministers of Health and Environment announced that lead would be effectively eliminated from motor fuel effective December 1, 1990. The Federal Government implemented a tax differential of 1 cent/litre in April 1989 to "discourage the use of leaded fuel". Prior to the federal tax, some provinces also levied their own tax on leaded fuel. As a result of the tax increases, the imminent federal ban and retrofits of the pumps by the marketers, demand for leaded gasoline in Ontario dropped from 25-33% to 10-12% a year later, and to 1-3% by 1990. While a downward trend had already begun in the 1980s (because catalytic converters forced motorists to use unleaded gasoline only), econometric analysis suggests the federal and provincial tax differentials have accelerated the phasing out of lead, resulting in greater health benefits.

Accelerated Capital Cost Allowance for Energy Efficient Equipment: Reducing energy consumption is a key strategy for reducing GHGs and air pollution. Initiated by Natural Resources Canada in 1996, this program provides preferential tax treatment for companies that use energy efficient equipment for the production and distribution of heat. It also improves the tax treatment of rail assets (by increasing their CCA rates), helping make this relatively more energy-efficient mode of transportation more competitive with trucking.

Tax Incentives for Ethanol-Blended Fuel: Burning ethanol produces less GHGs than pure gasoline. Since 1992, the ethanol portion of gasoline blended with ethanol has been exempt from the federal excise tax, so that retailers could sell the ethanol-blended fuel at competitive prices while still satisfying the green fuel objective. The instrument, also developed by Natural Resources Canada, has helped to maintain competitive retail prices while increasing the market share of ethanol-blended gasoline to around 1% of the Canadian gasoline market. The program also encourages the provinces to revise their tax policies, and those provinces that comply have received federal funding for the construction of ethanol plants.

3. Ten Year Agenda for Vehicles and Fuels

Environment Canada has laid out a 10-year agenda to reduce emissions from vehicles, engines and fuels, based on a mix of instruments and approaches. The agenda responds to unique aspects of this issue. These include: integrated North America vehicle manufacturing; regional differences in Canadian fuel supply and refining; the similarity of Canadian and U.S. markets; and issues of compatibility between vehicle emissions technology and fuels. The agenda provides an integrated roadmap for car manufacturers and petroleum product producers to work together to reduce emissions, based on a general strategy of alignment with the U.S.

Implementation is well underway. Canada has put in place new emission standards for on-road vehicles and engines that align with U.S. standards - generally recognised as the most stringent national standards in the world. By aligning Canadian and U.S. standards the regulations achieve their objectives with minimum cost and impact to the Canadian automotive industry. Environment Canada's fuel quality requirements are also based on a strategy of alignment with the U.S. For example, regulations for sulphur in on-road diesel fuel were put in place in 2002. Canada was able to match the U.S. requirements with a simpler set of regulations than those in the U.S. - yet achieve a higher level of environmental performance. The U.S. regulation has a 4- year phase-in, whereas the Canadian reductions are done earlier, and in one step.

4. National Pollutant Release Inventory

Environment Canada's National Pollutant Release Inventory (NPRI) is a legislated, nation-wide, publicly-accessible inventory of pollutants released to the environment. It provides Canadians with information on pollutant releases from facilities located in their communities and the quantities sent to other facilities for disposal, treatment or recycling. It is both a vehicle for collecting data to develop programs, and a lever to encourage emissions reductions by industry. Broader public and stakeholder consultation has always been an integral part of the program, and environmental groups have cited this as an excellent model for stakeholder engagement. The NPRI is also an example of federal-provincial co-operation and government-industry partnership. It provides a one-window pollutant inventory used by other levels of government, other Environment Canada programs, and some voluntary programs (such as Environment Canada's ARET program and the Canadian Chemical Producers Association Responsible Care program.)

Pollution prevention (P2) is a priority for Environment Canada. P2 planning is a new and unique risk management tool included in Part 4 of the Canadian Environmental Protection Act (1999), to manage the risk associated with substances found to be toxic under the Act. Under Part 4, the Minister can require persons to prepare and implement pollution prevention plans for substances determined to be toxic under CEPA 1999 by publishing a Pollution Prevention planning notice in the Canada Gazette, Part 1.

This notice is a results-based approach, generating quicker action towards reduction of overall risk to the environment and human health.

5. Pollution Prevention Plans

The use of the pollution prevention (P2) planning instrument has many advantages for both government and the regulated community. It encourages pollution prevention while recognising that industry is best placed to take corrective action. It provides industry with an early opportunity to develop and implement situation-specific solutions. It is a flexible instrument, enabling the industry to find innovative ways to meet the risk management objectives associated with particular toxic substances. Finally, P2 planning can be used as a stand-alone instrument or in combination with other instruments, as appropriate.

Both for the government and industry, the implementation of pollution prevention plans could mean the minimisation of the need for additional regulatory or other government interventions to manage the risk associated with toxic substances.

There are some opportunities for consultation and comment built in the P2 planning process. The Minister will involve stakeholders as early as possible in the process. The Minister intends to publish in Canada Gazette, Part 1 a copy of each Proposed Notice, to allow a 60-day comment period before issuing the Final Notice, again in the Canada Gazette, Part 1. It is expected that stakeholders will use this 60-day period to comment on various aspects of the notice, for example persons subject to the notice, factors to consider, and time period allocated for preparation and implementation of a plan.

The public will also have access to the notices published in the Canada Gazette, the declarations and interim progress reports submitted to the Minister, and the requests for time extensions and waivers of factors to consider, together with the Minister's response. These forms will be posted on the Green Lane and on the CEPA Registry websites.

6. Environmental Performance Agreements

Environmental Performance Agreements (EPAs) are an innovative alternative to traditional regulation, which developed from early efforts on voluntary initiatives with industry in the 1990s. Positive reviews of voluntary initiatives in Canada and recommendations from the Commissioner of the Environment and Sustainable Development led to a new policy on negotiating environmental protection agreements between government and the business community.

EPAs are governed by the basic principles of effectiveness, credibility, transparency, accountability and efficiency. Environment Canada has entered into several EPAs, including ones aimed at reducing refractory ceramic fibres and DCE (dichloroethane). EPAs are an opportunity to reduce administrative burden associated with traditional regulation and provide greater flexibility to industry to meet the desired environmental outcomes.

7. Enforcement Tools - Innovative Development and Use

An important component of CEPA 1999 was the introduction of new tools that provide enforcement officers with increased flexibility in how they enforce regulations. In particular, CEPA 1999 introduced Environmental Protection Compliance Orders (EPCOs) and Environmental Protection Alternative Measures (EPAMs). EPCOs can be issued to prevent a violation from occurring, to stop or correct one that is occurring, or to require action to be taken to correct a violation. Both EPAMs and EPCOs are aimed at ensuring regulatees return to compliance without the time, cost and administrative burden associated with court proceedings.

Environment Canada is currently targeting its enforcement efforts. At a national level, Environment Canada assesses the likelihood of a facility being out of compliance and the risk of harm to human health or the environment to generate risk-scores for all of Environment Canada's regulated facilities. National and regional inspection plans will take into account the risk-score generated for each facility. Environment Canada has also significantly increased its intelligence program to identify the most suspect facilities for inspections or other enforcement actions. This risk-based approach will enable Environment Canada to focus its enforcement efforts while still providing representative and effective coverage of the entire regulated community.

B. Improving Regulatory Development and Processes

1. NSN Consultations - Communications and stakeholder relations

When the New Substances Notification Regulations (NSNR) (chemicals and polymers portion) were first promulgated in 1994, Environment Canada and Health Canada made a commitment to review them three years after their implementation, to benefit from the government's, industry's and the public's experience with the regulations.

A two-year consultative process was therefore initiated in 1999 to identify ways to improve the NSNR, and featured balanced representation from government, industry, and public advocacy groups. These consultations resulted in 76 consensus recommendations dealing with revisions to the Regulations and Guidelines, changes in program procedures, increased transparency, further collaboration with industry on various issues, and intensifying international collaboration. The recommended changes will maintain high standards for protecting the environment and human health. This is a good example of integrating consultations throughout the regulatory process.

2. Federal/Provincial/Territorial Cooperation

Environmental protection is a shared responsibility of the federal, provincial, and territorial governments. As such, co-operation between governments is necessary to achieve concrete environmental results. The Canadian Council of Ministers of the Environment (CCME) is the main forum in Canada for discussion and joint action on environmental protection issues of mutual concern. Current priorities include clean air, municipal wastewater effluents and other water quality issues, domestic use of pesticides, hazardous wastes and environmental quality guidelines. On air quality, jurisdictions have agreed upon, and are now implementing, a number of Canada Wide Standards for various emissions. Other Ministerial-level fora include the Joint Meetings of Ministers of Environment and Energy (climate change), the Wildlife Ministers Council of Canada and the Canadian Endangered Species Conservation Council.

In addition to this broad multilateral co-operation on environmental issues, Environment Canada participates in a number of innovative sectoral initiatives with provinces, industry and other stakeholders. The following two examples demonstrate innovative ways to improve environmental performance and provide greater clarity on federal and provincial roles.

First, in 2001, the governments of Canada, Alberta and Ontario signed a Memorandum of Understanding (MOU) with the Canadian Chemical Producers Association (CCPA). Developed in co-operation with Pollution Probe, STOP, and two members of the CCPA Advisory Panel for Responsible Care, the MOU provides a framework for the signatories to work together to prevent and reduce the release of toxic and other chemical substances. The MOU targeted a 58% reduction in Volatile Organic Compounds (VOCs) from a 1992 baseline, and approximately 90% of these reductions have been achieved. Benzene emissions from CCPA member companies also decreased by about 2/3 from 1992 levels.

Second, the Canadian Petroleum Products Institute (CPPI) is working in partnership with Environment Canada, provincial governments, municipalities and non-government stakeholders under the CCME to develop a framework for the management of air emissions from refineries. The overall objective for this initiative is to reduce refinery emissions through facility level caps. The Refinery Framework will provide principles, methods and a monitoring and reporting strategy, which together can provide an innovative approach to reduce emissions from the petroleum-refining sector.

3. International Cooperation

Environment Canada's international co-operation efforts cover a broad range of issues, including multilateral environmental agreements, actions to reduce transboundary pollution and learning from experiences in other countries.

a) Global Solutions for Global Problems: Canadian Leadership

Environment Canada is an active participant in a large number of multilateral environmental agreements (MEAs) to address global environmental problems such as climate change, stratospheric ozone depletion and persistent organic pollutants.

Canada's experience with persistent organic pollutants (POPs) provides an excellent example of Canadian leadership and ability to build strategic partnerships. Canadian scientists identified health risks associated with POPs in the North in the 1970s and 1980s and established that the primary source of these toxic substances in the arctic environment was long-range atmospheric transport of emissions from other countries. Through the collaborative efforts of DIAND, Health Canada, Environment Canada and DFAIT, Canada led in building the science foundation and dialogue that led to international co-operation to reduce POPs. In parallel, Environment Canada worked with other government departments, industry and other stakeholders to dovetail domestic initiatives with the international efforts. Canada was the first to ratify the UN-ECE POPS protocol in 1998 and the first to ratify the global Stockholm Convention in 2001.

b) Environment and Trade Issues

Environment Canada is also involved in efforts to address environmental concerns in trade agreements and negotiations. The goal is to protect and improve the environment in the territories of the Parties, and to promote sustainable development based on co-operation and mutually supportive environmental and economic policies.

Canada's approach to free trade includes explicit attention to environmental considerations, including the environmental assessment of trade agreements. At present, Canada has also concluded environmental side agreements under NAFTA, and with Chile and Costa Rica. We are negotiating or discussing environmental side agreements with 25 other countries, as well as under the Free Trade Areas of the Americas.

c) Transboundary Issues: Canada-U.S. Cooperation

Canada and the U.S. are closely connected environmentally and economically. The two countries share many environmental 'spaces., such as air sheds, watersheds and migratory species, and we face many similar domestic environmental issues. There are major economic ties between the two countries, ranging from increasing trade in goods and services, to integrated ownership and management of firms in many industrial sectors.

As a result of these ties, there are a myriad of co-operative initiatives with the U.S. to manage transboundary environmental issues including the International Joint Commission for management of the Great Lakes and the Canada-U.S. Air Quality Agreement. Environment Canada also negotiated and signed the Ozone Annex in 2000, a major agreement with the U.S. to reduce the flow of transboundary air pollution. The Ozone Annex contains commitments for action by both countries and will deliver cleaner air to 16 million Canadians in Ontario, Quebec and Atlantic Canada and millions more in 18 U.S. states as they apply the commitments to reduce emissions of NOx and VOCs.

Canada and the United States announced in January 2003 a Border Air Quality Agreement which sets out a commitment to develop joint air quality pilot projects, and will serve as a platform to encourage continued innovation in border air quality management. One of the pilot projects will be joint Canada-U.S. analysis of the feasibility of cap and trade emissions trading of NO_x and SO₂, in order to improve ambient quality in both countries.

d) Learning from Other Countries

As Canada's economic and trade linkages with countries have expanded, Environment Canada has increasingly considered policies and practices in other countries in developing domestic policies and strategies to improve environmental performance.

Identifying Best Practices: Environment Canada has been working with industry and provinces for many years to improve industrial environmental performance. In many industrial sectors, regulations, codes and guidelines are based on performance and best practices of industry in other countries.

For example, Environment Canada worked with industry and provinces to develop two CEPA Environmental Codes of Practice for integrated and non-integrated steel mills - based in part on an extensive review of best practices in other countries. The review provided critical reference points for performance standards on atmospheric emissions, water and wastewater, wastes, and environmental management practices. The steel sector, regulatory agencies, and the general public use these Codes as sources of technical and policy guidance.

Pollution Prevention Programs: Environment Canada has co-operated with the U.S. and internationally in developing programs to ensure that our standards are in line with those in other jurisdictions, including the New Substances, Hazardous Waste, Environmental Emergency and Ocean Disposal programs.

Cooperation with OECD Countries: Environment Canada is an active participant in the OECD, which provides a forum for sharing information and developing co-operative approaches, such as how to deal with new substances. Since Canada accounts for only 2% of the world's chemical production, co-operating with other jurisdictions on international initiatives is important. The data requirements for Environment Canada's New Substances Program have been developed internationally through the OECD. The Canadian program also takes into account the information requirements for new substances in the U.S., and actually requires less information to be submitted by industry than in the U.S. Canada also has a formal agreement with the U.S EPA, enabling the exchange of data and reports, and has signed a broad agreement to co-operate and work share with Australia.

At the international level, Canada has led efforts to strengthen international environmental governance, including actively promoting more effective and efficient multilateral environmental agreements. Canada continues to advocate the Four Cs - co-ordination, coherence, compliance and capacity building, as key to improving the international legal framework.

¹¹ Other examples of Environment Canada regulatory experiences are presented in a detailed Compendium, a companion document to this paper.

¹² More analysis of economic instruments, the rationale for their use, and the results of international experience, is provided in section V.B.2 of the paper.