July 25, 2005

Ottawa outlines plan for GHG reductions from large final emitters

The federal government has made public an outline of its plan to reduce greenhouse gas (GHG) emissions from large industrial sources in order to meet the reduction goal for these sources during the Kyoto Protocol period between 2008 and 2012. The Notice of Intent to Regulate Greenhouse Gas Emissions by Large Final Emitters (LFEs), published in the July 16, 2005 Canada Gazette, Part I, outlines how emission reduction targets would be set, the mechanisms through which LFEs could meet their targets and the preferred regulatory option for implementing the system under the Canadian Environmental Protection Act, 1999 (CEPA 1999).

Canada's updated climate change plan, Moving Forward on Climate Change: A Plan for Honouring our Kyoto Commitment (released in April), specified a 45-megatonne reduction in GHG emissions for LFEs as part of Canada's overall 270 MT target. LFEs include some 700 companies in the energy-intensive mining and manufacturing, oil and gas, and thermal electricity sectors and represent just under 50% of total Canadian GHG emissions.

The proposed regulations would be developed under parts 5 and 11 of CEPA 1999. As the first step towards their development, the federal government intends to add greenhouse gases to Schedule 1 of the Act. Consultations on this addition will continue through August 2005 and into the fall, once the proposed Order in Council is published in Part I of the Canada Gazette.

Partnership between the federal and provincial/territorial governments is a cornerstone of the LFE system, which will establish clear emission reduction targets for industry, based on sectoral emissions intensity. This partnership will allow for the maximum use of equivalency agreements in order to ensure national consistency of the mandatory emission intensity targets.

Proposed emission intensity targets for activities carried out in new large facility, as well as major modifications or expansions of existing facilities, would be based on best available technology economically achievable. In addition, proposed longer-term targets would be determined by the federal government in partnership with the provinces and territories and in consultation with industry and other stakeholders.

Consideration will be given to setting minimum emissions thresholds for companies (and possibly facilities) to ensure that the regulatory burden is commensurate with the environmental benefits to be achieved.

Companies would be given multiple options for meeting their target. In addition to reducing emissions from their own facilities, they could purchase domestic offset credits or international credits, including "greened" international credits. Those with surplus emission reductions could sell them to other companies or to the Climate Fund.

Companies could also pay into a new Technology Investment Fund, established in the 2005 federal budget. The monies contributed to the Fund will help promote technological innovation and reductions beyond the Kyoto period. The overall approach is intended to provide a financial incentive for companies to surpass their targets.

The LFE system would also provide a price assurance of $15 per tonne of carbon dioxide equivalent for the 2008-2012 period. In addition, the federal government would seek to keep penalties for excess emissions to no more than $200 per tonne. Under development at this point are proposals to address emission reductions resulting from clean energy, demand-side management and cogeneration.

Canada's updated climate change plan may be viewed on-line at www.climatechange.gc.ca. The Notice of intent to regulate GHG emissions by LFEs may be viewed on the Canada Gazette Web site, http://canadagazette.gc.ca/partI/2005/20050716/pdf/g1-13929.pdf.

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