October 23, 2006

Clean Air Act kicks off new federal regulatory agenda

Canada's long-awaited Clean Air Act, introduced last week by federal Environment Minister Rona Ambrose, is the first step in what Prime Minister Stephen Harper's government calls its clean air regulatory agenda. The government says this new approach will enable it to establish clear national standards, to move industry from voluntary compliance to regulations, and to monitor and publicly report on progress made in reducing pollution and greenhouse gas (GHG) emissions.

The Act and a notice of intent to regulate, concurrently published on the Canadian Environmental Protection Act (CEPPA) registry, together commit the government to establishing short-, medium- and long-term industrial air pollution targets. These fixed targets will be at least as stringent as those in other leading environmental countries.

Short-term, intensity-based GHG reduction targets would be set in consultation with provinces, territories and all affected industry sectors. The agenda also specifies a long-term GHG emission reduction target of between 45 and 65% from 2003 levels by 2050. The government will seek advice from the National Roundtable on the Environment and the Economy (NRTEE) on the precise long-term target and scenarios for how this target could be achieved.

Canada's Clean Air Act contains three key elements designed to strengthen the legislative basis for taking action to curb air pollution and GHGs.

1. It would create a new Clean Air section in CEPA, authorizing the government to regulate both indoor and outdoor air pollutants and GHGs. The new section would require the Ministers of Environment and of Health to set national air quality objectives and to monitor and report publicly on their attainment. It would also amend CEPA to enable the government to regulate the blending of fuels and their components. This will be an important step towards meeting 5% renewable fuel content in motor fuels by 2010.

2. The Act would amend the Motor Vehicle Fuel Consumption Standards Act to enhance the federal government's authority to regulate vehicle fuel efficiency. Setting mandatory fuel consumption standards would help ensure reduced GHG emissions from vehicles purchased in Canada. Lawrence Cannon, Minister of Transport, Infrastructure and Communities, said this will build on the voluntary commitment made by the auto industry calling for a collective GHG reduction of 5.3 megatonnes by 2010.

3. It would expand enabling provisions of the Energy Efficiency Act to allow the government to set energy efficiency standards and labelling requirements for a wider range of consumer and commercial products.

"The largest untapped source of energy is the energy we waste," Natural Resources Minister Gary Lunn pointed out, adding that the Energy Efficiency Act amendments "will help Canadians use the most energy-efficient products, reduce their energy use and improve air quality." He further noted that new and emerging technologies will play a significant role in helping industry achieve the targets.

The government has indicated that it will begin consultations shortly on industrial emissions. Led by the Ministers of Environment and of Health, these consultations will address key elements of integrated air pollutant and greenhouse gas regulations and the development of the overall regulatory framework for key industrial sectors, including fossil-fuel-fired electricity generation, upstream oil and gas, downstream petroleum, base metal smelters, iron and steel, cement, forest products, and chemicals production.

The consultative process will take a multi-phased approach to ensure that the regulations are developed in an effective manner. Consultations will be accompanied by technical, economic and policy analysis. The intent is to reach a decision, by spring 2007 on the overall regulatory approach, including proposed short-term targets for air pollutants and GHGs to be reflected in the proposed regulations to come into effect in the 2010-2015 period.

In the second phase, beginning in summer 2007 and likely continuing until the end of 2008, the government intends to engage in detailed consultations on the proposed regulations that will apply to individual sectors, including defining sectoral obligations and timelines. The intent is to publish the first sectoral regulations in the Canada Gazette, Part I beginning in spring 2008, including the mandatory 60-day comment period.

In the third phase, the proposed regulations for the first sectors will be finalized and published in the Canada Gazette, Part II no later than fall 2008. All proposed regulations will be finalized no later than the end of 2010 with the initial provisions coming into force by the end of 2010 and the balance of the provisions coming into force as soon as possible thereafter.

The government has listed a series of guiding principles for development of the industry sector regulations, among them:

*achieving measurable reductions in air pollution to yield health and environmental benefits;

*reducing air emissions from all sources with a balance of effort among industry sectors and consumers;

*providing regulatory certainty for industry;

*establishing air emissions targets consistent with leading environmental standards and at least as rigorous as those in the U.S.;

*maximizing environmental gains through an integrated, multi-pollutant approach;

*incorporating flexible compliance mechanisms, including self-supporting market mechanisms that are not reliant upon taxpayer dollars;

*maintaining Canadian competitiveness;

*promoting investment in the development and deployment of new technologies; and

*ensuring effective and efficient monitoring, reporting and regulatory implementation, including best efforts to minimize overlap and regulatory duplication.

Consultations on the regulatory framework for industrial emissions will include consideration of the compliance options that should be available to industry. One option that will be examined will be a mechanism whereby companies, and potentially governments, could contribute to a technology investment fund that would support the development of transformative technologies for emissions reduction, such as CO2 sequestration.

Other possible compliance options could explore self-supporting market mechanisms that are not reliant upon taxpayer dollars, such as:

*industry-led emissions trading systems (although the government has made it clear that it will not purchase credits or otherwise participate in the emissions trading market);

*opt-in mechanisms that would enable entities not covered by regulation to voluntarily assume emissions targets;

*incentives that would give companies credit for investments in technology, such as CO2 sequestration, which will lead to significant reductions in the future;

*mechanisms to recognize credit for early action; or

*domestic offsets in which verified emissions reductions outside the regulated system are recognized as eligible for compliance in the regulated system.

The regulatory agenda's short-term targets (for the 2010-2015 period) will be based on fixed caps for air pollutants and an emissions intensity-based approach to GHG targets. The fixed-cap approach will be continued for air pollutant targets throughout the medium- and long-term (2020-2025 and 2050).

For GHGs, government will build upon the emissions intensity approach with targets ambitious enough to lead to absolute reductions in emissions and thus support the establishment of a fixed cap on emissions during the medium-term period, 2020-2025. The long-term plan is even less specific, indicating only a commitment to an absolute reduction of 45-65% in GHG reductions by 2050 from 2003 levels.

In the coming weeks and months, the government says it will introduce regulations under CEPA, for implementation as early as 2007, to address air pollutant emissions from certain products and vehicles. Specifics include:

*final regulations to further reduce emissions from on-road motorcycles;

*amendments to existing regulations further reducing emissions from off-road diesel engines and equipment (e.g., those used in construction, mining, forestry, agriculture);

*new regulations to reduce emissions from marine spark-ignition engines and off-road recreational vehicles (e.g., outboards, personal watercraft, snowmobiles, all-terrain vehicles;

*new regulations to reduce emissions from off-road large spark-ignition engines (e.g., forklifts); and

*new regulations requiring on-board diagnostic systems for on-road heavy-duty engines (e.g., heavy trucks, buses).

The government intends to align regulatory emission limits for on-road and off-road vehicles, engines and fuels with standards set by the U.S. Environmental Protection Agency (EPA). It also intends to explore opportunities between Environment Canada and the U.S. EPA to facilitate, to the extent possible, the administration of vehicle, engine and fuel regulations. Additionally, fuel consumption of road motor vehicles will be regulated under the Motor Vehicle Fuel Consumption Standards Act once the Memorandum of Understanding between the auto industry and the federal government expires in 2010; regulations will take effect for the 2011 model year.

Emissions from other transportation modes such as ships, rail and aviation will be subject to further regulation as well, the authority coming from the Canada Shipping Act, the Railway Safety Act and the Aeronautics Act, respectively.

a. Ships: The Ministers of Transport and of Environment will support the development of new international standards, established by the International Maritime Organization, for controlling air pollution emissions from ships. The Minister of Transport will ensure their application domestically under the Canada Shipping Act. This will include support for a process to designate North American coasts as areas where ships must reduce sulfur emissions.

b. Rail: The Ministers of Transport and of Environment will support a Memorandum of Understanding (MOU) with the Railway Association of Canada that is consistent with U.S. EPA air pollution standards and ensures that the rail industry continues to improve its GHG emissions performance during the period 2006-2010. The Minister of Transport will develop and implement new regulations, under the Railway Safety Act, to take effect following the end of the MOU in 2010.

c. Aviation: The Minister of Transport will support the development of international standards and recommended practices with the International Civil Aviation Organization for emissions from aviation sources.

Future regulations governing emissions from commercial and consumer products will:

*limit Volatile Organic Compound (VOC) content in architectural, industrial, and maintenance coatings; consumer products; and automobile refinishing coatings (paint, cosmetics, and cleaning products together account for about 18% of VOC emissions in Canada); and

*reduce VOC emissions from other consumer and commercial products, including regulations limiting VOC content in additional products such as portable fuel containers; and new strategies and instruments for reducing VOC emissions from printing, aerospace, and automotive manufacturing sectors. These will also be aligned with generally more stringent U.S. requirements.

In addition, new regulations under the Energy Efficiency Act will revise or introduce performance requirements for various consumer and commercial products. Over time, these regulations will address about 20 currently unregulated products such as commercial clothes washers and boilers, and will tighten requirements for ten products such as residential dishwashers and dehumidifiers. These regulations would address 80% of the energy used in the home and 88% of the energy used in commercial settings.

These measures will be in addition to amendments to the energy efficiency regulations pre-published in the Canada Gazette Part I on May 6, 2006 covering a variety of items such as beverage vending machines and commercial reach-in refrigeration. The comment period for those amendments has ended and final regulations will be published in the Canada Gazette Part II after all comments have been appropriately addressed.

One noteworthy aspect of the regulatory agenda is its focus on indoor air quality. A new radon guideline has been under development for some time, and the government intends to introduce it by early 2007; the guideline will be the basis for a national radon strategy. Additional measures to improve indoor air quality will include identification and stricter regulation of a wider range of products with negative impacts on indoor air quality.

The Clean Air Act supports expanded use of equivalency agreements with provinces and territories to allow for regulatory cooperation and avoid overlap and duplication. Finally, it gives the Government enhanced powers to monitor polluters and also requires all environmental fines levied for non-compliance go into an environmental damages fund that will be applied directly to cleaning up the environment.

More information is available on Environment Canada's new Clean Air Web site, www.ec.gc.ca/cleanair-airpur, by telephone at 819/994-9564, or by E-mail, cleanair-airpur@ec.gc.ca.

Comments on the proposed legislation and/or the notice of intent to regulate are due within 60 days of publication. Submissions, referencing the October 21, 2006 edition of the Canada Gazette, Part I (the date of publication), may be sent to the Director General, Strategic Priorities Directorate, Environmental Stewardship Branch, Environment Canada, Place Vincent Massey, 351 Saint-Joseph Boulevard, Gatineau, Quebec K1A 0H3.

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