January 1, 2007

Carbon management, brownfields expected to remain leading issues in '07

Year in Review, EcoLog's third annual environmental conference, recently brought together legal, government and industry experts to examine issues of emerging and continuing concern relating to air, land, water, waste, emergency response and environment, health and safety compliance.

A consistent approach to quantifying, reporting and managing greenhouse gas (GHG) emissions across jurisdictions has been the driving force behind the development of the ISO 14064 series of standards. Pierre Boileau of the Canadian Standards Association (CSA) told the conference that the new climate change-related standards, approved in March 2006 by all of the countries involved in their development, were adopted almost immediately (in April), with no deviation, by Canada.

As a voluntary initiative, the four-part standard is regime/program-neutral, focused on the technical aspects of GHG accounting, said Boileau. Although ISO 14064 differs from management systems standards (such as ISO 9000 or ISO 14000) in that registration and regular third-party conformity assessments are not required, it is compatible with these standards, as well as with other widely used GHG accounting standards (such as the Clean Development Mechanism under the Kyoto Protocol).

The ISO 14064 standard provides specifications and guidance relating to: organizations (for quantification and reporting, at the organizational level, of GHG emissions and removals); projects (for quantification, monitoring and reporting of GHG emission reductions and removal enhancements achieved through projects); validation and verification of GHG assertions; and accreditation (for use by GHG validation and verification bodies).

Boileau said the four components of ISO 14064 together present a complete architecture for GHG reporting-both emissions inventory and projects-at the organizational level that is verifiable. It will also provide the infrastructure needed for organizations to become accredited verifiers. The standard provides a framework for global compatibility of voluntary and mandatory GHG programs. Its focus on technical requirements will allow it to be made compatible with the reporting requirements of diverse jurisdictions; it can also support new, non-regulatory GHG reporting requirements, he added.

Sandy Willis from Ortech Environmental, in Mississauga, Ont provided an overview of carbon taxes and emissions trading, two GHG reduction strategies still in relatively early stages of implementation and still actively debated. Carbon taxes, which essentially are a tax levied on carbon dioxide (CO2) emissions, have been put in place in the Scandinavian countries and the Netherlands and are being contemplated in other countries, Willis noted. Quebec has declared its intention to levy carbon taxes, but details are still being worked out, he added. New Zealand is still undecided, while the European Union has not implemented a carbon tax scheme.

A carbon tax regime may comprise various program elements, including a gradual phase-in period, consideration for low-income earners, industry-specific taxes, fuel-specific taxes, reductions in other taxes and tax incentives for carbon sinks. Carbon tax revenues may be directed to research, and fuel consumption thresholds may be set beyond which carbon taxes will apply.

Carbon taxes can provide a powerful incentive for reducing GHG emissions and for changing consumer behaviour to achieve emission reductions. A carbon tax regime can also generate increased research funding and will make alternative and renewable forms of energy more affordable, said Willis. On the negative side, carbon taxes can be expensive to implement and may be seen as a money grab by governments. There are concerns that low-income earners may be penalized and that industry's competitive edge may be diminished.

Willis said a carbon tax regime could work if: taxes were high enough to encourage reduction; Canada's competitiveness were not compromised; other initiatives were included; and other non-GHG-producing energy sources were available. Multi-national participation would also be necessary, and public interest in climate change would have to take precedence over other issues, he added.

Carbon emissions trading schemes, under which facilities can buy or sell their carbon emission rights, may be voluntary or mandatory and may be implemented on a global, regional or even intracompany basis, Willis noted. Other features of these programs include emission caps and retirement and financial incentives.

In addition to being effective in removing carbon emissions, trading schemes are financially attractive, offering direct benefits to companies as well as the potential for participation by third world countries. On the "con" side, programs can be difficult to monitor. Large emitters may decide it is cheaper to buy emission rights than to reduce their own emissions, and trading schemes may not include significant emitter sectors and thus may not lead to improvement, noted Willis.

Optimum conditions under which emissions trading can work would include: setting caps below current levels; ensuring that changes are permanent; establishing a clear means of monitoring impacts; making participation mandatory; and providing broad, even global, recognition. At this point, emissions trading has found better acceptance, given its flexibility (global, compared too country-specific for carbon taxes and voluntary or mandatory, where taxes are mandatory) and benefit to companies (where carbon tax revenues go directly to government).

Both tools remain controversial, however, and should be part of a larger program that includes public education, less costly alternatives and government commitment. Whichever option is chosen needs to provide for global involvement and participation by developing countries.

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Brownfields and the environmental, economic and legal issues relating to their cleanup and redevelopment continue to be a major concern for both industry and governments. Shell Canada's John Czechowski called brownfield remediation and redevelopment "sustainable development in action," linking this activity to the leading principles of sustainable development. He said brownfield redevelopment: generates economic profitability (by returning sites to beneficial use); protects the environment (by removing contaminants); benefits communities (by restoring useful land); provides effective management of resources (i.e. land); safeguards public health (through cleaned up property); and delivers value to customers and stakeholders, reducing risk and eliciting involvement by all concerned.

Czechowski cited Shell's former Shelburne refinery in Burnaby, BC, which is now used as a terminal. The conversion, including modernization which is currently in progress, means the facility now occupies less land area. This reduced "footprint" left a large section of property to be cleaned up to enable expansion of the low-density residential development already surrounding the site.

Reducing risk was a central concern in carrying out the cleanup, he said. The elements involved in achieving this objective included: having a sustainable development plan in place; providing technical excellence in site characterization and remediation; assembling a team representing a full range of skills and expertise from within the company and in alliance with external consultants and contractors; and ensuring appropriate next use of the property.

Czechowski noted continuing, unresolved issues about limiting liability, pointing out that that there is still a lack of certainty in this area. New mechanisms are needed, he said, to allow closure once a site has been cleaned up and ensure no "comebacks."

Robert Colangelo of the National Brownfields Association outlined the work this non-profit educational group has been doing to promote the responsible redevelopment of brownfields. Established in the U.S. in 1999, with a Canadian branch launched in 2004, the NBA currently has a total of 1,500 members in 19 chapters across both countries. It addresses a full range of what Colangelo termed "blighted" properties, including "greyfields" (i.e. sites that are deteriorated but not contaminated) and "portfields" (i.e. brownfields in port communities).

By 1998 in the U.S., he said, the easy brownfield sites had by and large been addressed, marking the "end of the beginning;" Canada did not reach this stage until 2006. The U.S. General Accounting Office estimates that there are still between 450,000 and one million brownfield sites in the U.S., while Canada, by the National Round Table on the Environment and the Economy's estimate, has approximately 30,000 sites (although other estimates put the figure at between 50,000 and 100,000 sites, Colangelo noted).

The NBA believes that environmental hazards are present at 25 to 50% of all commercial sites, and the group's efforts are currently focusing on expanding the brownfield remediation market to bring in more corporate properties. Colangelo said the U.S. market is more mature because of a larger number of voluntary cleanup programs and the availability of new environmental insurance products and of more cleanup incentives, including debt financing. Canada lags in all three of these areas, he said.

Corporate property owners are still caught in a liability chain, and liability relief remains a key issue in brownfield remediation and redevelopment. Also needed are more accurate environmental valuations for properties. An emerging technical concern, Colangelo added, is soil vapour intrusion, i.e. contaminant vapours from soils penetrating into buildings constructed on former brownfield sites. With the "easy" sites addressed, he concluded, governments and the private sector will have to work together to deal with the harder sites, and regulations will have to be reviewed continually to ensure that they keep pace with changing conditions.

The NBA will be holding a major conference in Chicago in October 2007, bringing together the U.S. and Canadian markets. More information is available on the group's Web site, www.brownfieldassociation.org.

Funding for brownfield projects goes hand in hand with liability insurance as a leading concern, and James Evans, senior manager, environmental risk management with the RBC Financial Group, presented an overview of emerging trends and continuing stumbling blocks in this area.

What's new, he noted, is the emergence of dedicated brownfield developers, a reflection of brownfield redevelopment as a mainstream sector. At the same time, lenders are becoming more comfortable with brownfield redevelopment, and astute municipalities are beginning to view brownfields as opportunities rather than liabilities.

On the down side, federal and provincial regulators have failed to become facilitators in brownfield redevelopment, and the liability regime is still a mess, said Evans. As well, demand for brownfield lending is still low, he acknowledged.

For lenders, liquidity and time remain continuing issues of concern. If the developer goes under, the lender may not be able to sell the property to someone else to recover the loss, and the longer a developer takes to get the project completed and generating revenue, the longer the lender will have to wait to get paid, he explained.

Related concerns revolve around cash flow and incentives, Evans continued. Brownfield projects involve expensive upfront work and time-consuming regulatory wrangling. This can leave the lender wondering how likely the borrrower will be to continue making loan payments when the property is consuming, rather than generating revenue. Ultimately, there is little incentive for banks to take on brownfield redevelopment, given that it is time-consuming, risky and not eligible for Commercial Mortgage Backed Securities (CMBS) credits.

At this point, said Evans, no Canadian lender has set aside funds strictly for brownfield redevelopment, and none are likely to do so. A project must be financially viable on its own merits, regardless of property status. He noted, however, that a move toward CMBS may free up some funding.

A "wish list" of what needs to be done should include:

*mortgage guarantees for commercial and residential brownfield redevelopments;

*government revolving loan funds to cover upfront costs;

*a change in the tax regime to encourage brownfield redevelopment;

*a change in the liability regime for developers and municipalities;

*a government brownfield regulatory team to facilitate brownfield development; and

*one-stop regulatory shopping.

This last is well on the road to fulfillment with the establishment in 2006 of a more co-ordinated approach by Ontario's Ministry of Municipal Affairs and Housing (MAH). This has included the appointment of Marcia Wallace to the new position of brownfields co-ordinator, responsible for providing one-window access to brownfields information and to co-ordinate inter-ministry policy development.

A brownfields stakeholder group has also been set up to provide advice and focused feedback on provincial initiatives related to brownfields. Finally, provincial government ministries have been working together to pinpoint and analyze emerging brownfield concerns and to improve on the legislative framework put in place in 2001.

More information on these initiatives is available on the Brownfields Ontario Web site, www.ontario.ca/brownfields.

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