North America
Developments in the Western Climate Initiative
The Western Climate Initiative (WCI) recently provided additional details on the expected start date of its proposed cap-and-trade system for greenhouse gases (GHGs), which was originally slated to take effect on January 1, 2012. According to the WCI's press release and a stakeholder conference call, California, Quebec and British Columbia are still working toward implementing WCI-compliant cap-and-trade systems sometime in 2012, and Ontario and Manitoba are expected to join the program at a later date. Subsequent to the announcement, the B.C. Environment Minister clarified that the province's participation in 2012 was still subject to review.
These announcements come amidst a growing acknowledgment that the WCI's proposed January 1, 2012 start date will be postponed. Those concerns were heightened by a recent California court decision, which concluded that the state's Air Resources Board (CARB) failed to properly evaluate alternatives in proposing to implement a cap-and-trade system. Although not fatal to the proposal, the decision is likely to delay the finalization of the state's draft cap-and-trade regulations while CARB revises its regulatory scoping document.
In Canada, British Columbia has been the most publicly active of Canadian WCI partners, having already released details of a proposed cap-and-trade system that would coexist with the province's carbon tax. According to the proposal, B.C. would cap the GHG emissions of operations that emitted 25,000 tonnes or more of carbon dioxide equivalent (CO2e) per year from covered emissions sources, such as certain sources associated with stationary fuel combustion, petroleum refining, lime manufacturing and pulp and paper production. Together, the covered sources reportedly account for one-third of the province's total GHG emissions. B.C. Environment expects to release, in 2011, details of how it will distribute emission allowances to covered sources, and is also continuing to develop rules on how its capand- trade system will credit emission offset activities outside the covered sectors. Current proposals suggest that projects following offset protocols approved by B.C. Environment, and potentially offsets issued by jurisdictions linked to a future B.C. capand- trade system (such as WCI partner jurisdictions), could be used for compliance purposes in B.C.
For further details, please see the consultation papers on Emissions Trading Regulation and Cap and Trade Offsets Regulation.
Quebec, meanwhile, remains committed to January 1, 2012 as an "objective" for the province's participation in a WCI-compliant cap-and-trade system. The province passed legislation in late 2009 that would enable its participation in such a system, but has not yet proposed implementing regulations.
Of the remaining WCI partners, the three others that have been most actively moving toward implementation are Ontario, Manitoba and New Mexico. Like Quebec, Ontario passed legislative amendments in late 2009 that would enable its own WCI-compliant cap-and-trade systems; to date, however, the province has not proposed implementing regulations. Ontario's Environment Minister John Wilkinson has indicated that the province remains committed to participating in a WCI system, but that Ontario would not be ready to do so in 2012 – perhaps not surprising given the provincial election scheduled for fall 2011. The province has also indicated that delays in finalizing the WCI's reporting guidelines contributed to the delayed start date.
Further west, Manitoba released a high-level consultation document regarding its own future cap-and trade system, which the province would link to WCI partner systems. The results of that consultation are still forthcoming, after the closing of the comment period on March 15, 2011.
Finally, in New Mexico, where the state's Environmental Improvement Board (EIB) approved cap-andtrade rules on November 2, 2010, newly elected Governor Susana Martinez recently issued an executive order that preserved the executive's right to review and reject all proposed and pending rules before their final publication. However, on January 26, 2011, the New Mexico Supreme Court ruled in favour of petitioners who had challenged the executive order, concluding that the EIB approval already constituted final approval. The ruling does not, however, preclude the Governor's authority to initiate an agency review of the cap-and-trade rules. The future of New Mexico's participation in the WCI is therefore unclear.
For market liquidity, linkage to a future California cap-and-trade system (the California System) is perhaps the most important key to the future of a regional WCI system. As currently proposed, the California System would, beginning in 2012, cover emissions from large industrial facilities and the electricity sector (including emissions associated with electricity imports), with the initial cap set at the forecasted level of emissions from these sources. The cap would then decline by approximately 2% per year between 2012 and 2014, and by 3% per year thereafter. In 2015, the program would be expanded to cover distributors of transportation fuels, natural gas and other fuels. Notably, CARB, which is designing the California System, has indicated that it will evaluate in 2011 whether to link the California System to other jurisdictions, including to other WCI jurisdictions. More broadly, the WCI has indicated that developing linkages between the WCI system and other cap-and-trade systems was not an immediate priority.
To help minimize compliance costs in the California System, CARB plans to allow covered sources to use offsets credits for up to 8% of their compliance obligation. As a general rule, offset projects in the United States, Canada or Mexico can qualify for compliance-grade offset credits that can be used in the California System. However, offset credits eligible for use in the California System must be issued either by CARB for projects using CARB-approved offset protocols or by a CARB-recognized offset program. To date, CARB staff has put forward a limited number of offset protocols for approval (each of which were developed in part by the Climate Action Reserve), including the U.S. Forest Projects Protocol; Livestock Manure (Digester) Projects Protocol; Urban Forests Projects Protocol; and U.S. Ozone Depleting Substances Projects Protocol (together, the Protocols). CARB is also currently developing two offset protocols for agricultural offset projects. Each of the Protocols is currently applicable only to offset projects taking place in the United States. CARB staff is planning to evaluate in 2011 how each Protocol can be expanded for use in Canada and Mexico. Additional guidance from the WCI on offset protocol development is expected in the coming months. For further details on the California System, please see ARB Emissions Trading Program Overview.
Canada Environment
Canada publishes 2009 GHG reporting data
Environment Canada has published the GHG emissions data disclosed by the large Canadian facilities that are required to report their emissions each calendar year. As seen in the table to the right, the majority of these facilities are located in Alberta and Ontario, with the Alberta facilities accounting for approximately half of the carbon dioxide equivalent emissions from covered facilities nationwide.
Source: Environment Canada. For further information, please see Environment Canada's overview report.
Ontario
Ontario amends GHG reporting regulations; first reporting deadline approaches
The Ontario Ministry of the Environment (MOE) recently amended O. Reg. 452/09 (Greenhouse Gas Emissions Reporting) to simplify the province's reporting requirements and align them with those proposed for the WCI. In particular, the amendments add nitrogen trifluoride to the list of reportable emissions; clarify the process by which independent third parties verify a facility's emissions; and allow the MOE Director to request emissions data from facilities that have historically reported to the federal government; and modify certain emissions quantification methodologies to align with applicable U.S. Environmental Protection Agency methodologies.
Covered facilities that commenced operation in or before 2010 must report their GHG emissions for the 2010 calendar year to the MOE by June 1, 2011. Similarly, companies required to report their GHG emissions for the 2010 calendar year to Environment Canada must do so by June 1, 2011. For further information, please see the Environmental Registry.
United States
EPA begins regulating stationary-source GHG emissions
On January 2, 2011, the U.S. Environmental Protection Agency's new permitting requirements under the Clean Air Act for major new and modified GHG emitters took effect. In the first phase of these requirements, major new and modified emitters that emit at least 75,000 short tons of CO2e per year, and that already require a Prevention of Significant Deterioration (PSD) or New Source Review (NSR) permit, will require a PSD permit for their GHG emissions. In the permitting program's second phase, which will take effect on July 1, 2011, new sources that emit at least 100,000 short tons of CO2e per year will also require a PSD permit for their GHG emissions, regardless of whether they require one for other emissions. In general, these permits will require covered facilities to adopt best available control technology; the EPA has not defined this technology, although it has provided guidance on suggested technologies (especially energy efficiency technologies) on a sectoral basis in a series of white papers.
On December 23, 2010, the EPA entered into two proposed settlement agreements, under which it sets out a timeline for developing New Source Performance Standards under the Clean Air Act for certain refineries and fossil fuel-fired generators. Under the agreement, the EPA will propose new standards for generators in July 2011 and for refineries in December 2011, and will issue final standards for these facilities in May 2012 and November 2012, respectively. For further information, please see the EPA's website.
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