Law Times

PAGE 12 Industry dislikes a 'patchwork approach' FOCUS BY JULIUS MELNITZER For Law Times climate change legislation in Can- ada, there's one related scenario that most Canadians are familiar with. As usual, the federal and provincial government are hav- ing trouble getting on the same page, creating the potential for a fragmented regulatory framework that could make the securities law minefield that exists in this coun- try child's play by comparison. The result may be that corporate Canada, already struggling to keep up with a shifting legislative agenda (or lack of it), may be facing expo- nential uncertainties if competing regimes are at cross purposes. "If the federal framework and W hile there's consider- able uncertainty about the ultimate form of the various provincial frameworks are consistent, everything will be fine, but what are the chances of that?" asks Dennis Mahony, an environmental law partner at To- rys LLP's Toronto office. "What is clear is that industry dislikes a patchwork approach." Take, for example, the federal government's climate change regu- latory framework, first announced in the spring of 2007 and updated last March. It features a "soft" cap- and-trade program, in which emis- sions targets are based on intensity rather than absolute reductions. On the one hand, soft cap and trades have been criticized because they potentially allow an increase in greenhouse gas emissions if produc- tion increases; on the other hand, they are less intrusive on economic growth than hard-cap schemes. "The federal government says that intensity targets pro- mote efficiency without putting brakes on the economy," Maho- ny says. "A hard cap-and-trade, for example, would be a huge problem for the oil sands." Under the federal scheme, 'If the federal framework and the various provincial frameworks are consistent, everything will be fine, but what are the chances of that?' asks Dennis Mahony. regulated businesses that be- gan operations in 2003 or ear- lier would be required to reduce emissions intensity on average by 18 per cent of 2006 levels by 2010, and by an additional two per cent each year until 2020. to reduce emissions in the first three years of operations, following which they would be subject to tar- gets based on unspecified cleaner fuel standards. After a time, they would also have to make two per cent reductions until 2020. Newer facilities would not have Businesses who don't meet their targets become subject to what amounts to a carbon tax of $15 per tonne on the overage from 2010 to 2012, rising to $20 per tonne in 2013 with annual increases based on the growth rate of Canada's nominal gross domestic product. Alberta was the first to set GHG limits when its Specified Gas Emit- ters Regulation came into force in the summer of 2007. While the Al- berta plan was motivated at least in part by a desire to pre-empt federal government attempts to regulate emissions in the carbon-intensive oil sands, it nonetheless corre- sponds to the federal plan by taking an emissions intensity approach. In the province's scheme, facil- ities that emit more than 100,000 tonnes must reduce their GHG emissions intensity by up to 12 per cent of their average 2003- 2005 emissions between July 1 and Dec. 31, 2007, depending on the age of the facilities. New facilities must reduce their inten- sity by two per cent annually only after their third operating year. Alberta also allows facilities to Protection Act Joseph Castrilli Past authors: Daniel C. 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Partners in the initiative include pay a $15 per tonne carbon tax for excess emissions, while facilities under the specified limits can earn tradable emissions performance credits. By contrast, in early June, Ontario and Quebec announced the establishment of an inter- provincial cap-and-trade regime premised on a hard cap. B.C.'s broad carbon tax on fos- sil fuels, whose initial rate translates into 2.4 cents per litre of gasoline, took effect July 1. It is also premised on a hard cap and is expected to yield $1.85 billion in revenue over the next three years, though the pro- vincial government has promised to make it revenue neutral by means of tax credits and reductions. The B.C. tax is the second car- bon tax in the country, following on a similar, but much narrower, measure enacted in Quebec on Oct. 1, 2007. The Quebec tax af- fects only energy producers and importers, rather than purchasers or end users of fossil fuels. It will yield about $200 million annually and applies to only about 50 com- panies with operations primarily in the electricity, gasoline, heating oil, and natural gas sectors. "The biggest topic of discus- sion with all these developments is what a national compliance regime would look like," Mahony says. "But what's not often discussed is the constitutional authority to reg- ulate, which is a problem because the Constitution doesn't address the environment. If the directions of these cap-and-trade systems keep diverging, a legal battle could very well be in the offing." Which is not to say that in- November 24, 2008 • Law Times British Columbia, Manitoba, On- tario, Quebec, Arizona, California, Montana, New Mexico, Oregon, Utah, and Washington. These ju- risdictions will use the design rec- ommendations as the basis for local implementation of the program. Meanwhile, uncertainties re- main. But with uncertainty comes opportunity. "Using the law to promote cli- mate change initiatives increases the great opportunities that are the silver lining in today's environmen- tal picture, because it's quite pos- sible that a green innovation econ- omy spurred by legislative necessity could serve to replace the manufac- turing jobs we've lost," says Richard Sutin, the co-chairman of Ogilvy Renault LLP's Cleantech practice. "We're going to see not only creative processes but creative fi- nancing techniques that will help people transition to the new re- gime." To be sure, many of the measures adopted by government will be costly for business. "Economists in England have said that climate change will cost society more than the Great De- pression," says Dianne Saxe, a To- ronto-based environmental lawyer. Those who feel that's unduly cyni- cal should consider this: the most expensive catastrophe to ever hit the Canadian insurance industry was the ice storm of 1998. Its tab was $1.2 billion. A two-and-a-half- hour ice storm in Toronto in 2005 cost insurers $500 million. LT 11/19/08 1:42:00 PM

• Cover
• Lipton Makes a Move
• Queens Park
• Focus On Environmental Law