Kevin J. Lambie Robin Squires Beverley Moore Alan Ross August 8 2022 2030 Emissions Reduction Plan and Canada's journey to net zero: part three Borden Ladner Gervais LLP | Environment & Climate Change - Canada Kevin J. Lambie, Robin Squires, Beverley Moore, Alan Ross Environment & Climate Change TransportWaste and circular economySustainable financeAdditional considerationsFuture developmentsOn 29 March 2022, the government of Canada (the federal government) delivered its 2030 Emissions Reduction Plan (the Plan). The Plan outlines current and new policies by the federal government to meet its greenhouse gas (GHG) reduction targets and, in some cases, associated funding. This article is the third in a three-part series that outlines certain strategies of the Plan (supplemented by the recent federal budget) to further Canada's transition toward a low-carbon economy.(1)TransportCanada's total carbon emissions comprise a significant contribution from the transport sector. That is why Canada has included transport as a key sector within which relatively easy gains can be made in reducing GHG emissions. As the bulk of Canada's emissions come from light-duty vehicles, such as household cars, trucks and sport utility vehicles, and because the automotive industry has already committed to a steady increase in the availability of zero-emissions vehicles (ZEV) models, the first and possibly easiest step in the Plan is aimed at reducing GHG emissions from passenger vehicles. To that end, and building upon the existing commitments to reduce the carbon intensity of (liquid) transport fuels under the Clean Fuel Standard, the federal government has reiterated that it will set gradually increasing annual targets for sales of ZEVs by original equipment manufacturers, culminating with a 100% target by 2035, supplementing the current provincial ZEV mandates in the provinces of British Columbia and Quebec.The Plan includes a slightly less optimistic plan for medium- to heavy-duty vehicles, in which the targets are significantly lower, but the 100% ZEV goal is reached by 2040. This recognises the fact that the current technology may not be practical for certain applications of these vehicles. The federal government has been careful to couch the language of this section with comments about the feasibility of ZEVs for certain sectors and uses. Funding announced includes:a ZEV purchase incentive programme for light-duty vehicles;additional funding for ZEV charging stations and refuelling infrastructure with the objective of adding 50,000 ZEV chargers to Canada's network;a purchase incentive programme for medium and heavy-duty vehicles;a retrofit programme for existing trucks; andprogrammes aimed at reducing regulatory and other barriers to the wide use of trucks fuelled by alternative sources.These announcements will not be without their detractors. There are still many unanswered questions about the utility of ZEVs in northern regions, and the ability of the current electricity grid to handle the additional demand. Nonetheless, the additional funding will no doubt be welcomed.The Plan includes nods to the other main modes of transport, and highlights the following additional objectives:for rail, aviation and marine, the development of action plans with industry to decarbonise those sectors;working with international partners, the continuation of efforts to increase ambition in International Civil Aviation Organization emission reduction goals and measures;development of measures in the Arctic to reduce black carbon from shipping; andsupport for transit agencies and schools to change their fleets over to zero emission buses.Within the maritime sector, industry has already begun to organise and mobilise in an effort to clear the way for the shipping sector to reach a net-zero emissions objective, with a current focus upon the use of both methanol and ammonia energy as alternatives to conventional marine fossil fuels. The Blue Sky Maritime Coalition was established in 2021 to accelerate the transition of the industry to that objective.When combined with Canada's carbon trading platform of tax benefits for companies involved in reducing their emissions and the emissions of others, the above programmes announced by the federal government offer significant opportunities for the transport industry. By taking part in the funding programmes that are made available as a result of this announcement and capitalising on the tax benefits that will be available, the path to a green transport future seems clear.Waste and circular economyIn the waste sector,(2) the federal government laments the absence of real progress around methane emissions from waste over the past decade. The Plan proposes to reinvigorate federal (and provincial/territorial) efforts at targeting waste-related emissions through greater regulatory and spending initiatives targeting:biodegradable waste – both less generation and more diversion, particularly with the production of fertilizers, soil nutrients and renewable energy, are prioritised. This will no doubt mean increased emphasis on industrial composting and biogas production across Canada, with a particular emphasis upon landfill gas recapture and anaerobic digestion;plastics recycling – Canada has long been a leader on plastic pollution initiatives and the Plan positions plastics recycling (potentially both mechanical and advanced recycling) as part of its waste emissions reduction strategy; andmunicipal solid waste (MSW) landfill methane regulations – while diversion programmes continue to grow for a number of waste streams, (residual) MSW continues to be landfilled in most parts of Canada. The federal government is targeting the methane emissions from MSW landfills with a proposed federal methane emissions regulation – for which a consultation process is currently underway.Sustainable financeGovernments and the real economy are relying on the financial sector to fund the transition and share growing expertise about climate-related opportunities and risks. Canadian regulators are assessing current frameworks, and after extensive consultations, signalling new rules in the near future.Canada green bondCanada completed its first C$5 billion sovereign green bond issuance in March 2022 pursuant to a new green bond framework. The final order book was oversubscribed at more than C$11 billion and periodic issuances are contemplated. The federal government expects the issuance to create a more mature, liquid and diverse market for investors, and support the growth of Canada's sustainable finance market. The sustainable finance market in Canada continues to proliferate.Understanding climate-related riskResponses from the engagement process indicate support was expressed for greater and reliable disclosure on climate impacts of investments. "Greenwashing" is frequently cited as a concern. 2020 and 2021 saw an important push to develop global minimum standards. Most recently, the International Sustainability Standards Board (ISSB) published proposed general sustainability-related disclosure requirements and climate-related disclosure requirements. The ISSB's work builds on the efforts of the Task Force on Climate related Financial Disclosures (TCFD) and others, some of which have since consolidated into the ISSB.In Canada, the federal government's budget for 2022 suggests that the Office of the Superintendent of Financial Institutions (OSFI) will require, among other things, financial institutions to publish TCFD-aligned climate disclosures as of 2024. Canadian securities regulators are also discussing climate change in an effort to further protect investors and promote a fair and efficient capital markets.(3)Industry cooperationOriginating from the Expert Panel on Sustainable Finance, the Sustainable Finance Action Council is expected to make recommendations on the critical market infrastructure needed to attract and scale sustainable finance in Canada, including:enhanced assessment and disclosure of climate risks and opportunities;better access to climate data and analytics; andcommon standards for sustainable and low carbon investments.Additionally, Climate Engagement Canada wants to help set common frameworks, expectations and pathways for Canada's financial and corporate sector. Several financial institutions participated in a joint pilot project by the Bank of Canada and OSFI to assess transition risks related to climate change. These are a few examples illustrating how keen the financial services sector is to develop sustainable finance in Canada further.Additional considerationsGreen technologies and IP rightsDiscussion on the protection and management of the new intellectual property underlying the development of these emissions management and green(er) technologies is notably absent from the Plan.The Plan highlights funding programmes that have been, or are being, implemented to foster the innovation necessary to manage current and future emission levels.(4) However, a main focus of these programmes is funding the research and development and operational costs for companies developing new, greener technologies – not their intellectual property, which can take the (often costly) form of patent applications, trade secrets, trademarks and more.Navigating the costs and processes surrounding protecting IP rights can be daunting and challenging. However, the increased funding available through the Plan could help mitigate some of these challenges and their associated costs.(5)Future developmentsThe federal government will continue to update its modelling projections, including in Canada's next biennial report and first 2030 Emissions Reduction Plan progress report, expected in late 2023. The Canadian Net-Zero Emissions Accountability Act further requires the commissioner of the environment and sustainable development to, at least once every five years, starting no later than the end of 2024, examine and report on the federal government's implementation of the measures and strategies in the Plan.The transition toward a low carbon economy will present operational risk, deal risk, climate related financial risk and other risks, but also opportunities for stakeholders in all sectors of the real economy.(6)For further information on this topic please contact Kevin J Lambie, Robin Squires, Beverley Moore or Alan Ross at Borden Ladner Gervais LLP by telephone (+1 416 367 6000) or email ([email protected], [email protected], [email protected] or [email protected]). The Borden Ladner Gervais LLP website can be accessed at www.blg.com.Jonathan Cocker, Peyman Ghaemi, Justin Cuperfain, Kristyn Annis, Sarah Sweet, Tanner Shapka and Luca Vita assisted in the preparation of this article.Endnotes(1) For earlier articles in the series, see:"2030 Emissions Reduction Plan and Canada's journey to net zero: part one"; and"2030 Emissions Reduction Plan and Canada's journey to net zero: part two".(2) For more information about the waste sector, see:"State of Regulation of Plastics in Canada"; and"Producer Responsibility Organizations Should Aggregate Environmental Improvements".(3) For more information about the TCFD, ISSB and certain regulatory developments in Canada, see:"Canadian Securities Regulators Conduct a Green Sweep";"TCFD Tie Board Management Compensation to Climate Goals and 6 More New Metrics";"TCFD Implementation: the Shifting Landscape of Climate Change Policy in North America";"Mandatory Climate Related Disclosure Heats Up: The CSA Seeks Comments on National Instrument";"Financial Services Regulatory: Consultations on Climate-Related Financial Risk";"CFA Institute: Canadian Securities Administrators Release ESG Investment Disclosure Standards"; and"IFRS Joins the Fight to Protect Investors from Climate Risk".(4) For example, see:the Agricultural Clean Technology Programme;the Sustainable Development Technology Canada programmes; orthe Industrial Research Assistance Programme.(5) For further details, see "Greening up Canadian Patent Rights by Expediting Green Technologies".(6) For further details, see:"ESG claims: Managing risks and liabilities for Canadian businesses"; and"Financial services regulatory: Consultations on climate-related risks".