On May 11, 2009 the Government of Saskatchewan introduced Bill 95, its first comprehensive climate change legislation with a focus on reducing greenhouse gases and adapting to climate change. The following day the Government of Quebec introduced its own plan through Bill 42 which seeks to amend an existing statute and create a provincial cap and trade system. While the Saskatchewan bill is modeled on the federal reduction target and will seek equivalency with the federal plan, the Quebec bill will establish a cap and trade system with hard caps on the absolute amount of allowable emissions and includes several provisions that explicitly contemplate policy integration with regional and international climate change initiatives.
Quebec’s Bill 42: Cap and Trade with Regional Linkages
Quebec’s cap and trade approach in Bill 42 builds on previous commitments made by the province, in particular its membership in the Western Climate Initiative (“WCI”) and a Memorandum of Understanding (“MOU”) signed with Ontario in June 2008. The preamble refers to the intention to create a cap and trade system using 1990 emissions levels as a baseline. Each regulated emitter must have emissions equal to their emission allowances, with each allowance unit equal to one metric ton of greenhouse gas in CO2e (1:1 ratio).
Notably, the bill has several provisions that explicitly contemplate policy integration with regional and international climate change initiatives. Section 46.13 of the bill allows the Minister to enter into agreements with other governments or international organizations to harmonize and integrate their cap and trade systems in order to provide for reciprocal recognition of emission allowances, consolidation of emission registers, and mutual recognition of decisions made by the authorities of each regulatory scheme regarding allowances. This provision provides a direct link to the MOU with Ontario but also presents a basis for greater integration with both the WCI and other international regimes in the future.
Bill 42 leaves a number of matters to be determined in forthcoming regulations, including the precise nature of the targets and the categorization of emitters to whom the bill applies. The bill provides that failure to comply with the targets may result in administrative, monetary or other penalties but the details of those penalties are yet to be determined.
Key Elements of Bill 42
- Sectoral Approach: Bill 42 explicitly provides for the possibility that reduction targets and emission unit caps may differ by sector. Moreover, in determining whether to grant different sectoral targets Bill 42 allows the Government of Quebec to consider emission reduction goals under any Canadian intergovernmental agreement or international agreement relating to climate change.
- Emissions Allowances: The major allocation will be in the form of emission units (allowable emissions) but will also include offset credits, early reduction credits, and any other allowance created by regulation.
- Fungible Allowances: Emissions allowances may be traded according to forthcoming regulations, but the bill also allows the banking of unused emissions for future use. However, regulated emitters who cease to carry on their business must surrender to the government unused emission units allocated to them rather than being able to trade them.
- Public Register: Bill 42 will create a public register of emission allowances with the names of allowance holders as well as the number and type of allowances held.
Saskatchewan’s Bill 95: Establishing Carbon Targets
Bill 95 is Saskatchewan’s first attempt at regulating greenhouse gases. Although neither the baseline year nor the anticipated reductions are stipulated directly in the bill, Environment Minister Nancy Heppner announced that Saskatchewan intends to “adopt the federal target of a 20 per cent hard cap on emissions reductions by 2020”1 effectively abandoning a previous commitment to target a 32 per cent reduction because doing so, argues Heppner, would be too costly to Saskatchewan’s economy and industry.
Bill 95 is unclear as to whether or not Saskatchewan will adopt an intensity-based approach similar to Alberta. While the federal government recently announced its intention to abandon its intensity-based approach, in part due to pressure to maintain harmonious standards with the U.S. (the proposed American Clean Energy and Security Act of 2009 was approved by the Energy and Commerce Committee late on May 21, 2009), Minister Heppner has expressed the provincial target as a “hard cap” and has announced an Agreement in Principle with federal Environment Minister Jim Prentice to negotiate an equivalency agreement.2
As with the Quebec bill, much still remains to be determined in subsequent regulations including: a timeline for targets, the emissions baseline, and the characterization of regulated emitters.
Key Elements of Bill 95
- Emissions Cap on Regulated Emitters: Regulated emitters must meet prescribed greenhouse gas reduction targets established under Bill 95 for each prescribed year. To demonstrate compliance, regulated emitters are required to periodically report on their greenhouse gas emissions and other prescribed information.
- Emissions Returns Deductions: Regulated emitters will be permitted to deduct from their returns carbon offsets, pre-certified investments, credits for early action, and any other CO2e amounts granted by regulation.
- Compliance: Where regulated emitters fail to reduce their emissions as required, they must pay a carbon compliance payment based on a carbon compliance price as well as other factors. The carbon compliance price will be established in the regulations. Failure to make carbon compliance payments may be an offence subject to a fine not exceeding $1,000,000 and/or an administrative penalty.
- Greenhouse Gas Reduction Programs: Prescribed entities, including electrical and natural gas utilities, will also be required to develop greenhouse gas reduction programs and provide reports on these programs to the government. Bill 95 also gives authority to the Environment Minister to require non-regulated emitters to do the same.
- Special Non-profit Corporations: Bill 95 will establish four special non-profit corporations: the Saskatchewan Technology Fund Corp., the Saskatchewan Climate Research and Development Corp., the Saskatchewan Climate Change Foundation, and the Saskatchewan Environment Corporation. These entities will facilitate further emissions reductions through various means, administering carbon compliance payments received from large emitters, funding regulated emitters’ programs for carbon capture and storage, energy conservation or low-emitting technologies, funding research and development on climate change in universities, and promoting public awareness and education on climate change issues. In addition, the Climate Change Foundation has authority to fund programs relating to other environmental issues, including pollution and environmental sustainability and preservation.
- Office of Climate Change: Bill 95 establishes the Office of Climate Change within the Ministry of the Environment to directly handle Saskatchewan’s climate change initiatives, and provides for the presentation of an annual report to the Environment Minister on their work.
The impact of these two pieces of legislation remains to be seen as many details of each regulatory scheme will be revealed in the regulations following passage of the bill. These details include whom the targets apply to and their timelines. Saskatchewan’s regulations will also set the emissions baseline and the carbon price for compliance payments while Quebec’s regulations will detail the specific penalties for failure to comply.
In addition, the relationship between Quebec’s regulatory scheme and the scheme in Ontario needs to be clarified. Ontario Premier Dalton McGuinty is expected to unveil Ontario’s climate change legislation in the next few weeks and has commented that Ontario and Quebec remain committed to “put in place a carbon-exchange register” to serve as a model for other jurisdictions. This statement, along with the text of Bill 42, suggests that not only will the two jurisdictions seek to harmonize their approaches, but that they are also eagerly looking for broader regional and international harmonization.