Companies carrying on business in Canada are subject to environmental regulation undertaken by all levels of government – federal, provincial/territorial and municipal. Moreover, directors and officers of Canadian corporations can be personally liable to charges, fines and (in extreme cases) imprisonment for causing or permitting damage to the environment, regardless of whether the corporation has been prosecuted or convicted.

The federal and provincial governments in Canada both have jurisdiction over environmental matters and their environmental statutes often overlap. In addition, municipal governments, traditionally responsible for water and sewage systems and noise issues, in some cases now restrict or prohibit the use of pesticides and herbicides (even after their use has been approved by the federal or applicable provincial government), require public disclosure regarding the use of toxic substances and often try to control the impact of development on the environment through their role as the primary authority for land-use planning. To make matters more complicated, there are sometimes two separate levels of municipal government. Despite attempts to harmonize environmental standards throughout the country, companies carrying on business in Canada must consider the potential impact of environmental regulation undertaken by all levels of government.

Federal Regulation

Canadian Environmental Protection Act

The Canadian Environmental Protection Act, 1999 (CEPA) regulates toxic substances from research and development through to production, marketing, use and disposal. CEPA provides broad enforcement powers (with substantial maximum fines and other penalties) and mandatory remediation mechanisms (i.e., environmental protection orders). In certain circumstances, CEPA requires public participation, including consultation with aboriginal peoples (i.e., where a proposed resource project may adversely effect an Aboriginal or treaty right).

New Substances, Toxic Substances and Hazardous Wastes

Regulations under CEPA govern (among other things) the import and manufacture of substances new to Canada; the import, export, manufacture or use of toxic substances; and the import, export and movement within Canada of hazardous wastes.

Fisheries Act

The Fisheries Act prohibits the deposit of “deleterious substances” in water where fish may be present at any time, or in any place or under any conditions where such substances may enter into water where fish may be present. It also prohibits the destruction of fish or fish habitat unless permission is received from the government and actions are taken to compensate for the loss of habitat. Regulations under the Act establish standards for effluent discharged by companies in various industry sectors including mining, petroleum refining and pulp and paper.

Transportation of Dangerous Goods Act

The transportation of substances that qualify as “dangerous goods” by air, road, rail or ship within Canada, regardless of the destination or point of origin of the goods and whether or not the activity is for profit, is governed by both provincial and federal regulatory schemes. Provincial laws generally incorporate (by reference) the requirements of the federal scheme which is set out in the Transportation of Dangerous Goods Act, 1992 and the Transportation of Dangerous Goods Regulations. This scheme incorporates international components and is complementary to U.S. provisions governing the movement of such materials.

Canadian Environmental Assessment Act

The Canadian Environmental Assessment Act applies to federal government and private projects that involve federal government funds or lands, or that require certain federal government approvals. It may also apply to certain other projects that, for example, may result in adverse international or interprovincial environmental effects or impacts on Indian reserves. Environmental assessments range from a comprehensive study for prescribed projects that have the potential for significant environmental effects to less detailed screenings of smaller scale projects. In certain cases, a review panel may be appointed and public hearings held.

The objectives of an assessment are to ensure that: potential adverse environmental effects are considered before proceeding with a project; projects that cause unjustifiable, significant adverse environmental effects are not permitted by the federal government; and appropriate mitigation measures are implemented, where necessary. An assessment likely will be required for: any project that involves construction in surface water (i.e., bridge abutments, water intake structures) or over surface water (i.e., bridges), most major resource-based projects and many linear projects, such as pipelines. Currently, the Canadian Environmental Assessment Act and its regulations are undergoing a major review with amendments expected in the near future. Measures have been announced that, if implemented, will reduce the circumstances in which an assessment must be conducted under both federal and provincial environmental assessment regimes.

Canadian Criminal Code

Under the Canadian Criminal Code, the government may criminally prosecute “organizations” for egregious environmental violations (i.e., those causing bodily injury or death). Persons who direct, or who have the authority to direct, how another person does work or performs a task must take reasonable steps to prevent bodily harm to that person or any other person. This duty could arise, for example, where environmental discharges cause injury.

Environmental Enforcement Act

The federal government has recently introduced a Bill that, if enacted, will increase the powers of the federal government to enforce the provisions of various environmental statutes. If enacted, the Bill will increase maximum fines, provide more order making powers and authorize the issuance of administrative monetary penalties for violations under nine different existing federal statutes dealing with environmental matters.

Provincial Regulation

Canada’s ten provincial and three territorial governments are very active in the area of environmental regulation. Generally speaking, these regulatory schemes employ both a standards-based system (i.e., specified emission criteria) and an objects-based system (i.e., prevention of adverse effects). Below is an outline of some aspects of the scheme for the Province of Ontario (which has the largest industrial sector in the country). Other provinces such as Alberta also have very robust environmental and regulatory approvals regimes in place.

Control of Emissions, Discharges and Environmentally Sensitive Undertakings

The Environmental Protection Act (EPA) and the Ontario Water Resources Act impose prohibitions and penalties for the “discharge” of contaminants in amounts or concentrations in excess of that prescribed by regulation, or that would otherwise cause or likely cause an “adverse effect,” or that may impair water quality. An adverse effect includes virtually any damage or harm that could occur to the natural environment, people, plants or animal life. The EPA also deals specifically with spills.

Both statutes require approvals for certain environmental undertakings that have the potential to discharge or emit contaminants or pollutants, and for most waste handling and disposal activities, water works, sewage works and water takings in excess of 50,000 litres per day. The statutes also authorize the Ontario Ministry of the Environment to issue orders requiring that an ongoing discharge (or a process resulting in a discharge) be controlled or stopped, or that a contamination be cleaned up. Note that the government may designate private-sector projects (i.e., proposed waste disposal sites) as being subject to the EPA. The Technical Standards and Safety Authority Act, 2001 and subsidiary regulations govern the installation, use and removal of tanks used to store oil, gasoline and other petroleum products. The Fire Code of Ontario similarly governs larger petroleum storage tanks and tanks for the storage of other substances that may pose fire hazards.

Brownfields Legislation

Former industrial sites that may be contaminated with pollutants from earlier uses must be cleaned up before they can be redeveloped or sold. There is relatively little coordination amongst the Canadian provinces and the three territories in their respective approaches to environmental regulation in this area. Ontario, for example, permits either a risk-based or a standards-based approach to remediating contaminated lands. Ontario is in the process of considering changes to its brownfield regime which, if adopted, will make compliance with the regime considerably more onerous and expensive. For example, the generic standards that can be used to determine site clean-up will, in some cases, become much more stringent.

Environmental Liabilities

General Types of Liabilities

There are four general types of environmental liabilities of which a corporation doing business in Canada should be aware. These include:

  1. Quasi-criminal Enforcement: Individuals and companies that do not comply with environmental legislation may be subject to quasi-criminal charges. Both prosecutions and penalties for these offences have increased significantly in recent years. Although rare, individuals involved can also be imprisoned. Convictions are being publicized to stigmatize and embarrass offenders and to deter potential offenders.

In most jurisdictions in Canada, a due diligence defence is available for many environ-mental charges. To establish the defence, the accused must show that they took “all reasonable care” to prevent the offence from occurring (i.e., that an effective environmental management system had been implemented).

  1. Environmental Penalties: The stated purpose of environmental penalties (EPs) is to encourage compliance with the appropriate regulatory regime, rather than penalize those who do not comply, but their practical effect is very similar to that of a fine. In Ontario, EPs can be imposed for violations of environmental statutes by regulatory order; appeals of such orders are to an administrative board rather than the courts. In addition to having to pay an EP, an offender could also be charged and fined with respect to the same violation.
  2. Administrative Orders: Government authorities can order individuals and businesses to take remedial action to investigate, clean-up or otherwise address an environmental concern or issue. Those who fail to comply with an order can be prosecuted. Certain environmental statutes may permit the government authority to undertake necessary action to address a violation and seek recovery of its costs from the party responsible for the violation.
  3. Civil Actions: A person may bring a civil action for breach of contract or based in tort (i.e., for negligence, nuisance, strict liability or trespass) to recover damages suffered from the party that caused the damage. Some environmental statutes also give injured parties the right to recover damages suffered as a result of, for example, spills. Any individual or corporation that causes environmental damage to another’s property, or harm to a person, may be held responsible for the damage. The use of civil actions to recover environmental damages is growing. The Supreme Court of Canada has determined that, in the right circumstances, civil claims can be advanced by the government for damages akin to the statutory right to claim damages to natural resources in the United States.

Directors’ and Officers’ Environmental Duties and Potential Liability

Directors and officers of corporations can be personally liable to fines and, in extreme cases, imprisonment, for causing or permitting damage to the environment, regardless of whether the corporation has been prosecuted or convicted. Also, if the directors and officers are sufficiently involved in the activity leading to a discharge, they may be personally named in regulatory orders for the protection or clean-up of the environment.

Under CEPA, directors, officers and agents will be subject to charges if they had knowledge of the actions that constituted the offence. They also have a duty to take all reasonable care to ensure that the corporation complies with CEPA, its regulations and orders or directions issued under it or its regulations. Failure to do so is an offence.

In Ontario, directors and officers of corporations have a statutory duty to take all reasonable care to prevent the corporation from: illegally discharging contaminants; obstructing environmental officials; failing to notify the regulator where the corporation is legally required to do so; failing to install and maintain emission or discharge control equipment required under environmental permits or licences; contravening an order issued under environmental legislation; and contravening certain provisions related to hauled liquid industrial or hazardous waste. A breach of any of those duties can result in charges, fines and, in egregious situations, imprisonment. Where so charged, the director or officer has the (reverse) onus of proving that he or she did discharge the duty, despite the fact that the failure to do so is the very essence of the offence.

Climate Change and Greenhouse Gas Control

The Province of Alberta was the first North American jurisdiction to legislate the regulation of greenhouse gas emissions from large industrial emitters. The Provinces of British Columbia, Manitoba, Ontario and Québec have committed to participating in the Western Climate Initiative along with seven American States. The Province of Saskatchewan has registered as an observer. Each of these proposed and existing regimes place a cap on permitted emissions (in Alberta, based on emissions intensity) and permit at least some degree of emissions reduction credit trading to achieve compliance.

The most recent federal government proposal also involved a proposed cap and trade system. Like Alberta, it would be based on emissions intensity. However, more recent statements from the federal government have suggested an intention to adopt an approach similar to that generally outlined by the Democrats in the United States. Until more details are disclosed on the American approach, it is unclear what approach will be taken by the Canadian government.

Climate change regulation is an emerging issue that companies carrying on business in Canada will have to monitor closely.