The basic principle underpinning Canada's climate change policy is to pursue comparable efforts with the United States, through identical greenhouse gas reduction targets, harmonized performance, product and technical standards, compatible regulatory regimes, a common carbon price and complementary border adjustment measures vis-à-vis imports from third countries.

To date, comparable efforts have been realized in the form of a shared 2020 reduction target of "17 % less than 2005 levels", a harmonized vehicle fuel efficiency standard for cars and light trucks (with heavy truck standards soon to follow), compatible Renewable Fuels Standards and a collaborative approach to the development of smart grid and carbon capture and storage technical standards.

It appears that American climate change policy will take one of two forms: either (i) a patchwork of EPA regulations and regional "cap and trade" regimes of varying stringency and coverage; or (ii) a national scheme implemented pursuant to the American Power Act being sponsored by Senators Kerry (Dem-Mass) and Lieberman (Ind-Ct) – ("KL") - following the decision of Senator Graham (Rep-SC) to withdraw his co-sponsorship due to political differences with the Democratic leadership in the Senate.

In December of 2009, the US Environmental Protection Agency (“EPA”) issued a determination that rising greenhouse gas levels endangered the health of humans and the natural environment, and hence should be subject to EPA regulation (the equivalent of being listed in the schedule of “toxic” pollutants under the Canadian Environmental Protection Act). This endangerment finding forms the legal basis for EPA regulation of mobile emissions sources (i.e. tailpipe emissions standards calibrated not to miles per gallon, but CO2 volumes per mile). It also creates an obligation for EPA regulation of stationary emissions sources.

In a public letter to American lawmakers dated February 22, EPA Administrator Linda Jackson confirmed that, commencing in the first half of 2011 (i.e. at the same time that the new vehicle efficiency regulations take effect), the EPA will require large stationary emitters to install “Best Available Controls Technology” in their new or modified facilities. The universe of regulated emitters will be expanded over the next five years, with the smallest emitters not facing regulation before 2016. In addition, only facilities emitting over 75,000 tons of annual greenhouse gas emissions will initially be considered large.

The EPA timetable leaves open the possibility that the proposed regulations will be superseded by the passage of KL’s American Power Act in 2010.

It is expected that the American Power Act will be unveiled on May 12. While still officially under wraps, it has been widely reported that the legislation will contemplate different treatment for different sectors on different timetables. For thermal power plants, it is believed that KL will propose a hybrid cap and trade system (with a price collar limiting the carbon price to $30/t), a clean power standard that is likely to broaden the definition of "qualified renewables" to include "clean coal" and nuclear base-load power (but not electricity generated from new, big hydrodams), plus substantial financial assistance for both clean coal development and the installation of new nuclear power plants.

In the liquid fossil fuels sector, it would appear that KL will be going to great lengths to disguise a regime that is favoured by many in the oil industry – effectively, a wholesale carbon tax at the refiners' level geared to the carbon intensity of the fuel pool, with the tax rate to be geared to the “collared” carbon price set in the thermal power emissions market. Heavy trucks will be incented to move from diesel to natural gas; the electrification of the vehicle fleet will be encouraged; plus the bill may contain provisions to encourage more off-shore oil drilling (that may prove problematic in light of recent events in the Gulf of Mexico).

Finally, it is expected that KL will delay regulating (until 2016) the so-called “energy-intensive, trade-exposed” industries such as steel, chemicals. metals and cement. In the meantime, the legislation would provide adjustment assistance to these industries, while raising the threat that new border adjustment measures will be erected against imports from third countries that lack commensurate GHG regulations.

While polls show that climate change is a low priority for Americans in the current economic environment, the apparent preference of many industries (including the oil/gas and power sectors) for the KL scheme compared to the looming EPA regulations and various state-level measures, plus the apparent support of some influential unions (for example, the Steelworkers), as well as environmental groups, combine to suggest there is a good chance that the KL legislation will become law in 2010.

This would increase the likelihood that the Harper Government would introduce comparable measures on a comparable timeline in Canada's House of Commons this fall, perhaps hoping to create a sharp contrast between a Conservative Government that is willing to “match the Americans” and opposition parties that wish to "go further", even if it means putting the "energy-intensive trade-exposed" industries of Ontario and Quebec at a disadvantage relative to their American (let alone Asian) counterparts.