On October 20, 2014 the British Columbia government introduced new legislation to control greenhouse gas (GHG) emissions from industrial operations. Bill 2, the Greenhouse Gas Industrial Reporting and Control Act marks a significant shift in the province's approach to GHGs and more closely aligns B.C. with the approach taken by Alberta and the federal government. Of note, the bill proposes intensity-based emission standards, and the broadening of alternative compliance mechanisms to include credits from offsets, payments to technology funds, and earned credits.

The new Act will repeal and replace the Greenhouse Gas Reduction (Cap and Trade) Act, the legislation under which a number of industries are currently required to report GHG emissions. Like its predecessor, the new Act will also provide for GHG reporting by industries that will be prescribed by regulation, however, the Act itself will set intensity-based targets for GHG emissions. While the manner in which the bill is drafted allows it to apply emissions targets to any industry producing GHGs, the government’s current intention is to apply it to LNG production, which, for the most part, has not yet been developed in the province.

Typically, GHG regulations have the effect of imposing standards on existing industries and through the use of the ramping down of targets, offsets, carbon capture, and cap and trade, encourage such industries to reduce GHG emissions. The emissions target currently proposed for LNG is 0.16 CO2e tonnes for each tonne of LNG produced. According to the B.C. government, this target is lower than targets set in other developed countries such as Australia, and will ensure B.C. has the “cleanest liquefied natural gas facilities in the world.” Thus, this legislation will impose strict standards on plants not yet built, which presumably is intended to inform the design of the plants. The government has indicated an intention to establish what it refers to as the “LNG environmental incentive program,” which will be an escalating incentive to the industry based on their compliance costs.

Entities will be required to report GHG emissions attributable to an operation for a prescribed period, however, emissions that are subject to carbon capture and storage will not be included. All reporting is subject to verification and audits in accordance with protocols to be established by regulation. Activities included in the reporting requirements will include the plants themselves as well as waste water and waste collections systems, petroleum and natural gas storage facilities and mobile equipment.

If an entity cannot meet the prescribed emissions target, it may apply compliance units to avoid penalties. Compliance units will come from offsets, funded units or earned credits, and can be used or traded. Offset units are issued by the government and will be based on accepted and verified offset projects. Funded units are essentially payment of monies into a prescribed account. Credits can be earned if emissions in a reporting period are less than the emissions target.

The principal compliance tools to be used are administrative penalties, which in some cases are mandatory. For example, the failure to meet emissions targets that cannot be compensated by compliance units, results in an automatic penalty which will not be appealable. In addition, there are mandatory penalties for failing to report, unless the operator can show a reasonable excuse for not submitting the required reports, and discretionary penalties for non-compliance with other provisions in the Act or regulations. These penalties can be appealed to the B.C. Environmental Appeal Board. Administrative penalties can be imposed on directors and officers who authorize, permit or acquiesce in the non-compliance, regardless of whether the company is subject to the penalties. The bill also imposes offences, with maximum penalties of C$1.5-million per day that the non-compliance continues.

The Canadian Environmental Protection Act (CEPA) allows for equivalency orders if provincial regulations are equivalent to federal counterparts. However, a requirement of such orders is that the provincial law contains public investigation provisions similar to those in CEPA. Bill 2 contains provisions allowing the public to request an investigation into the compliance of a reporting operation, which substantially mirror part 2 of CEPA, which we assume is to enable discussions with the federal government on equivalency orders in relation to the GHG regulations for natural gas that are currently under development by Environment Canada.