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Improving Energy Performance in Canada – Report to Parliament Under the Energy Efficiency Act - 2003-2004

Chapter 1: Policy Context and Legislation

Federal Policy and Measures on Energy Efficiency and Alternative Energy

Energy use has been a policy concern since the 1970s when governments responded to the oil crises of 1973 and 1979 by promoting energy conservation and renewable energy sources. Toward the end of the 1980s, individuals, organizations and governments around the world became concerned that greenhouse gas (GHG) emissions produced by burning fossil fuels – such as coal, oil and natural gas – could contribute to climate change. In 1990, Canada's concern about its GHG emissions (which result mostly from energy use) created a new objective for a revitalized set of federal measures to encourage investment in corporate and consumer efficiency and alternative energy (EAE) opportunities.

The federal budget of February 1997 provided $60 million over three years for new initiatives to improve energy efficiency in new commercial buildings; encourage commercial building retrofits; provide for energy performance assessments of houses; and stimulate demand for cost-effective, commercially available renewable energy systems for space and water heating and cooling. This funding was renewed in the February 2000 federal budget and further extended to March 2006 in the budget of February 2003.

In 1992, Canada signed and ratified the United Nations Framework Convention on Climate Change (UNFCCC). In December 1997, at the third Conference of the Parties to the UNFCCC in Kyoto, Japan, the participating countries agreed to reduce GHG emissions from 1990 levels within 2008 to 2012. Canada pledged to reduce its emissions by 6 percent. The Government of Canada ratified the Kyoto Protocol and notified the United Nations of its decision on December 17, 2002. With Russia's ratification on October 25, 2004, the Protocol entered into force on February 16, 2005.

In February 1998, the federal budget provided $150 million over three years for a Climate Change Action Fund to help Canada develop its response to the Kyoto Protocol. This funding was renewed for another three years in the February 2000 federal budget. The fund has five components:

• Building for the Future – to sustain domestic efforts to address climate change and to enable Canada to meet GHG-reporting obligations
• International Policy and Related Activities – to enable Canada to enhance its international analysis and negotiating capacity
• Public Education and Outreach – to build public awareness and understanding
• Technology Early Action Measures (TEAM) – to demonstrate cost-effective technologies
• Science, Impacts and Adaptation – to advance the knowledge of the magnitude, rate and regional distribution of the impacts of climate change on Canada and to support the development of adaptation strategies

The federal, provincial and territorial governments established the National Climate Change Process in 1998 to examine the impact, costs and benefits of the Kyoto Protocol and the implementation options open to Canada. From spring 1998 to winter 1999-2000, the process engaged more than 450 experts from across Canada, and their recommendations were provided to governments in fall 2000. In October 2000, the Government of Canada announced its Action Plan 2000 on Climate Change, representing its contribution to Canada's First National Climate Change Business Plan developed with the provinces and territories. Funding of $500 million over five years was provided in the budget update of October 2000 for a broad range of measures that commenced operation in 2001-2002.

In November 2002, the Government of Canada released the Climate Change Plan for Canada, outlining a three-step approach: the first being the measures implemented under Action Plan 2000 on Climate Change; the second, a set of new initiatives; and the third, options for attaining the target by the end of the first commitment period in 2012. The federal budget of February 2003 provided new funding of $2 billion over five years commencing with fiscal year 2003-2004 for a wide range of climate change initiatives identified in the Plan. On August 12, 2003, the details of the investment of $1 billion of this amount were announced. Many of these measures were implemented under the authority of the Energy Efficiency Act and are included in this report.

Responsibility

The following organizations within Natural Resources Canada (NRCan) are responsible for the initiatives described in this report.

The Office of Energy Efficiency (OEE) was established in April 1998 with a mandate to strengthen and expand Canada's commitment to energy efficiency, in particular to help address the challenges of climate change. The OEE's initiatives target all final energy consumers and emphasize partnerships and economic investment. Its program objectives are to overcome the market barriers posed by inadequate information and knowledge about energy efficiency and alternative transportation fuels, and to address institutional deterrents in energy-use markets and economic constraints that energy users face. The OEE is also responsible for identifying opportunities for new and heightened energy efficiency measures. The National Advisory Council on Energy Efficiency assists the OEE by providing advice and guidance. The council comprises energy efficiency experts and leaders from all sectors of the economy.

NRCan's Office of Energy Research and Development (OERD) strategically plans, manages and funds non-nuclear energy R&D for the Government of Canada that supports Canada's energy priorities. Through the interdepartmental Program of Energy Research and Development (PERD), the OERD provides more than 50 percent of its annual $57-million budget to study options related to energy efficiency and alternative energy. PERD also focuses on finding technology solutions to help Canada address its climate change challenges.

OERD also manages the Technology and Innovation Research and Development (T&I R&D initiative, part of the Climate Change Plan for Canada announced in 2003. Technology and Innovation Research and Development (T&I R&D programs will play an important role over the next five years in accelerating the expansion of knowledge and the development of technologies to help achieve GHG greenhouse gas reductions in the longer term. Energy efficiency will be a key element. As well, the OERD coordinates the Government of Canada's participation in international energy R&D. Canada's objectives are mainly advanced through the International Energy Agency working parties, implementing agreements and the Committee for Energy Research and Technology, chaired by NRCan. NRCan also fosters collaborative energy R&D with the United States and Mexico.

The CANMET Energy Technology Centre (CETC) focuses on technology development and deployment. Technology development activities are performed on a cost-shared basis either through in-house R&D work at its laboratories or by providing funding support to its technology partners. CETC-Ottawa, in Ontario, works in partnership with a range of stakeholders to develop and disseminate innovative, cleaner energy technologies. These include energy-efficient technologies for homes, businesses and industry; renewable energy; alternative transportation fuels; district heating and cooling systems; advanced low-emissions combustion technologies; and energy-efficient metallurgical fuel products and technologies. CETC-Varennes, in Quebec, develops technologies that use energy wisely and help Canadians stay competitive in the marketplace. These include advanced drying technologies, heat transfer and storage systems, photovoltaics, renewable energy for remote communities and related software tools, such as RETScreen^® International.

The Electricity Resources Branch's Renewable and Electrical Energy Division promotes the development of a sustainable renewable energy industry in Canada. It promotes investments in renewable energy systems for heating and cooling and provides information on renewable energy technologies. By strengthening markets for the renewable energy industry, its programs contribute to GHG reductions, job creation and export sales.

Outside of the Energy Technology and Programs Sector and the Energy Policy Sector, two other sectors within NRCan report on programs related to energy efficiency and alternative energy in this document. They are the Canadian Forest Service and the Minerals and Metals Sector.

The Canadian Forest Service of NRCan, in collaboration with partners from other governments, industry and universities, undertakes research in the areas of forest and biomass inventory and in the selection and testing of fast-growing forest crops. These activities address sustainability issues of R&D in the forest sector, rural and aboriginal forestry, and the protection of Canadian markets for forest products.

The Minerals and Metals Sector (MMS) of NRCan advances policies, science, regulations and knowledge that increase the contribution of the minerals and metals industries to Canada. MMS is committed to assisting Canada in reducing GHG emissions under the Kyoto Protocol. Initiatives now in place working towards that end are

• the Government of Canada Action Plan 2000 on Climate Change Minerals and Metals Program is working to reduce Canada's GHG emissions by enhancing mineral and metal recycling practices and assessing alternate production processes in industrial areas with high GHG-emitting activities
• ventilation on demand for underground mines that matches ventilation flow with production needs
• hydrogen-fuel-cell-powered vehicles for the underground mine environment
• the Canadian Lightweight Materials Research Initiative that develops low-density, high-strength, lightweight materials for more fuel-efficient ground transportation vehicles

Energy Efficiency Strategy

Most of NRCan's EAE initiatives deal solely with energy efficiency. Their goal is to improve energy efficiency by

• increasing the energy efficiency of new and existing buildings, equipment, systems and vehicles
• persuading individuals and organizations to purchase buildings, equipment, systems and vehicles that are more energy efficient
• influencing the energy-use practices of individuals and organizations
• developing technologies to give consumers, industry and communities new opportunities to improve energy efficiency

These measures help the demand side of the energy market move toward more energy-efficient capital stock, production processes and operating practices without reducing service or comfort levels.

Alternative Energy Strategy

Alternative energy includes renewable sources other than large hydro-electric facilities, new applications of conventional sources and new fuels, such as hydrogen for fuel cells. (Large hydro is not considered an alternative energy source because it is already a successful, well-established mode of energy production, supplying more than 60 percent of the electricity in Canada.) Some technologies, such as those related to the use of propane as a vehicle fuel and to forestry biomass, are already commercially available and accepted. Some have found applications in specialized markets, such as remote communities. Others are still in the early stages of development.

NRCan supports R&D to reduce costs, improve performance, develop safety and performance standards and increase the scope of renewable energy technologies. The department also provides incentives for investments in renewable energy systems and purchases of electricity generated from renewable sources, disseminates information to consumers, and assesses economic and environmental aspects of renewable sources of energy.

Federal initiatives are helping to expand the infrastructure (e.g. fuelling stations) for the sale of alternative transportation fuels, especially in urban areas where the provision of infrastructure is more economic. R&D focuses on ways to improve options in the use of these fuels.

Policy Instruments

NRCan's key policy instruments are as follows

• leadership
• information
• voluntary initiatives
• financial incentives
• research and development
• regulation

Leadership

Leadership means setting an example for other levels of government and for the private sector by increasing energy efficiency and the use of alternative energy in the Government of Canada's operations.

Information

NRCan disseminates information to consumers, using methods that range from broad distribution to individual consultations with clients, to increase awareness of the environmental impact of energy use and to encourage consumers to become more energy efficient and to make greater use of alternative energy sources. Activities include publications, exhibits, advertising, toll-free lines, conferences, Web sites, workshops, training, building-design software and promotional products.

Voluntary Initiatives

Companies and institutions work with NRCan on a voluntary basis to establish and achieve energy efficiency objectives. NRCan's voluntary EAE initiatives target large consumers of energy in the commercial/institutional and industrial sectors and organizations whose products are important determinants of energy use. The initiatives involve industry-government agreements and, for groups of large industrial energy users, energy efficiency target setting. NRCan provides a variety of support services to assist and stimulate action by companies and institutions on energy efficiency, including developing standards and training.

Financial Incentives

NRCan uses financial incentives to encourage final users of energy to employ energy efficiency and renewable energy technologies and practices when they acquire, design or build new buildings or retrofit existing ones. NRCan also offers financial incentives for wind energy and for natural gas vehicles and refuelling infrastructure.

Research and Development

NRCan's EAE initiatives support the development and dissemination of more energy-efficient equipment, processes and technologies and alternative energy technologies. R&D also provides the scientific knowledge needed to develop the technologies, codes, standards and regulations required for the sustainable use of energy.

NRCan provides national leadership in energy science and technology (S&T) by undertaking in-house research in its own laboratories, by contracting out research activities to other organizations and through the federal PERD. PERD and TEAM are the only federal interdepartmental S&T investment funds that focus on the energy sector and its economic and environmental effects.

Regulation

The Energy Efficiency Act gives the Government of Canada the authority to make and enforce regulations concerning EAE, primarily performance and labelling requirements for energy-using products (as well as doors and windows) that are imported or shipped from province to province.

Figure 1-1 shows how these policy tools work together to increase energy efficiency, i.e. how they help to reduce the amount of energy needed to obtain a certain level of service. R&D increases the opportunities for achieving greater levels of efficiency in a particular type of energy use. Non-R&D measures increase the take-up of existing opportunities to use energy more efficiently. Energy performance regulations eliminate less-efficient products from the market.

Compliance with Regulations, 2003-2004

The Energy Efficiency Act, passed in Parliament in 1992, provides for the making and enforcement of regulations concerning minimum energy performance levels for energy-using products, as well as the labelling of energy-using products and the collection of data on energy use. The first Energy Efficiency Regulations (the Regulations) came into force in 1995 and have established energy efficiency standards for a wide range of energy-using products. They apply to prescribed energy-using products imported into Canada or manufactured in Canada and shipped from one province to another for the purposes of lease or sale. Since 1995, there have been several amendments to the Regulations. NRCan is continually looking to improve the energy efficiency of energy-using equipment in Canada.

The Regulations are described further in Chapters 4, 5 and 6 of this report, with an emphasis on their contribution to energy efficiency in the housing, building and industrial sectors, respectively. The Regulations prescribe a number of obligations for dealers who import into Canada or ship from one Canadian province to another any prescribed energy-using product. NRCan is committed to securing voluntary compliance but can use a range of enforcement measures, when necessary.

NRCan emphasizes self-monitoring, reporting, voluntary compliance and collaboration; however, enforcement measures can be used if dealers violate the law. Enforcement activities include preventing products that do not meet the prescribed energy efficiency standard from entering Canada and preventing the sale or lease of non-compliant product in Canada. Violators can be fined under the Canada Border Services Agency's Administrative Monetary Penalty System for not providing required information on the prescribed product at the time of import, and systematic violations can be prosecuted under the Energy Efficiency Act.

Key achievements for 2003-2004 with respect to compliance are as follows:

• Over 350 000 records relating to the importation into Canada were processed
• Over 38 000 new or revised model numbers were entered into NRCan's compliance database from energy efficiency reports received from dealers.
• New processes to facilitate the updating of energy efficiency report submissions and to enable the processing of greater amounts of data in the database were implemented. New reporting forms were developed for regulated products to facilitate reporting of energy efficiency information by dealers and manufacturers. New batch import procedures were put in place to allow new energy efficiency data submissions to be processed more efficiently and in a timely manner. As a result of these improvements, the accuracy of the data that NRCan is capturing and the monitoring capabilities of the system increased.
• Dealer, manufacturer and importer communities were informed about new regulations affecting vented gas fireplaces in the Regulations.
• Instances of non-compliance were handled on a case-by-case basis in accordance with the Compliance Policy (the major activity being dealer, manufacturer and importer education of the requirements of the Regulations).