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Summary of Comments Received on the Notice of Intent to Regulate Greenhouse Gas Emissions by Large Final Emitters
(Canada Gazette, Part I, July 16, 2005, Vol. 139, No. 29)
Adobe Acrobat PDF format (53 KB)
Table of Contents
Introduction
The Notice of Intent to Regulate Large Final Emitters was published in
the Canada Gazette, Part I on July 16, 2005. It outlines how the federal
government plans to implement its climate change policy with respect to
greenhouse gas emission reductions by Large Final Emitters (LFEs).
The working assumption is that the proposed regulation would be developed
under Parts 5 and 11 of the Canadian Environmental Protection Act, 1999
(CEPA 1999). The Minister of the Environment would be the responsible
Minister, and the proposed regulations would be administered by Environment
Canada.
The publication of the Notice of Intent was followed by a 60-day comment
period. A total of 37 submissions were received. Responses came from various
industry organizations, companies, provincial governments, environmental
organizations, traders and interested members of the public. The following
is a summary of the comments received.
1. Regulatory Development Under CEPA 1999
1.1 Development of LFE Regulations
Comments included:
- All six greenhouse gases meet the criteria set out in Section
64 of CEPA 1999 and should be added to Schedule 1 of CEPA 1999.
- It is inappropriate to regulate carbon dioxide and other greenhouse
gases as toxic substances under CEPA 1999.
- The government should remove the toxic references as it relates
to Schedule 1 and instead make reference to controlled or potentially
harmful substances.
- A different section of CEPA 1999, such as the International Air
Pollution provisions in Part 7, Division 6, should be used to regulate
greenhouse gases.
- It is reasonable to use CEPA 1999 as a legislative authority to
regulate greenhouse gas emissions provided that CEPA 1999 can backstop
the LFE system.
Overall, there was strong support from environmental organizations for
the government's proposal to regulate greenhouse gases using CEPA
1999. Comments received from industrial sectors reflected mixed opinions
regarding regulatory development under CEPA 1999. The majority of industry
respondents had strong concerns regarding the designation of carbon dioxide
as a toxic substance.
1.2 Partnerships with Provinces and Territories
Comments included:
- There is a need for increased partnership and cooperation between
federal, provincial and territorial governments.
- The federal government should make an effort to accommodate regional
diversity.
- Since it is the federal government that has the legal obligation
to comply with Kyoto Protocol, it should retain the final say in setting
the policy outcomes and objectives of the LFE system.
Overall, industry was supportive of a harmonized approach to regulation,
highlighting the importance of cooperation between federal, provincial,
and territorial governments. Industry respondents also supported the development
of a single national emissions reporting system. Environmental organizations
expressed a desire for federal authorities to retain final decision-making
authority in implementing the Large Final Emitters system.
2. Emissions Intensity Targets
Comments included:
- Equivalency agreements must ensure that all entities within
a sector are treated equally.
- The development of targets should be based on sectoral emissions
intensity.
- Using emissions intensity to control greenhouse gas tends to favour
those sectors that are increasing overall production.
- Using emissions intensity targets rather than absolute emissions
reductions targets results in an unacceptable transfer of liability for
higher-than-expected production to government and taxpayers.
Overall, industry responses reflected a generally positive attitude toward
emissions intensity targets. Certain sectors pointed out the potential
challenges in setting and meeting proposed emissions intensity targets.
Environmental organizations were opposed to the use of intensity, rather
than absolute, emissions targets.
2.1 Targets for Existing Facilities
Comments included:
- Facilities or sectors should be able to choose whether emissions
intensity reduction targets should be set at 12% below total emissions
intensity or 15% below thermal combustion intensity only.
- Emissions intensity targets should take into account available
technologies and the market conditions facing companies.
- The arbitrary limit of a 12% reduction target for industries with
no fixed process emissions will have a negative impact on the competitiveness
of those industries with fixed process emissions for which there are no
known technologies to reduce emissions.
- Emission intensity targets should be calculated on a facility
basis because operating profiles are different across facilities, and
as a result, emission intensity values are different.
- Targets should be based on consistent data sets, taking into account
that most facilities within a sub-sector will vary, particularly given
the variable boundaries of integrated facilities.
- Targets should be based on sectoral emissions intensity, but adjustments
need to be made in setting the sector target for process emissions at
individual facilities.
- The government should recognize measures already taken in certain
sectors to reduce greenhouse gas emissions.
- A zero percent target for fixed process emissions is unnecessary
given that overall targets for LFEs have already been reduced from 15%
reduction to 12% reduction.
- A number of sector-specific concerns were raised.
Overall, there was strong support expressed by industry for facility-specific
emissions intensity targets. Certain sectors raised sector-specific concerns
that are being dealt with through the development of the sector-specific
regulations. Environmental organizations expressed the belief that the
exclusion of fixed process emissions from the emissions intensity targets
for LFEs is unadvisable.
2.2 Best Available Technology Economically Achievable
Comments included:
- BATEA-based targets should draw on an appropriate set of national
criteria.
- BATEA targets should be fuel-specific.
- Facility-based BATEA targets should be implemented.
- New facilities and existing facilities undergoing major transformations
or expansions that outperform BATEA standards should be able to sell,
bank, or use credits in other covered facilities of the company.
- Facilities operating at BATEA standards that were built or renovated
prior to 2000 unfairly face a 12% reduction on their emissions intensity
despite prior investments in emissions-reducing technology.
- BATEA-based targets will only be acceptable if, a) targets are
set at a lower intensity level than targets for existing comparable facilities
and b) they can be tightened after a reasonable amount of time has elapsed.
- It is imperative that BATEA standards reflect regional differences
in capacity to generate clean power.
Overall, respondents expressed qualified support for the BATEA concept.
Environmental organizations encouraged the federal government to interpret
BATEA stringently.
Responses from industry expressed divergent opinions on whether BATEA
targets should be applied on a sector or facility basis. Some companies
and sector organizations raised sector-specific issues that are being
dealt with through the development of sector-specific regulations.
2.3 Co-generation, Clean Energy and Demand-Side Management
Comments included:
- Appropriate incentives should be given to encourage the use and
development of cogeneration.
- The government should recognize that what can be an incentive
for cogeneration located at a mill or factory can be a disincentive to
cogeneration located at a power plant if improperly structured.
- The inclusion of demand-side management in the Offset System could
potentially stimulate the expansion of energy efficiency and demand-side
management activities in Canada.
- Credits granted under the Offset System should not be counted
under the Partnership Fund as well.
Overall, industry respondents expressed general support for the eligibility
of clean energy, demand-side management, and non-LFE co-generation. A
number of respondents, however, expressed concern about the difficulties
involved in accounting for co-generation emissions. Environmental organizations
are concerned that double-counting of credits under the Offset System
and Partnership Fund will take place.
2.4 Minimum Emissions Thresholds
Comments included:
- Facility-based minimum emissions thresholds should be implemented
to reduce the administrative burden associated with the LFE system.
- Minimum emissions thresholds should be established on a company-wide
rather than a facility-to-facility basis.
- In determining minimum emissions thresholds, the federal government
should give consideration not only to small companies, but also those
companies with low emissions due to the use of carbon-neutral fuels.
- Firms that don't mean the minimum emissions threshold should
be combined into a single large emitter for the purposes of the LFE system,
thereby reducing the regulatory costs borne by each firm.
- The government should ensure that upstream oil and gas facilities
that might fall below the minimum emissions threshold are not responsible
for a major proportion of total emissions from the oil and gas sector.
Overall, industry respondents were supportive of the establishment of
minimum emissions thresholds of annual greenhouse gas emissions that a
company must exceed in order for the proposed LFE regulation to be applicable.
Opinions were divided, however, on how the threshold should be implemented.
Environmental organizations want the government to ensure that the exemption
of smaller emitters does not significantly reduce the overall amount of
industrial emissions.
3. Flexible Compliance Options
3.1 Emissions Trading System
Comments included:
- The federal government should consult with the Ontario Ministry
of the Environment which has a registry for administering NOx and SO2
trading.
- Intra-company transfer of credits should be permitted with minimal
transaction costs to encourage emission reductions at the lowest cost.
- In order to increase the liquidity of Canada's carbon market,
the government should loan and/or auction off a significant volume of
domestic credits to market players that they can then use for trading.
- The government should not just purchase international credits
for use towards reaching Canada' Kyoto commitments, it should also
grant certified credits within Canada that can be sold into the world
market.
- The federal government should ensure that the emissions trading
system is efficient, easy to use, readily verifiable and cost-effective.
- Concerns were expressed about the effect of the $15 price assurance
on the liquidity of the emissions trading system.
- A "baseline-and-credit" emission trading system sends
the signal that companies have a right to emit. A permit system, on the
other hand, sends a signal that every tonne of emissions must be covered
by a permit issued by the government on behalf of the public.
- Any electronic credit tracking system must be made fully accessible
to the public.
Overall, responses indicated that industry would like the transaction
costs of a domestic emissions trading system to be minimized. Traders
are concerned about the size of the domestic emission trading system and
the impact of the $15 dollar price assurance on market liquidity. Some
environmental organizations expressed a preference for a cap-and-trade
system over a "baseline-and-credit" emissions trading model.
3.2 Technology Investment for Compliance Purposes
Comments included:
- The benefit to provinces from the technology investment fund
should be relative to their contribution.
- The 9Mt/year or 45 Mt/year 2008-2012 should be allocated among
LFEs that want to use Technology Investment Units for compliance either
before the beginning of 2008, or early in 2008 in order to get the benefit
of early investment in greenhouse gas reducing technology.
- The Technology Investment Fund should begin in 2006 in order to
give Canadian companies time to gain a competitive edge in the field of
sustainable technology.
- The Technology Investment Fund may benefit certain sectors more
than others.
- Payments into a Technology Investment Fund should not be allowed
because those payments are not expected to generate emission reductions
within the Kyoto 2008-2012 timeframe. Alternately, incentives should be
provided for technology development through the establishment of appropriate
long-term LFE targets and complementary policies and measures.
Overall, industry was supportive of including contributions for technology
investment as a compliance option. Questions were raised regarding the
specifics of how the contributions to the Greenhouse Gas Technology Investment
Fund and other eligible technology investment funds will be implemented.
Environmental organizations raised concern that technology investment
for compliance purposes allows Large Final Emitters to "buy"
their way out of compliance rather than reduce their greenhouse gas emissions
intensity.
3.3 Price Assurance
Comments included:
- A simple, effective and efficient approach to providing compliance
options at $15/tonne should be developed.
- The removal of the $15 price assurance in the post-2012 period
may cause rapid inflation of carbon credit prices which would have an
overall negative impact on Canadian companies.
- Rebates should not be given on verified costs that exceed $15
due to the administrative burden that would be required and the potential
for abuse.
- To the extent that the price of greenhouse gas reductions exceeds
$15 per tonne during the implementation period, the taxpayer will be further
subsidizing large polluters.
- If additional mechanisms beyond the Technology Investment Fund
are required to meet the government's commitment to cap the cost
of compliance, special credits might be the simplest form.
- $15/tonne is too low to provide incentives for needed technology
innovation by Canadian industry.
Strong support was expressed by the majority of respondents for a simple
and practical mechanism to implement the $15/tonne price assurance. Some
suggestions were made on how this could be achieved. Traders raised concerns
about the impact of the price assurance on the liquidity of the carbon
market domestically, and how it will affect compatibility with international
carbon markets. According to environmental organizations, the $15/tonne
price assurance is too low, and costs in excess of $15 will be borne by
taxpayers to subsidize LFE compliance.
4. Compliance Assessment and Infrastructure
4.1 True-up Provisions
Comments included:
- Respondents suggested implementing a rolling three-year compliance
period with a ceiling on how far out of compliance a company should be
allowed.
- The difference of timelines amongst the different emissions trading
systems will introduce inefficiencies in the global market, as they will
allow for arbitrage and gaming between the LFE system and other systems.
- The government should provide flexibility for companies that are
planning to implement significant emission reductions later in the true-up
period.
Overall, industry representatives and the provinces expressed support
for flexibility in the true-up process. Traders would like to see harmonized
timelines between Canadian and international carbon markets.
4.2 Mergers and Acquisitions
Comments included:
- New owner/operators should be responsible for compliance regardless
of the time of acquisition or merger.
- The operator on record at the end of the year should take responsibility
for reporting and compliance.
- It is more appropriate to assign reporting and compliance obligations
to the responsible company based on the time it owned and operated the
facility, rather than place the entire responsibility on the company operating
the facility at the end of the year.
Overall, industry expressed support for the operator at the end of the
year to be responsible for the compliance liability, although there were
some divergent opinions. Environmental organizations did not comment.
4.3 Penalties
Comments included:
- A fee system which does not make non-compliance a criminal offence
should be implemented.
- To ensure environmental integrity of the system, LFEs should be
obligated to ensure that prior reductions targets that were not met are
carried over into the next compliance period.
- There is no reason to guarantee a $200 limit on penalties if that
amount does not reflect the public disapproval of such violations.
- The $200/per tonne penalty appears onerous given the uncertainties
of the proposed regulatory and reporting framework.
Overall, industry respondents believe that the $200/tonne penalty could
have severe economic consequences for certain sectors. Environmental groups,
on the other hand, feel that the penalty is too low and ford not reflect
the environmental and social impacts of non-compliance. Traders want to
ensure that LFE reductions targets that are not met will be carried over
into the next compliance period.
4.4 Quantification, Monitoring, and Reporting
Comments included:
- The design and implementation of a cost efficient single-window
reporting system is critical to avoiding excessive administrative burden
on governments and industry.
- The framework for quantification, monitoring and reporting should
respect regional differences in emissions output.
- LFE production data should be fully open to public inspection.
This transparency is essential for holding companies publicly accountable
for their use of emission trading to meet targets.
Overall, strong support was expressed for a harmonized, one-window reporting
system. Environmental organizations requested that all data reported be
made available for public access.
If you have any questions or comments regarding the Large Final Emitters
System, you can direct your message to:
Greenhouse Gas Reductions Directorate
Environment Canada
155 Queen Street, 2nd floor
Ottawa, Ontario
K1A 0E3
Tel: (613) 943-1704
Fax: (613) 995-3663
E-mail: lfe-gef@ec.gc.ca
For general information on climate change, please visit the Climate
Change web site of Canada or call 1 800 O Canada (1-8000-622-6232).
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