Author: WM

Carbon Offsetting and Reduction Scheme for International Aviation

Since the adoption of the Kyoto Protocol in 1997, ICAO has been under increasing pressure to produce a plan to reduce emissions from aviation. Notably, aviation emissions were excluded from the Paris Agreement. On 6 October 2016, a deal was reached by 191 countries at the Plenary Session of the International Civil Aviation Organization’s (ICAO) 39th Assembly to manage carbon dioxide (CO2) emissions from international aviation through a new global market-based measure known as the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). With the adoption of CORSIA, the aviation industry is signaling its intent to shoulder its responsibility for emission reductions by mitigating GHG emissions from its sector.

CORSIA, which is designed to complement the basket of mitigation measures the air transport community is already pursuing to reduce CO2 emissions from international aviation (including technical and operational improvements and advances in the production and use of sustainable alternative fuels for aviation), will commence with a pilot phase from 2021 through 2023. Starting from 2021, airlines that opt in to the scheme will have to purchase offsets to balance their emissions growth above 2020 levels. More than 65 countries representing over 85% of global air traffic have said they will participate from the beginning. The pilot phase will be followed by a first phase from 2024 through 2026. Participation in both of the pilot and first phases will be voluntary and the next phase from 2027 to 2035 would see all states on board. Some exemptions were accepted for Least Developed Countries (LDCs), Small Island Developing States (SIDS), Landlocked Developing Countries (LLDCs) and States with very low levels of international aviation activity. The scheme will be reviewed every three years.

In 2010, the aviation industry had agreed on an aspirational goal to cap its emissions after 2020, so that future growth would be carbon neutral. IATA reported that aviation in 2015 emitted 781 million tonnes of CO2, meaning that if it was a country, it would be the world’s sixth largest emitter. Since the industry is expected to grow at an average rate of around 5% per year over the next two decades, it will need to find ways to significantly increase its efficiency or balance its own emissions through emissions reductions in other sectors.

Curbing Global Consumption of HFCs

On 15 October 2016, 197 countries struck a landmark deal to reduce the emissions of hydrofluorocarbons (HFCs), a category of highly potent greenhouse gases (GHG). It is anticipated that this agreement could prevent up to 0.5 degrees Celsius of global warming by the end of this century. The amendment to the Montreal Protocol on Substances that Deplete the Ozone Layer that was endorsed in Kigali is considered to be the single largest contribution the world has made towards keeping the global temperature rise “well below 2 degrees Celsius”, a target agreed at the Paris climate conference in 2015.

HFCs, currently the world’s fastest growing GHG, are commonly used in refrigeration and air conditioning as substitutes for ozone-depleting substances. According to the United Nations, emissions from HFCs are increasing by up to 10% each year as global demand for cooling, particularly in developing countries with a fast-expanding middle class and hot climates, grows rapidly. The Kigali amendment provides that developed countries will start to phase down HFCs by 2019. Developing countries will follow with a freeze of HFC consumption levels in 2024, with some countries freezing consumption in 2028. By the late 2040s, all countries are expected to consume no more than 15-20% of their respective baselines.

Countries also agreed to provide adequate financing for HFCs reduction, the cost of which is estimated at billions of dollars globally. The exact amount of additional funding will be agreed at the next meeting in 2017. While alternatives to HFCs with a smaller impact on the climate are available (such as ammonia or carbon dioxide), they remain more expensive than HFCs.  As a result, grants for research and development of affordable alternatives to HFCs will be the most immediate priority for countries to pursue.

 

Canadian Federal Government Announces Minimum Carbon Price for Provinces to Meet

On October 3, 2016, Prime Minister Trudeau announced that the federal government will set a minimum price on carbon starting at $10 per tonne in 2018, and increasing by $10 per year for the next four years until it reaches $50 per tonne by 2022. Each province will be required to implement carbon pricing in its jurisdiction within two years – whether in the form of a carbon tax or a cap-and-trade system – which must meet the federal minimum price. Otherwise, the federal government will impose a tax that makes up the difference and return the revenue to the province. In addition, provincial emission reduction goals for reducing emissions must be at least as stringent as federal targets. Currently, Canada’s four biggest provinces – Ontario, Quebec, Alberta and British Columbia – have carbon pricing plans in place.

The Prime Minister said he will convene a first ministers’ meeting on December 8 with the aim of concluding a pan-Canadian climate plan, which would include carbon pricing and other measures.

 

British Columbia releases long-awaited Climate Leadership Plan

On August 19, 2016, the BC government released its long-awaited Climate Leadership Plan, which updates the province’s earlier Climate Action Plan (2008). The plan follows the release of the government-appointed Climate Leadership Team’s (CLT) recommendations in November 2015 and sets out 21 actions to reduce emissions across five areas: (1) natural gas, (2) transportation, (3) forestry and agriculture, (4) communities and built environment, and (5) public sector.

The CLT had made 32 recommendations including, among others, the establishment of a mid-term 2030 greenhouse gas emissions reduction target and a reduction in the provincial sales tax from 7% to 6%, which would be offset by an increase in the carbon tax by $10 per year commencing in July 2018.  While the Climate Leadership Plan has been informed by some of the recommendations made by CLT and feedback received from the public and stakeholders, the plan focuses on actions that will enable BC to achieve its legislated target of reducing emissions 80% below 2007 levels by 2050. In so doing, the Climate Leadership Plan bypasses BC’s 2020 target of achieving a reduction in GHG emissions of 33% below 2007 levels. The BC government has declined to set a mid-term target and will keep the province’s revenue neutral carbon tax at $30 per tonne until the federal government’s approach to carbon pricing is revealed.

The key actions in the Climate Leadership Plan include the following:

Communities & Built Environment

  • Working together with local governments to refresh the Climate Action Charter, with a particular focus on: (i) growth near major transit corridors for large urban communities; (ii) increasing the use of decision support tools that provide the information needed to create more resilient green infrastructure; and (iii) strengthening the ability of communities to adapt to the impacts of climate change.
  • Amending regulations to promote more energy efficient buildings.
  • Creating a waste-to-resource strategy to reduce waste sent to landfill and establishing a food waste prevention target of 30% and increasing organics diverted from landfills to 90%.

Public Sector

  • Promoting the use of low carbon and renewable materials in public sector buildings.
  • Mandating the creation of 10-year emission reduction and adaptation plans for provincial public sector operations.

Transportation

  • Increasing the requirements for BC’s Low Carbon Fuel Standard to 15% by 2030 (it currently requires a reduction in the carbon intensity of transportation fuels by 10% by 2020 (relative to 2010)).
  • Amending regulations to encourage emission reductions in transportation by allowing utilities to double the total pool of incentives available to convert commercial fleets to natural gas, when the new incentives go towards vehicles using 100% natural gas.
  • Expanding support for zero emission vehicle charging stations in buildings through the Clean Energy Vehicle program.

Forestry & Agriculture

  • Rehabilitating under-productive forests, recovering more wood fibre, and avoiding emissions from burning slash; these actions will be taken through the new Forest Carbon Initiative, which will seek to increase the rate of replanting and fiber recovery by 20,000 hectares per year.

Industry & Utilities

  • Developing new energy efficiency standards for gas-fired boilers.
  • Facilitating projects that will help fuel marine vessels and commercial vehicles with natural gas.

Natural Gas

  • Developing a strategy to reduce upstream methane emissions, including targets for reducing fugitive and vented emissions from extraction and processing infrastructure (built before January 1, 2015) by 45% by 2025.
  • Investing in infrastructure to develop upstream electrification of several projects, including the Peace Region Electricity Supply Project, North Montney Power Supply Project and others.

The BC government has said that the Climate Leadership Plan is a living document that will be further updated over the coming year. The plan will likely be updated to reflect federal climate change policy developments once the working groups that were established at the First Ministers’ meeting in March 2016 report back in October 2016 (working groups were established to study (a) clean technology, innovation and jobs, (b) carbon pricing mechanisms, (c) mitigation opportunities, and (d) adaptation and climate resilience).

Ontario Introduces Draft Climate Change Legislation and Supporting Cap & Trade Regulation

To facilitate the implementation of its cap and trade program, Ontario has introduced framework climate change legislation and a supporting cap and trade regulation. The Climate Change Mitigation and Low Carbon Economy Act (the Act) legislates Ontario’s greenhouse gas (GHG) emissions targets, requires the publication of a climate change action plan, and establishes the framework rules for the cap and trade program, as well as the rules for managing the proceeds from the cap and trade program. Ontario has also introduced a draft regulation setting out the details of the cap and trade program, which will cover industries, institutions, electricity generators, and suppliers and distributors of heating fuels that emit 25,000 tonnes of GHG emissions per year or more, as well as suppliers and distributors of transportation fuels that distribute 200 litres of fuel per year or more. The program would also cover entities that import electricity and fuels in to Ontario. Under the cap and trade program, which will come into force on January 1, 2017, 82% of the province’s total GHG emissions will be covered. To create a robust offset credit program in Ontario, a separate offsets regulation will be drafted under the climate change legislation later in 2016.

Overview of the Climate Change Mitigation and Low Carbon Economy Act
The proposed Act looks to:

  • Make Ontario’s greenhouse gas reduction targets legally binding – the following targets have been established: 15% below 1990 levels by 2020, 37% below 1990 levels by 2030 and 80% below 1990 levels by 2050.
  • Formally direct all cap and trade auction proceeds to a new Greenhouse Gas Reduction Account that would fund green projects to reduce emissions.
  • Ensure transparency by requiring an annual public report on funds flowing in and out of the Greenhouse Gas Reduction Account, including a description of funded initiatives and their alignment with climate change action plans.
  • Provide a legal framework for the cap and trade program.
  • Provide a framework for reviewing and increasing targets, as well as establishing additional interim targets.
  • Allow for transitional allowances to large industrial emitters which would be phased out over a period of time.
  • Require the government to prepare and implement a climate change action plan for achieving these targets, with progress reports and a review of the plan at least every five years.

Overview of Draft Cap and Trade Regulation
In connection with the proposed cap and trade program, the Ministry of Environment and Climate Change (MOECC) has posted a regulatory proposal for a cap and trade regulation, which includes an appendix presenting detailed technical information for the distribution of allowances to eligible capped emitters for the first compliance period, details related to early reduction credits, and an overview of complementary amendments for the reporting regulation and incorporated guideline to support implementation of the cap and trade program.
Ontario is planning to set a cap on emissions for each year of the first compliance period that will start in 2017 and last through 2020; the cap would be set based on the emissions that are forecast for each of those four years. The cap would translate into the total number of emissions allowances that would be made available for covered sectors through auctioning and free-of-charge allocation. Under the program, regulated emitters will be required to hold a sufficient number of allowances to cover their annual emissions.
Between 2017 and 2020, the economy-wide cap is expected to decline at a rate of 4.17% each year to meet Ontario’s 2020 emissions reduction target. The heating and transportation fuel sector and industries will face cap declines. However, the sector-specific cap for the electricity generation sector will remain unchanged from year to year in recognition of the emission reductions that the sector has already undertaken with the closure of coal-fired power plants.
In order to provide transitional support for emissions intensive and trade exposed industries, Ontario plans to allocate emissions allowances free of charge to a broad range of industries including cement, lime and steel. This is aimed at reducing the risk of “carbon leakage”, or the relocation of local industries to other jurisdictions with less stringent environmental standards or no carbon pricing policy. Ontario will review the allocation of allowances at the end of the first compliance period in 2020. The coverage of electricity and fuel imports in the program seek to provide a level playing field for Ontario’s electricity generation and fuels sectors. The government has also indicated that it will consider additional actions to prevent carbon leakage, including border carbon adjustments.
To facilitate compliance, covered sectors would also have the option of funding emissions reductions in non-covered sectors, such as agriculture, through the purchase of offset credits. The government will establish the criteria for creating offset credits that are real, permanent and quantifiable. Furthermore, emitters that have voluntarily taken early and verifiable action to reduce GHG emissions would be rewarded through one-time early reduction credits. Smaller emitters with annual emissions of between 10,000 and 25,000 tonnes would have the choice of opting into the cap-and-trade program and have access to the free allocation of allowances.
The cap and trade proposal has been posted for a 45 day public review and comments may be submitted to MOECC by April 10, 2016.

Revised GHG Reporting Guideline
MOECC has also issued a revised Guideline for Greenhouse Gas Emissions Reporting. To support the proposed cap and trade program, MOECC is now proposing to revoke the Greenhouse Gas Emissions Reporting Regulation (O.Reg. 452/09) and replace it with a new greenhouse gas reporting regulation and incorporated Guideline under the Act. Proposed changes will include:

  • Requirements to report production and other process related information;
  • Provisions to allow facilities with emissions between 10,000 and 25,000 tonnes to opt-in;
  • Clarifications on measurement requirements and reporting of biomass types; and
  • Refinements to the Regulation and Guideline to facilitate implementation of the Cap and Trade Regulation.

Canada, US and Mexico sign MOU on Climate Change and Energy Collaboration

On February 12, 2016, the energy minister and energy secretaries from Canada, Mexico and the United States met for the North American Energy Ministers Meeting in Winnipeg, where the parties signed a Memorandum of Understanding on Climate Change and Energy Collaboration. The countries also announced a web platform where North American energy information can be accessed in one place. The MOU represents a step towards a continental energy strategy, under which Canada, Mexico and the US will collaborate and share information in six key areas:

  1. Sharing experience and knowledge in the development of reliable, resilient and low-carbon electricity grids.
  2. Modeling, deploying and accelerating innovation of clean energy technologies, including renewables.
  3. Exchanging information in order to improve energy efficiency for equipment, appliances, industries and buildings, including energy management systems.
  4. Exchanging information and promoting joint action to advance the deployment of carbon capture, use and storage.
  5. Identifying trilateral activities to further climate change adaptation and resilience.
  6. Sharing best practices and seeking methods to reduce emissions from the oil and gas sector, including methane and black carbon.

As noted above, the three countries have announced a web platform for sharing information on energy resources in North America. The North American Cooperation on Energy Information (NACEI) was initiated in 2014 and sought to develop resources for:

  1. comparing, validating, and improving respective energy import and export information;
  2. sharing publicly available geospatial information related to energy infrastructure;
  3. exchanging views and information on projections of cross-border energy flows; and
  4. harmonizing terminology, concepts and definitions of energy products.

With the launch of the NACEI, North American energy information is now available on one platform and includes:

  • Energy Trade Data: Data tables covering traded energy between the three countries, as well as a methodological guide explaining the attributes of each data source. A detailed cross reference of terminology and a common set of conversion factors are also available.
  • North American Energy Maps: A series of maps of energy infrastructure and a multi-layered interactive mapping site are available and will be augmented as additional GIS data is verified.
  • Energy Outlooks: Reports describing and comparing the outlooks for energy trade across the continent.

Further discussions on a continental energy strategy are expected when Prime Minister Justin Trudeau meets with President Barack Obama in March 2016.

Amendments to Ontario’s GHG Reporting Regulation now in Force

In December 2015, the Ontario Ministry of the Environment and Climate Change filed amendments to the Greenhouse Gas Emissions Reporting Regulation (O.Reg. 452/09) that came into force on January 1, 2016. An amended Guideline for Greenhouse Gas Emissions Reporting was published as well. The amendments include:

  • lowering the reporting threshold to 10,000 tonnes carbon dioxide equivalent (CO2e) from the current threshold of 25,000 tonnes per year, while maintaining the requirement to have emissions greater than 25,000 tonnes per year third party verified;
  • dividing the emission sources into those that only need to report and those that require third party verification;
  • clarification on verification to allow for the use of qualified positive, in addition to positive and adverse verification statements;
  • adding petroleum product suppliers and natural gas distributors to the reporting regulation starting in 2016, to support the implementation of a cap and trade program; and
  • adding other sources to the reporting regulation including:
    – equipment used for natural gas transmission, distribution and storage;
    – electricity imports;
    – electricity transmission and distribution;
    – magnesium production; and
    – mobile equipment at facilities (optional reporting only).

These amendments were made to support the implementation of Ontario’s cap and trade program, the design for which is expected to be finalized in spring 2016. As previously announced by the Ontario government, it will also be releasing a detailed five-year action plan in 2016 which will include specific commitments for the province to meet its 2020 emission reduction targets and establish the framework necessary for Ontario to meet its 2030 and 2050 emission reduction targets.

BC’s New GHG Reporting Framework came into force on January 1, 2016

In January 2010 British Columbia’s first mandatory GHG reporting regulation came into force. The Reporting Regulation specified that operations located in British Columbia and emitting 10,000 tonnes or more of carbon dioxide equivalent emissions (CO2e) per year (excluding emissions from biomass listed in Schedule C of the regulation) are required to report greenhouse gas (GHG) emissions (while reporting operations emitting 25,000 tonnes or more of CO2e per year have also been subject to a third party verification requirement).
As part of efforts to re-orient BC’s GHG regime and establish a framework for the developing liquefied natural gas (LNG) industry, the BC government passed the Greenhouse Gas Industrial Reporting and Control Act (the Act), which came into force on January 1, 2016. The Act introduces as part of the reporting performance standards that are set for industrial facilities or sectors by listing them within a Schedule to the Act. Currently, the Schedule sets GHG emissions benchmark for LNG facilities and includes an emissions benchmark for coal-based electricity generation operations. It is anticipated that other industrial facilities and sectors will be added later. The Act also streamlines several aspects of existing GHG legislation and regulation into a single legislative and regulatory system, including the GHG reporting framework established under the Greenhouse Gas Reduction (Cap and Trade) Act. Notably, three regulations necessary to implement the Act also came into effect on January 1, 2016:

  1.  Greenhouse Gas Emission Reporting Regulation – this regulation replaces the existing industrial Reporting Regulation and adds compliance reporting requirements.
  2. Greenhouse Gas Emission Administrative Penalties and Appeals Regulation – this regulation establishes the process for when, how much, and under what conditions administrative penalties may be levied for non-compliance with the act or regulations.
  3. Greenhouse Gas Emission Control Regulation – this regulation establishes the BC Carbon Registry and sets criteria for developing emission offsets issued by the BC government. The regulation also establishes a price of $25 for funded units issued under the Act that would go towards a technology fund to support the development of clean technologies. Regulated operations will need to purchase offsets from the market or funded units from government in order to meet their compliance obligations.

Under the new Greenhouse Gas Emission Reporting Regulation, industrial operations will continue to report GHG emissions as they have since 2010.

Paris Agreement Heralds New Era for Climate Change Policies

On December 12, 2015, the Paris Agreement was adopted by 195 members of the UN Framework Convention on Climate Change (UNFCCC), which sets out the terms of a global agreement to lower greenhouse (GHG) emissions and limit the impacts of climate change. Unlike the Kyoto Protocol, this is not so much a regulatory tool with one clear pathway of actions and regulations set at one point in time, but rather a framework with a portfolio of directions for different aspects of climate change mitigation instruments developing over time. This portfolio includes a framework of national GHG emission reduction plans, regular reviews, clean development financing as well as market and non-market approaches to reducing emissions. The Paris Agreement is a global instrument that will develop and solidify over time.

The key element at the national government level is the concept of Nationally Determined Contributions (NDCs), a process which relies on national governments to formulate, implement, monitor, report and update their own national reduction targets and strategies to achieve them. At the sub-national government level, technical and financial commitments in the Paris Agreement will help to facilitate climate action at the local level. However, non-state actors (such as companies and non-governmental organizations) also have a key role and are strongly encouraged to make their contributions to enable lower GHG emission solutions. The Paris Agreement will enter into force on the 30th day after the date on which at least 55 parties to the UNFCCC accounting for at least 55% of total global GHG emissions deposit their instruments of ratification, acceptance, approval or accession.

The Paris Agreement consists of 29 articles, with both binding and non-binding commitments. The aim of the Paris Agreement is to strengthen the global response to climate change on a time horizon towards 2030 and one of the key commitments by countries is to hold the increase in global average temperature to well below 2°C above pre-industrial levels, while pursuing efforts to limit the temperature increase to 1.5°C above pre-industrial levels. The Paris Agreement also establishes goals to enhance capacity for climate change adaptation, strengthen resilience and reduce vulnerability to climate change.

While each member nation is required to put forward an NDC, there are no legal requirements for specific national emission reduction targets or actions in the agreement itself beyond the overall global climate change mitigation target. However, certain legally binding commitments have been built into the Paris Agreement. This includes a requirement that countries submit updated plans every five years with increasingly stringent emission reduction targets as part of the NDC, starting in 2020. Countries will also be required to carry out a global stocktake in 2023, and every five years thereafter, to assess their collective progress on emission reductions. Countries will also be required to monitor and report on their national emissions inventory using a common reporting format. In terms of financing, developed countries have committed to mobilizing the financial resources needed to assist developing countries with respect to both mitigation and adaptation.

Even though climate change has been on the global agenda for the past two decades, the Paris Agreement marks a major milestone in global climate change policy, where both developed and developing countries have reached a consensus on taking action and making the necessary investments to move the world towards a low carbon and resilient future. Over the next few months, it will become clear to what extent policy makers from all levels of government will engage with stakeholders to initiate the conversation on what actions will be required at all levels of the economy and government to meet our international climate commitments.