Turning the Corner: An Action Plan to Reduce Greenhouse Gases and Air Pollution

Regulatory Framework for Industrial Air Emissions

October 2007

Page 2

The Government announced the Regulatory Framework for Air Emissions

• On April 26, 2007, the federal government announced Turning the Corner: An Action Plan to Reduce Greenhouse Gases and Air Pollution and made public the regulatory framework for air emissions

• The regulatory framework for air emissions presents mandatory and enforceable reductions in emissions of greenhouse gases and air pollutants from industrial sectors

• Consultations and formal comments on the Notice of Intent (October 21, 2006) were instrumental in shaping/refining this Regulatory Framework for Air Emissions

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The Regulatory Framework provides a nationally consistent approach to reduce air emissions

• Responding to– Uneven effort across the country to reduce air emissions– Inconsistent messages to industry– Insufficient action to protect health and the environment

• This approach provides– Tangible benefits for Canadians and their environment – Nationally consistent regulations – Continued competitiveness of our economy– A level playing field across Canada– The basis for negotiations with our international partners

Greenhouse Gases

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Greenhouse gas emission targets

Target

Existing facilities 6% improvement each year

from 2007 to 2010, giving an enforceable 18% reduction from 2006 emission intensity in 2010

2% annual improvement thereafter

New facilities 3 year grace period Clean fuel standard 2% annual improvement

Total Industrial Target

2006 Emission Intensity Level

% C

han

ge f

rom

20

06

In

ten

siti

es

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

2010 2015 2020

Total Industrial Target

2006 Emission Intensity Level

2010 2015 2020

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Greenhouse gas compliance options

Ways to comply

In-house reductions

Climate Change Technology fund: one fund/two components Deployment & Infrastructure: focus on opportunities for near term emission reductions:

access as % of total target over 2010-2017 period - 70%, 65%, 60%, 55%, 50%, 40%, 10%, 10%

Research & Development: focus on new transformative technologies: access over 2010-2017 period - 5 Mt annually

Explore credit for certified project investments Contribution rate to funds ($/tonne over 2010-2017 period) - $15, $15, $15, $20, $20

escalating with GDP

Trading Domestic inter-firm trading Access to domestic offsets Access to the Clean Development Mechanism at 10% of firms’ total target Actively explore Canada-US linkages

Credit for early action of 15 Mt With a maximum of 5Mt any given year

Air Pollutants

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Air pollutant targets are aligned with the best in the world

• Benchmarking to other jurisdictions– Examined the most stringent standards for each pollutant in

each sector in Canada (provinces), in the U.S., and internationally

– Where no benchmark exists, targets developed based on specific activities and equipment in similar sub-sectors (e.g.: oilsands)

– Adjustment to Canadian circumstances where appropriate

• Identified sectoral targets based on these stringent regulatory emissions requirements

• Calculated national caps for the four main smog-forming pollutants

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Air pollutant emission targets

Targets

NATIONAL CAPS for 2012 to 2015(% reduction from

2006 emissions)

NOx – 600 kt Cap (~40%) SOx – 840 kt Cap (~55%) VOCs – 360 kt Cap (~45%) PM – 160 kt Cap (~20%)

+SECTOR SPECIFIC CAPS for 2012

to 2015

ALL TO BE VALIDATED BY SPRING 2008, INCLUDING THE DATE OF

COMING INTO FORCE

0

500

1,000

1,500

2,000

2,500

Nitrogen Oxides(NOx)

Sulphur Oxides(SOx)

Volatile Organic Compounds

(VOC)

Particulate Matter (PM)

-40%

600kt

-55%

840kt -45%

360 kt-20%

160 kt

kil

oto

nn

es

2006 Industrial Air Emissions2015 Projected Industrial Air Emissions with proposed targets

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Air pollutant compliance options

Ways to comply

In-house Reductions Fuel switching Equipment and Process Upgrades Control technologies

Domestic Trading for NOx and SOx Cap and trade system Feasibility of offsets will be assessed

Pursue discussions on Canada- US trading for NOx and SOx

Anticipated Impacts & Benefits of Regulating Industry

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National economic impacts will be manageable

• Total package (regulations and eco-Action initiatives) has impacts that are below -0.5% of GDP for any given year throughout the forecast period

– Costs are highest in post-2015 period when package is mature– Regulatory package for climate change and air pollutants the largest

contributor to GDP impacts

• Compliance options provide the time and flexibility to meet targets through technology improvements rather than output changes

– Complements normal capital turnover cycles– Permits relatively cost-effective roll-out of major technologies such as

carbon capture and sequestration by 2016 or so

• As a result, GDP impacts in the pre-2015 period in particular are somewhat offset by increased investment activity

– Energy efficiency savings dampen cost impacts throughout the forecast period

Consultations and Next Steps

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Section 71 notice

• The government will require facilities in sectors to be regulated to report 2006 emissions and other relevant data under a notice issued under section 71 of the Canadian Environmental Protection Act,1999 (CEPA 1999)

• Section 71 data will be used to:– validate the baseline data and inform the allocation considerations for

the sector caps

– assist in the development of the reporting requirements

– inform the detailed regulation design

– enhance the level of detail in the current inventories

• The Section 71 notice will be published in Canada Gazette this fall• Facilities will be required to report back by spring 2008

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Intensive consultations followed release of Framework in April

• Immediately following the release of the regulatory framework, work commenced with provinces and territories, industry sectors, and with non-governmental organizations on:

– Validation of sector-specific air pollutant targets including their date of coming into force – priority issue

– Allocation of air pollutant and implementation of GHG targets within each sector

– Broad parameters of compliance mechanisms (scope of offsets system, governance of technology fund, etc.)

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What we’ve heard: Greenhouse gases• Industry generally accepts the stringency and structure of the

targets– Doable if compliance options not too constrained

• Some provinces and NGOs feel targets not stringent enough and would prefer different approach (cap and trade)

• Technology fund may be most controversial issue – differing views– Industry concerned over phase-out and investment constraints– Some fear the fund will interfere in market trading

• Credit for early action – Concern that 15 Mt not enough– Criteria for allocation may be too restrictive

• Other outstanding issues– Definitions: Clean Fuel Standard, New Facilities– Scope and timing of Offsets System

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What we’ve heard: Air pollutants

• Timeline for validation of air pollutant targets too short• Air pollutant targets not based on local air quality

conditions• Potential for overlap/duplication with provincial regimes• Differing views around stringency of targets• Questions around benchmarking approach• Differing views around trading • Questions over how air quality objectives will be

developed and used

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Moving Forward

• Fundamental issues have been raised on air pollutant framework -- consultations will be extended to Spring 2008

– Allows continuation of joint federal/provincial/territorial work through CCME

• Finalize the Greenhouse Gas Regulatory Framework by December 2007

• Finalize negotiation strategy for PM Annex by November 2007

• Begin to publish draft regulations in Spring/Summer 2008, to be amended later for air pollutant provisions