Climate Change in Canada: How Is It Being Addressed?
Speaking to Selina Lee-Andersen, we touch on an ever topical issue: Climate change. What is being done in the legal industry to tackle and address this growing concern? Read on to find out.
Climate change is a major talking point at the moment; can you highlight laws that have been introduced or changed in the past few years which showcase Canada moving towards being more of an environmental leader than a laggard?
Since climate change arrived on the international stage at the Rio Earth Summit in 1992, climate change policy has certainly experienced its ebbs and flows. But the climate crisis really embodies the zeitgeist now – you can see this in the young people who have taken to the streets to protest political inaction on this issue. Canada has not been immune to the see-saw nature of climate change policy. In 2012, Canada withdrew from the Kyoto Protocol, but a federal election in October 2015 brought into power a government that has taken steps to re-engage in global efforts to tackle climate change. Under the Paris Agreement, Canada committed to reducing its emissions by 30% below 2005 levels by 2030. For context, this translates into a 2030 target of 513 megatonnes (Mt) of carbon dioxide equivalent (CO2e), which will require a 302 Mt CO2e reduction in projected 2030 emissions of 815 Mt CO2e. In order to move Canada closer to its 2030 target, the federal government has introduced a series of economy-wide initiatives under the 2016 Pan-Canadian Framework on Clean Growth and Climate Change (the Framework), which provides the main policy framework for reducing emissions across the country. These initiatives include a carbon pricing benchmark, regulations targeting methane from the oil and gas sector, regulations aimed at phasing out hydrofluorocarbons under the Kigali Amendment, and the proposed introduction of a clean fuel standard, among other things.
Federal and provincial governments are also making investments in clean tech and infrastructure to support climate mitigation and adaptation efforts at the community level.
Perhaps the policy initiative that best showcases Canada’s environmental leadership is its carbon pricing benchmark, which was established under the 2018 Greenhouse Gas Pollution Pricing Act (GGPPA). Under the benchmark, provinces and territories have the option to implement either a carbon levy or a cap-and-trade system – whichever makes sense for their economic and geographical circumstances. The benchmark also allows the federal government to apply a “backstop” in any province or territory that requests it or that does not have a carbon pricing system in place in 2019 that meets the benchmark – these are known as the “backstop jurisdictions”. The backstop consists of two components. The first is a fuel levy on 21 types of fuel and combustible waste that are consumed within a backstop jurisdiction. The second is an output-based pricing system that applies to industrial facilities emitting 50,000 tonnes or more of CO2e.
The benchmark is currently set at $20 per tonne of CO2e and will rise by $10 per tonne each year until it reaches $50 per tonne in 2022. The implementation of the backstop has not come without its challenges. Several provinces have come out against the perceived intrusion of the federal government on to provincial jurisdiction on the issue of carbon pricing, and taken legal action to challenge the constitutionality of the GGPPA. In two recent court decisions, both the Courts of Appeal in Saskatchewan and Ontario upheld the constitutionality of the GGPPA and the authority of the federal government to set minimum national standards of price stringency for GHG emissions. Federal and provincial governments are also making investments in clean tech and infrastructure to support climate mitigation and adaptation efforts at the community level.
In other areas, Canada announced in June 2019 that it plans to ban single-use plastics by as early as 2021 under the Canadian Environmental Protection Act, which aligns with similar actions being taken in the European Union.
Apart from climate change policy, have there been any other recent changes to environmental laws that are worth noting?
At a broader environmental policy level, the federal government recently approved significant changes to its environmental assessment and energy regulatory processes under Bill C-69, as well as changes to the federal Fisheries Act (under Bill C-68), which governs fisheries management and the protection of fish habitat. When Bill C-69 comes into force, the current Canadian Environmental Assessment Act, 2012 will be replaced by the new Impact Assessment Act. The newly created Impact Assessment Agency of Canada will lead all federal reviews of major projects. In other areas, Canada announced in June 2019 that it plans to ban single-use plastics by as early as 2021 under the Canadian Environmental Protection Act, which aligns with similar actions being taken in the European Union. The federal government will also work together with the provinces to introduce Extended Producer Responsibility programs for companies that manufacture plastic products or sell items with plastic packaging. These plastic waste reduction initiatives complement the global Ocean Plastics Charter, which was launched by the Canadian government in June 2018 and lays the groundwork for ensuring that plastics are designed for reuse and recycling.
CSA is looking at developing new guidance for issuers in connection with the disclosure of climate change-related risks, opportunities and financial impacts.
On the flip side, are there environmental laws in Canada which you believe need to be addressed and why?
One area in which Canada has made slow progress is around disclosure requirements with respect to climate change-related risks. In recent years, there has been increasing scrutiny in both Canada and abroad on the disclosure by reporting issuers of material climate change-related risks. Currently, reporting issuers in Canada are required to disclose material risks associated with climate change in their periodic disclosure. Guidance in respect of these disclosure requirements is set out in reporting guidance document established by the Canadian Securities Administrators (CSA).
Following the Paris climate negotiations in 2015, the Financial Stability Board Task Force on Climate-related Financial Disclosures (TCFD) developed a set of recommendations for voluntary climate-related financial risk disclosures in mainstream filings. TCFD released a series of recommendations in June 2017 focused on governance, strategy, risk management, and metrics. A country-specific review of the TCFD’s recommendations for Canada concluded that company disclosure requirements are progressing relatively slowly in Canada. The review noted that Canada currently has limited corporate disclosure covering environmental, social and governance factors. In addition, climate change tends to be grouped under the umbrella of environmental requirements, and is not addressed as a stand-alone concern. As a next step, federal and provincial securities regulators should endorse the TCFD’s recommendations, and the Toronto Stock Exchange and TSX Venture Exchange should reference them in their reporting guidelines.
The most effective environmental law practitioners not only stay on top of legal developments, but they are also able to understand the complex interaction between public policy and business issues.
Following a review in 2017 by CSA of disclosure by reporting issuers of the risks and financial impacts associated with climate change, CSA identified a number of key issues including materiality, current disclosure practices, dissatisfaction with the state of disclosure, and concerns about mandatory disclosure requirements. Based on its findings, CSA is looking at developing new guidance for issuers in connection with the disclosure of climate change-related risks, opportunities and financial impacts. Demands for better and more consistent disclosure of climate-related risks underscore the growing trend not only for companies to consider the impact of climate change on their operations, but also for institutional investors to demand better climate change-related information from companies. It is within this context that Canadian securities regulators should continue to monitor the ongoing development of best practices within both voluntary and mandatory disclosure frameworks.
The most effective environmental law practitioners not only stay on top of legal developments, but they are also able to understand the complex interaction between public policy and business issues.
Why is it important for project proponents and stakeholders to incorporate environmental law considerations into project development processes and transactions?
Continuous monitoring and assessment of the potential impacts of environmental laws on projects is key to risk identification and management, as well as effective due diligence in a transactional context. For example, the recent changes to Canada’s environmental impact assessment regime will likely have significant impacts on the development of large projects. To illustrate, Canada’s proposed new impact assessment process requires an early planning and engagement phase for all projects, which could impact project development timing. In addition, new issues to be considered in project assessment include climate change and cumulative effects – as a result, the proponent will likely need to carry out additional studies to meet impact assessment requirements. The new impact assessment process also includes enhanced engagement with potentially impacted Aboriginal communities, which will require greater coordination among the proponent, regulators and local community stakeholders.
Regarding environmental law, what classifies as ‘good practice’ for large firms?
The most effective environmental law practitioners not only stay on top of legal developments, but they are also able to understand the complex interaction between public policy and business issues. This enables them to provide practical and innovative legal advice to organisations. Specifically, an in-depth understanding of each client’s business and risk profile enables practitioners to tailor a solution that is best suited to that client’s needs. The ability to deliver this level of service provides value-add for clients.
Selina Lee-Andersen
McCarthy Tétrault LLP
Partner
T: 604-643-7964
