Taking action on climate change

Waiting for government to say something definitive? It’s a dangerous game

By Alan Young

Waiting for Godot, Irish writer Samuel Beckett’s famous play, was first performed over 50 years ago, confounding critics and theatre-goers alike. Most who saw or read the play focused their attention on who, or what, Godot represented. This was misguided. It’s not well-known that Beckett wrote his play in French. The French-language title — En attendant Godot — reveals the writer’s true intention. Focus not on Godot but on what the characters do while waiting.

What does an existential play from the early ’50s have to do with climate change? An important lesson can be drawn by Canadian businesses that will be affected by laws governing emissions of greenhouse gases and air pollutants: don’t wait for a fixed set of rules before doing something. Waiting for absolute clarity from Ottawa and provincial capitals on the regulations that will govern emissions of greenhouse gases (GHGs) and air pollutants may leave companies ill-prepared to act in a timely and cost-efficient way when “Godot” finally arrives.

Regulatory uncertainty

Parliament hasn’t been a beacon of clarity. Action on climate change has followed a tortuous path over the past year. Bill C-30 (the Clean Air Act) was introduced in the House of Commons on October 19, 2006. Tabled with great fanfare, this bill emphasized measures to combat air pollution, with a lesser focus on climate change. While reducing air pollution and improving the quality of indoor and outdoor air are important public policy objectives, the opposition parties in the House committee studying Bill C-30 took advantage of what they perceived as the government’s vulnerability on the climate change file.

Negative public opinion on the bill put wind in the opposition sails. They gutted the government’s proposals and produced a re-written bill much in the image of the Liberal Party’s proposed carbon budget plan. The Clean Air Act now resides in parliamentary limbo — knowing it lacks the numbers in a minority parliament, the government won’t put the revamped bill before the House for a vote, rendering it effectively dead.

The ridicule and demise of the Clean Air Act inspired the federal government to take fresh action on climate change. On April 26, 2007, the government released a technical paper — Regulatory Framework for Air Emissions — setting out its new measures for dealing with GHGs and air pollutants such as nitrogen oxides (NOx) and sulphur oxides (SOx), independent of Bill C-30. This regulatory approach, which has the tactical advantage of not having to be approved by Parliament, was always open to the government to pursue. It chose instead to try and “change the channel” on the public discourse on climate change with its Clean Air Act. That didn’t work. Wielding the power of collective opposition in a minority parliament, the Liberals, Bloc and NDP wouldn’t permit it to happen.

The regulatory framework

The regulatory framework shifts the government’s focus, and industry’s compliance obligations, from voluntary compliance to legally enforceable regulation. This is a significant change in approach, an acknowledgment that voluntary measures have failed. Further, the new framework makes an important distinction between the regulatory treatment of GHGs, on one hand, and of NOx and SOx and other air pollutants on the other.

GHG emissions

Each facility in Canada emitting over 100,000 tonnes of GHGs per year will be required to reduce its emissions intensity (an amount of emissions per unit of economic output such as tonnes per barrel) by achieving a target reduction of 18% below 2006 GHG intensity levels by 2010. This reduction rate increases by two per cent each year so that reductions will reach 26% by 2015. These reduction targets are scheduled to come into force in 2010.

Three items of particular importance should be noted: (i) mandatory GHG emission reductions will be measured on the basis of intensity rather than as an absolute cap; (ii) the baseline date for measuring reductions is 2006, not the Kyoto Protocol baseline date of 1990; and, (iii) although emissions intensity targets will become tougher, there remains the ability for production to increase and the economy to grow.

The Regulatory Framework offers flexibility to companies affected by the regime to comply in various ways. GHG emission intensity targets can be met, for example, by:

• direct reductions achieved at the regulated facility by, for example, investments to improve operations;
• buying or establishing verifiable offsets;
• buying emissions credits from other facilities captured by the regulations;
• Purchasing Certified Emission Reductions under the Kyoto Protocol’s Clean Development Mechanism relating to environmental improvement projects in developing countries; or
• contributing to a new, capped, technology fund at a cost of $15 per tonne emitted over the 18% reduction target.

The government is also exploring a domestic emissions trading system that may, in future, be linked to trading systems in North America.

Air pollutants

Unlike GHG emissions, facilities emitting NOx, SOx and other air pollutants will face absolute emissions caps. Emissions are to be cut in half from present levels by 2015. Emission caps will be set for each air pollutant in a given industry sector, with specific sectoral caps coming into effect between 2012 and 2015. Moreover, a domestic cap-and-trade system will be set up for SOx and NOx only, with each emitting facility being allotted emission allowances for each substance. It remains to be seen — sector by sector — what the impact of these tough absolute emission cuts will be on production and on economic growth.

What to do while waiting

While the regulatory framework displays firm resolve on the part of the federal government, those affected by the regulations continue to face some uncertainty. Stakeholder consultations are underway now as sector-specific regulations are developed, and draft regulations are expected to be published for comment in spring 2008. The final shape of the new regulatory regime won’t be known for at least one more year.

Furthermore, some provincial governments have introduced, or plan to introduce, their own climate change action plans. Federal and provincial governments can enter into agreements to suspend the application of federal rules where an equivalent provincial regime applies, but that takes time. And it will be interesting to see if reconciliation is possible between a federal intensity-based regime and a provincial absolute cap regime, should a province decide to go that route.

Despite the continued uncertainty, emitters of GHGs, SOx, NOx and other air pollutants shouldn’t wait until the final “i” is dotted and the final “t” is crossed before taking action. However, according to a survey of Canadian GHG emitters conducted by Deloitte in 2006, Forward thinking: the importance of managing greenhouse gas emissions, it appears that many are. Deloitte found that half of the emitters are failing to include GHG emission management in their risk management strategy and that most lack the internal resources and skills to implement a GHG management plan. Survey respondents cited regulatory uncertainty and the lack of specific accounting and tax guidance as factors affecting their ability to act.

But this much is clear — the era of voluntary measures is over. Broad targets and timelines have been established. Specific targets are being set, and enforcement mechanisms will be in place to deal with non-compliance. The Rubicon has been crossed. Emitters now have a better sense of what will be expected of them in the short, medium and longer term.

Emitters also know that the broad targets set out in the regulatory framework establish, at the very least, the minimum of what will be expected of them. Opposition parties would almost certainly impose stricter targets than those put forward in the framework. Even though a federal election may intervene before the new regime takes effect, emitters should begin preparing today to meet the framework standards. Taking action now can lead to productivity improvements and reduced energy costs, demonstrate responsiveness to shareholder pressure, address risk-based concerns of banks, rating agencies and institutional investors, offer early-mover advantage to those preparing to participate in emissions trading systems, and position those taking action as responsible thought leaders with government decision makers.

There’s a telling moment in Waiting for Godot that businesses should consider, which reads as follows:

“Estragon: What do you expect, you always wait till the last moment.

Vladimir: (musingly). The last moment . . . (He meditates.) Hope deferred maketh the something sick, who said that?”

Canadian companies shouldn’t wait until the last minute before doing something about climate change.

Alan Young is vice-president of Tactix Government Consulting Inc. 

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