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CANet Canada paper on mandatory reporting of GHG emissions
by Matthew Bramley of the Pembina Institute

Read the complete report on GHG Reporting Recommendations

ENGO Comments Following the GHG Reporting Workshop

With the impending target of 2004 emissions reporting (in 2005) for compliance with the Kyoto protocol, the federal Government is running out of time to develop and implement a one-window reporting system for GHG. ENGOs appreciate the spirit of the consultation and being involved at the early stages of the development of a reporting system. However, the consultation was burdened by too much material and presentations. As a result, meaningful dialogue was limited because of deeply divergent views on public right to know.

Several CANet representatives and other ENGOs attended the Nov 3- 4 2003 workshop in Toronto. While there was consensus at the workshop that a one window reporting vehicle was desirable, major differences of opinion arose over public disclosure, the difference between public right and need to know, and the nature of the different reporting vehicles.

The workshop was structured around 9 key areas of discussion and debate with over 30 individual topics of discussion within these key areas, which left only minutes per topic. In addition, small group session discussion on these issues did not allow for full disclosure of the positions of various industry sectors. Without resolution on the key issue of public disclosure and reporting vehicle, it was impossible to meaningfully address the more detailed questions.

With regards to public disclosure, many industry representatives stated that local and other ENGOs should have to prove why they need emissions information at a facility level. ENGOs question how a community that is denied any information is able to establish the information that it needs? The burden of proof should be on the industry to prove that the information provides a risk to competitiveness. A lack of trust was openly discussed, and the issues of facility-level confidentiality were framed within the context of industry's preference to avoid community demands for continuous reductions at the local level.

Industry stakeholders seem bent on preventing public discourse at the facility level from influencing their corporate-level decision-making. GHG emissions are typically tied inextricably to Criteria Air Contaminant (CACs) releases, so the data derives from the same chemical/industrial reactions for which a community's interest in efficiency is fully justified. Industry, and to a lesser extent governments have confused a community's need to know (as defined by government and industry) from the legal RIGHT to emissions information from which the community itself defines its needs.

There was a lack of full spectrum stakeholder presentations provided during the conference. The oil and gas sector (and their affiliated organizations) presented at the workshop, but there were no presentations from other industry sectors. Presentations by representatives of two voluntary reporting systems that have industry dominated boards and steering committees were provided. There was a conspicuous absence of both the NPRI and Statistic Canada who should have been present to outline their current reporting vehicles.

The potential reporting vehicles include the NPRI, VCR, Statistics Canada, and EcoGESte. Each of the current systems has strengths and weaknesses but ENGOs believe that the NPRI is the most suitable of the current systems due to its support of the principle of public right to know, ease of modification and the links with CEPA. NPRI will likely be supported as a vehicle by smaller provinces, which are unlikely to develop their own vehicles. The NPRI is also consistent with the approach being taken by the Ontario Ministry of Environment. In addition, NPRI already collects facility level information from 2617 facilities and meets many of the requirements of a one-window reporting system such as credibility and accountability.

More specifically:

• The NPRI process is multi-stakeholder with clear federal jurisdiction (i.e. CEPA) to meet the policy demands of public disclosure of emissions data and international Kyoto commitments (including timelines - 2004);
  
  
• The NPRI is a national annual mandatory reporting vehicle and has a 10-year experience from which to draw;
  
  
• The NPRI is substance-specific, facility-specific. It is comprehensive in scope and presents the data in comparable manner;
  
  
• The NPRI includes reporting for CACs. The addition of the 6 GHG's will not increase burden (Note: One of the GHGs, SF6, is already reported on the NPRI);
  
  
• The NPRI is readily available and publicly accessible. It is flexible in scope and timely;
  
  
• The NPRI includes pollution prevention reporting mechanisms to which GHG emissions are tied;
  
  
• GHGs have already been deemed to meet the NPRI decision factors, criteria and objectives for addition;
  
  
• The Ministry of Environment Ontario reporting requirements (OnAir Reg 127/01) include reporting GHGs in a manner similar to NPRI reporting that is, facility-specific and substance specific. Initiatives are currently underway to harmonize the two programs where feasible that would support the one-window reporting. The Ontario experience should be useful vis-a-vis GHGs.
  
  
• The GHG NPRI sub-group (though previously stalled pending Kyoto ratification) has 1.5 yrs of true multi-stakeholder discussion and consultation with respect to GHG reporting. Background reports commissioned from this subgroup did conclude that GHGs meet the criteria for addition to the NPRI and did discuss thresholds for reporting in detail;
  
  
• Unlike the NPRI which falls under CEPA, the introduction of new legislation for mandatory reporting could not be reconciled with current int'l reporting commitments (2004);
  
  
• The NPRI is recognizable and therefore a suitable mechanism for federal and provincial bureaucracies for promotion in the public realm of achievements in progressive policy.

In short the NPRI is best suited to guarantee timely development (2005) of a GHG inventory that is geared to public use and compliance oversight.

Large Industrial Emitters

Doing Their Bit: Ensuring Large Industrial Emitters Contribute Adequately to Canada's Implementation of the Kyoto Protocol

by Matthew Bramley
Pembina Institute

The complete report is available here

At a glance

Glossary of Terms

Offsets

Industrial facilities, including electricity generation, accounted for 53% of Canada's GHG emissions in 2001. Between 1990 and 2001, industrial GHG emissions rose even faster - by 23.3%. Of Canada's top fifteen GHG-emitting companies that publicly reported their emissions, nine increased them by amounts ranging from 9% to 142% between 1990 and 2000.

The Climate Change Plan for Canada and what it asks of industry

To comply with the Kyoto Protocol, Canada needs to secure a reduction in its annual GHG emissions of 240 megatonnes of carbon dioxide equivalent (Mt CO2e) below the federal government projection of what emissions would be in 2010 under a "business-as-usual" scenario. The Climate Change Plan for Canada allocates 180 Mt of this 240 Mt so-called "Kyoto gap" to specific types of emissions sources. Of these 180 Mt, the Plan allocates 99 Mt to industry. This is very nearly proportional to the 53% of Canada's GHG emissions accounted for by industry in 2001.

The most important policy measure for industry in the Climate Change Plan for Canada is a proposed system of covenants (negotiated agreements) and emissions trading for large industrial emitters. Indeed, this is by far the single largest item, in terms of emission reductions, in the Plan as a whole. More than anything else, Canada's success in meeting its Kyoto Protocol target will depend on the covenants and emissions trading system delivering at least the intended 55 Mt of emission reductions.

This report therefore focuses on the key questions that must be answered in the development of the covenants and emissions trading system for large industrial emitters.

The covenants and emissions trading system

The proposed covenants and emissions trading system, as described in the Climate Change Plan for Canada, can be summarized as follows:

• The federal government will negotiate GHG emissions targets with large industrial companies. These targets will be enshrined in negotiated, legally binding agreements called covenants. Covenants will need to specify penalties for failing to meet targets.
  
  
• Companies will be able to combine three or four different ways of meeting their targets:
  
  • by reducing emissions from their own facilities;
    
  • by purchasing "offsets" - credits granted to projects that reduce emissions from sources that are not covered by covenants; and
    
  • by purchasing emissions units from outside Canada, available through the three international emissions trading mechanisms of the Kyoto Protocol.
    
  • It is also likely that companies over-achieving the targets in their covenants will be able to generate emissions permits in respect of the amount by which targets are exceeded; these permits could then be sold to other companies as a fourth way for the latter to meet their targets.
    
    
• If the market price of emissions units (domestic credits or permits and foreign emissions units) rises above $15 per tonne of CO2e, the government will pay for the amount by which that price exceeds $15.
  
  
• The government will establish a "regulatory or financial backstop" to the covenants. The government's current thinking is to use a regulatory backstop incorporating a default covenant with a default emissions target that would apply to any company that had not negotiated a specific covenant with the government.
  
  
• The government will establish a system for mandatory measurement and reporting of emissions from all industrial facilities covered by covenants.

Industry must do its fair share

• The federal government must stick to its position that industry be required to secure 55 Mt of reductions in annual GHG emissions with no financial incentives or assistance being provided in exchange.
  
  
• The policies used to achieve the remaining 44 Mt of reductions explicitly allocated to industry in the Climate Change Plan for Canada, the proposed Partnership Fund, and provincial government actions not involving federal partnerships, must all be designed to ensure that industry bears a share of costs, and full financial responsibility for actions that are economic.
  
  
• Any increases in industrial emissions in the current official business-as-usual projection must be compensated by equal increases in the 55 Mt of reductions sought through the covenants and emissions trading system.

To prevent a transfer of liability from industry to taxpayers and others

• the federal government should actively pursue opportunities to negotiate covenants that set targets for absolute emissions, rather than emissions intensity;
  
  
• covenants setting emissions intensity targets should include provisions to adjust the targets, within a specified range, to compensate for actual output being different from projected levels; and
  
  
• covenants should not set binding emissions targets for years later than 2012.

An effective federal regulatory backstop must be announced as soon as possible

CANet calls on the government to announce, as soon as possible, a regulatory backstop representing a significantly larger amount of emission reductions than 55 Mt, over and above the more than 42 Mt of reductions that the Climate Change Plan for Canada allocates to large industrial emitters outside the covenants and emissions trading system, and to proceed quickly to give the backstop legal effect. Given provincial governments' lack of a clear incentive to enforce the amounts of industrial emission reductions needed to fulfil the Plan, CANet strongly opposes any delegation of responsibility to provinces for implementing the backstop.

There must be no double counting of emission reductions

The targets set by covenants must represent 55 Mt of emission reductions that are fully additional to the following: the reductions that the Climate Change Plan for Canada allocates to large industry via programs in Action Plan 2000 and Budget 2001, the target of 10% of new electricity generating capacity from low-impact renewable sources, the programs to encourage capture and underground storage of CO2 from industrial facilities, and the programs to improve the energy efficiency of new and existing buildings; and the reductions that can reasonably be expected to occur at large industrial facilities as a result of federal government investments in research and development of new technology, the Partnership Fund, and provincial government actions not involving federal partnerships.

No activities must be eligible for earning offset credits unless it can be demonstrated that they go clearly beyond the activities needed to meet the emission reduction targets that the Climate Change Plan for Canada lays out for transportation, buildings, renewable electricity, small industrial emitters, fugitive emissions, agriculture and landfills (Section 2.3.1).

The emission reductions that the Climate Change Plan for Canada allocates to programs to encourage capture and underground storage of CO2, support low-impact renewable electricity, increase interprovincial electricity trade, and improve the energy efficiency of electricity consumers must be fully additional to the emission reductions represented by the targets set by covenants for thermal electricity generators.

Phasing out coal-fired electricity provides emission reduction opportunities that must be maximized

The covenants system must make the most of the thermal electricity sector's large low-cost emission reduction potential by setting targets that add up, for the sector as a whole, to full exploitation of the low-cost potential for improvements in generation efficiency and substitution of coal by natural gas.

Set targets for coal-fired and gas-fired facilities that create the incentives needed to ensure a maximal amount of substitution of coal by natural gas.

The co-benefits of domestic GHG emission reductions must be maximized

CANet member organizations will be vigilant in holding the federal government to its commitment to close the majority of Canada's "Kyoto gap" through domestic emission reductions. Beyond this, CANet member organizations will be holding government and companies accountable for the quality of any international emissions units they choose to buy (Section 2.7).

We need to ensure that all large emitters start taking action now

Canada's covenants and emissions trading system should, like the EU system, begin full operation in 2005, with covenants setting less demanding targets for the 2005-2007 period than the targets that would apply to the period 2008-2012 (Section 2.8.1).

Transparency and the public's right to know must be safeguarded

The federal government's system for GHG emissions measurement, reporting and verification, must, starting with reporting of 2004 emissions

OFFSETS

To comply with the Kyoto Protocol, Canada needs to secure a reduction in its annual GHG emissions of 240 megatonnes of carbon dioxide equivalent (Mt CO2e) below the latest official federal government projection of what emissions would be in 2010 under a "business-as-usual" scenario in which no deliberate action was taken to reduce emissions. The federal government's Climate Change Plan for Canada (November 2002) proposes that a covenants and emissions trading system for large industrial emitters should secure 55 Mt of the 240 Mt "Kyoto gap".

Under this system, the government will negotiate greenhouse gas (GHG) emissions targets with large industrial companies. These targets will be enshrined in negotiated, legally binding agreements called covenants. Companies will be able to combine three or four different ways of meeting their targets: ß by reducing emissions from their own facilities; ß by purchasing "offsets" - credits granted to projects that reduce emissions from sources that are not covered by covenants; and ß by purchasing emissions units from outside Canada, available through the three international emissions trading mechanisms of the Kyoto Protocol.

From a strictly environmental perspective "offset" create no benefit. If emissions are reduced from a project outside large industry, and credits are granted for those reductions and sold to a large industrial emitter, the credits will allow that emitter to emit more than it would have done otherwise - by exactly the amount by which the project reduced emissions. In other words, offset credits will simply become part of the 55 Mt to be secured through the covenants and emissions trading system. Emission reductions for which offset credits are granted will make no contribution at all to closing Canada's Kyoto gap beyond the 55 Mt.

The Climate Change Plan for Canada proposes to allow the creation of offset credits for agricultural and forestry sinks and emission reductions and possibly also for landfill gas capture. However, the federal government's current thinking is to open up offset credit creation much more broadly. This means that offset credits could potentially be granted for emission reductions in transportation, buildings, small industrial emitters, and fugitive emission sources in large industry but not included in covenants.

In theory, offset credits could also potentially be granted for activities to promote renewable electricity and the energy efficiency of electricity consumers, on the following grounds: Such activities have the effect of reducing output, and therefore emissions, from large thermal electricity generation facilities. Despite the fact that they physically occur at large industrial facilities, these emission reductions will not be captured by covenants that set emissions intensity targets, because the reductions result from reduced output, not reduced intensity.

CANet submitted a writen brief to the Emvironment Canada Offsets Consultations
Click here for the CAN submission

A threat to environmental integrity

The possibility of opening up offset credit creation broadly poses a major threat to the environmental integrity of several extremely important areas of the Climate Change Plan for Canada. The following table shows the emission reduction targets that the Plan lays out, over and above the 55 Mt from covenants, in all the areas in which offset credits could potentially be granted.

Every offset credit granted in these areas represents one fewer tonne of emission reductions that Canada will be able to count towards this 56 Mt total - and one more tonne making up the 55 Mt to be secured through covenants. Looked at another way, granting offset credits for emission reductions in the above areas will result in double counting: these reductions may be counted as part of the 56 Mt, but they will also be counted a second time as part of the 55 Mt.

The threat to the environmental integrity of the Climate Change Plan for Canada posed by the granting of offset credits in areas such as transportation, buildings and renewable electricity. The 55 Mt are the emission reductions to be secured through covenants for large industrial emitters.

CANet's position is therefore that no activities must be eligible for earning offset credits unless it can be demonstrated that they go clearly beyond the activities needed to meet the emission reduction targets that the Climate Change Plan for Canada lays out for transportation, buildings, renewable electricity, small industrial emitters, fugitive emissions, agriculture and landfills. In technical terms, for each project the baseline below which credits are generated must be fulfilment of the Plan.

Beyond this minimal requirement, offset credit creation will not be the most appropriate way to incent emissions reducing activities in many areas. Credits worth $10 per tonne of CO2e represent a financial incentive worth of, at most, 1 cent per kilowatt-hour of renewable electricity. CANet calls on governments to provide stronger financial incentives than this - for example, by increasing the Wind Power Production Incentive - combined with low-impact renewable energy portfolio standards, to ensure that Canada catches up with other industrialized countries in the implementation of low-impact renewable energy like wind power. In areas like vehicles, buildings and energy-using equipment, CANet's position is that offset credits are no substitute for regulated energy efficiency standards. In addition, reductions in industrial electricity consumption should not be eligible for offset credits.

Offsets for reductions in industrial electricity consumption?

Offset credits could potentially be granted for activities to promote the energy efficiency of electricity consumers. However, emission reductions for which offset credits are granted simply become part of the 55 Mt and do not contribute to closing the Kyoto gap beyond the 55 Mt. Instead, reduced industrial electricity consumption provides an important opportunity to achieve some of the 20-30 Mt of reductions that the Climate Change Plan for Canada proposes to realize through the Partnership Fund (shared investments with partners including the private sector) and/or the further 10-20 Mt of reductions it estimates will occur as a result of provincial government actions not involving federal partnerships.

CANet therefore calls on the federal government to work with provinces to introduce new measures to significantly reduce industrial electricity consumption, for example through a combination of demand side management programs mandated by provinces and federal financial incentives. CANet's position is that reductions in industrial electricity consumption should generate emission reductions additional to the 55 Mt from covenants and that offset credits should therefore not be granted for such reductions.

To read the complete report: the role of offset credits in Canada's covenants and emissions trading system

Glossary of Terms

Emission Reduction
a decrease in emissions released into the atmosphere by a source

Emission Removal
a removal of greenhouse gasses from the atmoshphere through sequestration or carbon sinks

Carbon Sink
a process which removes a greenhouse gas from the atmosphere.

Offset Credit
In the covenant system, large industrial emitters can be awarded for eligible projects that result in net emission reductions or removals.

Sequestration
the process of increasing the carbon in a carbon pool other than the atmosphere. Carbon pools is a reservoir which has the capacity to accumulate or release carbon, such as above-ground biomass, below-ground biomas, litter, dead wood, and soil organic carbon.

Backstop
a backstop will provide a default target for large industrial emitters who decide not to enter into a covenant with the federal government.

Covenant
an agreement regarding greenhouse gas emission reductions or removals between a large industrial emitter and the federal government. The federal government Climate Change Plan for Canada proposes that targets for GHG emission reductions totalling 55 Mt CO2 be established.