Canadian Power – Key Developments in 2019, Trends to Watch for in 2020: Environmental Law
The following is a chapter from our Power Group's fifth annual Canadian power industry retrospective Canadian Power Key Developments in 2019, Trends to Watch for in 2020. A PDF request form is available at the end of the article.
Key Developments in 2019
In 2019, there were a number of key environmental law developments across Canada with potential impacts on the energy sector. Highlights include the following:
Revitalized B.C. Environmental Assessment Act now in force
In November 2018, the B.C. government introduced Bill 51 – Environmental Assessment Act (“Bill 51”) as part of the province’s efforts to revitalize the environmental assessment (“EA”) process. The revitalized Environmental Assessment Act (“New EAA”) and the majority of regulations came into force on December 16, 2019. The key regulations include the Reviewable Projects Regulation, Protected Areas Regulation, and Proponent Fee Regulation (in addition, consequential amendments have been made to administrative, compliance and enforcement regulations). Additional regulations to support the revitalized EA process are expected in 2020. The New EAA introduces significant changes to the provincial EA process, including the creation of an early engagement process and prescriptive measures to meet the B.C. government’s commitment to implement the United Nations Declaration on the Rights of Indigenous Peoples.
Projects with an environmental assessment already underway will continue under the old Act (2002) process, while any new projects after December 16, 2019, will undergo an environmental assessment under the New EAA process. If a project does not yet have a Section 11 Order (establishing the formal scope, procedures and methods for the EA) as of December 16, 2019, the project will be considered under the new EAA in the Early Engagement phase, as set out in the Environmental Assessment Transition Regulation. If a Section 11 Order has been issued as of December 16, 2019, the proponent has six months from the date the New EAA is brought into force to file notice with the Project Lead at the Environmental Assessment Office (“EAO”) that it wishes to continue under the current Act. If this option is selected, the EA process must be completed within three years. Otherwise, the EA process must be completed under the New EAA.
Revised Electricity Project Thresholds under New EAA
Under the previous Environmental Assessment Act, the EA threshold for all power projects was 50 megawatts (“MW”) rated nameplate capacity. In order to take into account the range of project effects produced by different technologies, the single 50 MW threshold has been replaced by the following thresholds under the updated Reviewable Projects Regulation (“RPR”): (i) > 50 MW rated nameplate capacity for hydroelectric, thermal electric or other power plant (not including wind and tidal plants); (ii) ≥ 15 turbines for a land-based wind generating facility; (iii) ≥ 10 turbines for a marine or freshwater wind generating facility; (iv) any new tidal (excluding in-stream tidal) power generating facility; and (v) > 15 MW rated nameplate capacity for an in-stream tidal power facility. In addition, the New EAA and RPR require that if a project within a prescribed category does not meet the threshold for that particular project category, it may still be required to notify the EAO if its meets one or more of the notification thresholds under the Regulation, including (among others): (i) if the project is subject to federal EA review, but is not wholly located on federal lands; (ii) if the project is within 15% of RPR thresholds; (iii) if the project has a maximum annual direct employment number of ≥ 250 persons; (iv) projects that emit 125,000 tonnes or more per year of one or more greenhouse gases directly from project facilities, measured in carbon dioxide equivalents; (v) transmission lines that are greater than 230 kV and greater than 40 km in length; or (vi) if an existing project was not subject to the provincial EA process, but a modification to the project is being proposed that would exceed the threshold for new projects in that category.
We expect that Alberta will continue to see growth in the number of smaller market participants as more industrial facilities and consumers install their own generation (e.g. co-generation or even small-scale roof-top solar) and more distribution system-connected renewable energy is developed. Interest in private or non-government backed power purchase agreements will continue to be a focus for future investment in the province.
B.C. Bolsters Climate Action with New Climate Change Accountability Act
Provincial climate action was bolstered with the passage of the new Climate Change Accountability Act in November 2019. Under the Act, the B.C. government is required to set an interim emissions target on the path to the legislated 2030 target (i.e. a 40% in greenhouse gas reductions below 2007 levels – total emissions in B.C. in 2017 were 64.5 million tonnes of carbon dioxide equivalent, which is 2% lower than 2007 levels). Separate 2030 sectoral targets will also be established following stakeholder engagement. Interim emissions targets will be established by ministerial order by no later than Dec. 31, 2020, while sectoral targets will be established no later than March 31, 2021. The Act also requires the B.C. government to report annually on its progress towards the province’s legislated emission reduction targets. Every fifth year, the climate change accountability report will include an updated provincial climate risk assessment, which will build on B.C.’s Preliminary Strategic Risk Assessment and work done in the interim to assess risks from climate change.
Alberta Revamps Greenhouse Gas Emissions Policy
On October 29, 2019, Alberta introduced Bill 19, the Technology Innovation and Emissions Reduction Implementation Act, 2019 and the Technology Innovation and Emission Reduction Regulation (“TIER Regulations”). Bill 19 rebrands the Climate Change and Emissions Management Act as the Emissions Management and Climate Resilience Act, and revamps the province’s greenhouse gas emissions policy into the Technology Innovation and Emissions Reduction (“TIER”) system. Bill 19 received royal assent on November 22, 2019, and will come into force on January 1, 2020. In December 2019, the federal government granted Alberta’s TIER system equivalency with the federal industrial carbon tax. However, the federal consumer carbon tax will still take effect in Alberta as of January 1, 2020.
The TIER Regulations are intended to meet the federally mandated carbon standards of the federal Greenhouse Gas Pollution Pricing Act for large emitters (as opposed to the consumer fuel charge, or “carbon tax,” which is applied in parallel). Under the CCIR, emissions targets for an individual facility were based on industry-wide benchmarks, whereby each facility in a specific industry shared a common emission target, with limited exceptions. Under the TIER framework, emitters other than electricity generators, will be able to apply for a facility-specific benchmark. If approved, each facility’s allowable emissions threshold will be based on the average past performance of that facility between 2016-2018, a move back to the historical performance standard employed by the Specified Gas Emitters Regulation (“SGER”). The TIER framework also employs an industry-wide benchmark for certain products; however, the regulations stipulate that if both a facility-specific benchmark and an industry benchmark exist for a given facility, the less onerous of the two will apply.
Electricity facilities with more than 100,000 tonnes of CO2e per year will be required to comply with a “good-as-best-gas” benchmark set at 0.37 tonnes of CO2e per megawatt hour. This benchmark is equal to the performance of the best combined-cycle natural gas powered electricity generator in Alberta.
Regulated facilities can achieve compliance by:
- reducing their emissions;
- using credits from facilities that have met and exceeded their emissions targets;
- using emission offsets from projects that are not regulated by TIER, but have voluntarily reduced their emissions; and/or
- paying into the TIER Fund.
The first $100 million in annual revenue and 50% of the remaining revenue paid into the TIER Fund will be used for emissions reduction technologies, such as new and improved technologies for oil sands extraction, research and investment in carbon capture, utilization and storage, or other areas of opportunity for industrial emission reductions. The Alberta government is also considering solutions under the TIER system to protect 26 facilities (including smaller conventional oil and gas facilities) emitting less than 100,000 tonnes of CO2e per year from the federal fuel levy.
Under the TIER system, it is proposed that a facility may opt-in to the system if it competes directly against a facility that is covered by the regulation, or if the facility has greater than 10,000 tonnes CO2e of annual emissions and belongs to a high Emissions Intensive and Trade Exposed (“EITE”) sector.
Renewable electricity facilities are eligible to opt-in, unless any of the following criteria applies to the facility:
- the facility has a total nominal capacity of less than 5 megawatts;
- the facility has entered into a renewable electricity support agreement under section 7(4) of the Renewable Electricity Act; or
- an economic benefit is being provided under a program or other scheme that is attributable to the electricity produced at the facility having been produced from a renewable energy resource.
Constitutional Challenge to the Federal Government’s Consumer Carbon Tax
In June 2019, Alberta launched a constitutional challenge of the federal government’s Greenhouse Gas Pollution Pricing Act, which imposes a fuel levy or an output-based pricing system for greenhouse gas emissions in Alberta. From December 16 to 19, 2019, the Alberta Court of Appeal heard arguments for and against the federal carbon tax. Alberta argued that the federal carbon tax represents a “radical extension of federal powers that violates the Constitution”. Similar challenges by Saskatchewan and Ontario have been unsuccessful. The five-judge panel of the Alberta Court of Appeal is expected to deliver its decision in the first quarter of 2020.
Alberta Utilities Commission (“AUC”) Consulting with Utility Industry to Gather Input on the Implementation of the Federal Carbon Tax
The provincial carbon levy was repealed in May 2019, when the new provincial conservative party was elected. In response, the federal government announced that federal fuel charge, known as the federal carbon tax, will be implemented in Alberta starting January 1, 2020. In response to a request from the utility industry, the AUC has scheduled a teleconference meeting with industry representatives to discuss a number of topics in preparation of the implementation of the federal carbon tax in January 2020. Topics discussed include:
- distributor’s learnings from other jurisdictions;
- customer communication plan;
- GST on the carbon tax; and
- pricing for January and April 2020.
Constitutional Challenge to the Federal Government’s Pollution Pricing Regime for Greenhouse Gases
In September 2018, the Ontario government launched a constitutional challenge to the federal government’s Greenhouse Gas Pollution Pricing Act, which imposes a fuel levy or an output-based pricing system for greenhouse gas emissions in Ontario. Ontario argued that the federal government did not have the jurisdiction to impose a carbon price on the province. The Ontario Court of Appeal heard the reference in April 2019, and released its advisory opinion regarding the constitutional validity of federal legislation on June 28, 2019. The majority held that the federal Greenhouse Gas Pollution Pricing Act is constitutional. The Ontario government has appealed and the Supreme Court of Canada will hear the case in March 2020. Please refer to our litigation review in the Canadian Power – Key Developments in 2019, Trends to Watch for in 2020 publication for additional commentary.
Pending Provincial Emissions Performance Standards
In July 2019, the Ontario released the Greenhouse Gas Emissions Performance Standards regulations under the Environmental Protection Act, establishing its own provincial program to address greenhouse gas emissions in the province. The provincial program is similar to the federal output-based pricing system as it is premised on industry greenhouse gas emission performance standards. The first compliance period for the provincial system is intended to begin on January 1 in the year in which Ontario is removed from the list of provinces to which the federal system applies.
Expansion of Administrative Monetary Penalties
The Ontario government introduced an omnibus bill in late 2019, the Better for People, Smarter for Business Act, that made various changes to environmental legislation. One of the changes is the introduction of a framework that will allow administrative monetary penalties to be applied to a broader range of environmental violations. There is an environmental penalty regime currently in effect under Ontario’s two main environmental statutes, the Environmental Protection Act and the Ontario Water Resources Act. The current regime applies only to prescribed large industrial facilities and the government has signaled an intent for broader application. The details of the new administrative monetary penalty regime will be spelled out in regulations. Administrative monetary penalties are controversial as they are absolute penalties that do not provide the possibility of a due diligence defence. It will be interesting to see the details of the new penalty regime and, also, to see if it is widely and frequently applied.
Revocation of the Renewable Energy Approval for the Nation Rise Wind Farm Project
On December 4, 2019, the Ontario Minister of the Environment, Conservation and Parks granted an appeal made by the Concerned Citizens of North Stormont of the Renewable Energy Approval (“REA”) issued for the operation of the Nation Rise Wind Farm. The Minister revoked the REA, citing reasons related to irreversible harm to bats in the local area. The REA for the Nation Rise Wind Farm had been issued in May 2018, and the project was already under construction. The Minister’s decision was surprising, as the REA had already been the subject of an appeal hearing before the Environmental Review Tribunal (the “ERT”). The ERT specifically considered the issue of harm to bats and found that the appellants had not met the onus of proving that the project would cause serious and irreversible harm to bats. The Environmental Protection Act provides the Minister with the power to confirm, alter or revoke the decision of the ERT “as to the matter in appeal as the Minister considers in the public interest.” The project developer has filed a judicial review application in respect of the Minister’s decision.
Québec Consults the Public to Develop its Electrification and Climate Change Plan
In order to develop its Electrification and Climate Change Plan (“ECCP”), the Québec government conducted public consultation in 2019 among multiple stakeholders, including municipalities and aboriginal groups, in order to identify priorities and initiatives to reduce greenhouse gas emissions. The ECCP will identify the intended policies and establish the main actions that Québec intends to implement in order to meet its targets and objectives for 2030 regarding climate change. The draft ECCP is expected to be published in early 2020.
New Impact Assessment Regime Comes Into Force
On August 28, 2019, the Impact Assessment Act (the “IAA”) came into force, replacing the Canadian Environmental Assessment Act, 2012 (“CEAA 2012”). The IAA establishes a new Canadian Impact Assessment Agency, and projects and activities that are subject to the IAA are set out in the Physical Activities Regulations under the IAA, commonly referred to as the “Projects List”. While the Projects List under the IAA is very similar to the categories of projects that are subject to environmental assessments under CEAA 2012, some changes have been made to the list, including certain new thresholds and the introduction of certain project categories.
Canada Energy Regulator replaces National Energy Board
Along with changes to the federal EA process, Bill C-69 introduced changes to federal energy regulatory review processes. Changes to the National Energy Board (“NEB”) regime came into force on August 28, 2019, pursuant to which the National Energy Board Act was replaced with the Canadian Energy Regulator Act (“CER Act”) and the NEB was replaced by the Canada Energy Regulator (“CER”). The CER Act introduces a number of changes to federal processes for project review and decisions, which are focused on providing a modern governance structure, timely and predictable decisions, strengthened safety and environmental protection, greater Indigenous participation, and more inclusive public participation.
Changes to Fisheries Act Regime Receive Royal Assent
Bill C-68 was introduced by the federal government on February 6, 2018, which proposed amendments to restore lost protections and incorporate modern safeguards into the Fisheries Act. On June 21, 2019, the new Fisheries Act received royal assent. The new fish and fish habitat protection provisions under the Fisheries Act came into force on August 28, 2019. The fisheries protection and pollution prevention provisions of the Fisheries Act remain in force until the new Fish and Fish Habitat Protection and Pollution Prevention
Provisions set out in An Act to amend the Fisheries Act and other Acts in consequence are brought into force. The Department of Fisheries and Oceans is developing a public registry for authorizations under the Fisheries Act, which is expected to be in place in 2020.
Development of Federal Clean Fuel Standard Continues
In late 2016, the federal government announced that it would develop a Clean Fuel Standard (“CFS”) to reduce Canada’s greenhouse gas emissions through the increased use of lower carbon fuels, energy sources and technologies. The objective of the CFS is to achieve 30 million tonnes of annual reductions in greenhouse gas emissions by 2030. The CFS will be a performance-based approach designed to incent the innovation and adoption of clean technologies in the oil and gas sector and the development and use of low-carbon fuels throughout the economy. The CFS regulations will cover all fossil fuels used in Canada, but will set separate requirements for liquid, gaseous and solid fossil fuels. It is being developed in a phased approach, with liquid fuel class regulations being developed first followed by gaseous and solid fuel class regulations. On June 28, 2019, Environment and Climate Change Canada (“ECCC”) released the Proposed Regulatory Approach for the Clean Fuel Standard, which sets out the proposed regulatory design for the liquid fossil fuel regulations of the Clean Fuel Standard, including credit creation opportunities that will be included in the liquid class regulations. It builds upon the Regulatory Design Paper published in December 2018, as well as the Clean Fuel Standard Regulatory Framework published in December 2017.
Saskatchewan and Ontario Courts of Appeal Uphold Constitutionality of Federal Carbon Pricing Backstop
The federal government’s Greenhouse Gas Pollution Pricing Act includes a two-pronged approach to carbon pricing: (i) a charge on fossil fuels that are consumed within a province; and (ii) an output-based pricing system that applies to emission-intensive industrial facilities. Both the Saskatchewan government and, as mentioned earlier in this article, Ontario government launched a constitutional challenge to the Greenhouse Gas Pollution Pricing Act, each asserting that the federal government did not have
the jurisdiction to impose a carbon price on the provinces. A majority of both the Saskatchewan Court of Appeal (opinion released in May 2019) and the Ontario Court of Appeal upheld the constitutionality of the Greenhouse Gas Pollution Pricing Act. Both decisions have been appealed and the Supreme Court of Canada will hear the case in March 2020. Please refer to our litigation review on page 53 of this publication for additional commentary.
The Year Ahead
Additional Environmental Assessment Regulations
As noted above, additional regulations to support the revitalized EA process are expected in 2020. The regulations in development include the Administrative Monetary Penalties Regulation (expected mid-2020), Indigenous Capacity Funding Regulation (expected mid-2020), Dispute Resolution Regulation (expected mid -2020), Regional Assessment Regulation (expected late 2020), and Strategic Assessment Regulation (expected late 2020). Further, guidance documents for each EA process phase are being developed for project proponents, which are expected to be available in early 2020.
Alberta Energy Regulator (“AER”) Directive 060 Aimed at Reducing Methane Comes into Force in January 2020
In 2015, the Government of Alberta directed the AER to develop requirements to reduce methane emissions from upstream oil and gas operations by 45 per cent (relative to 2014 levels) by 2025. To meet the goal set out by the Government of Alberta, the AER developed regulatory requirements within Directive 060: Upstream Petroleum Industry Flaring, Incinerating, and Venting (Directive 060) and Directive 017: Measurement Requirements for Oil and Gas Operations (Directive 017). A new edition of Directive 060 comes into effect on January 1, 2020, including the methane reduction requirements. The new edition of Directive 017 is effective immediately following its release.
The requirements address the primary sources of methane emissions from Alberta’s upstream oil and gas industry: fugitive emissions and venting, which includes emissions from compressors, pneumatic devices, and glycol dehydrators. The requirements also focus on improved measurement, monitoring, and reporting of methane emissions. Companies may request to use an alternative program (“Alt-FEMP”) to deviate from the technologies and processes outlined in Directive 060. The AER has developed an Alt-FEMP checklist to provide guidance to industry on these types of requests.
Judicial Review Regarding the Revocation of the REA for the Nation Rise Wind Farm Project
The application for judicial review of the Minister’s decision to revoke the REA for the Nation Rise Wind Farm project, as described above, will be heard in 2020. It will be watched with interest and may provide valuable guidance on when a decision made by the Minister is within the scope of the “public interest”.
New Regulations to Support Bill 102
Most of the provisions of Bill 102 that targeted the modernization of the environmental authorization scheme under the Québec Environment Quality Act, came into force on March 23, 2018. Advisory groups were formed in early 2019, in order to continue working on draft regulations to support such modernization. The main supporting regulation is expected to be published in draft form in the second quarter of 2020.
Further Development of Federal Clean Fuel Standard
As noted above, the federal government is in the process of developing a CFS. ECCC has indicated that proposed regulations for the liquid fuel class of the CFS will be published in early 2020, in the Canada Gazette, Part I, followed by consultations on the proposal. Final regulations planned for early 2021. On January 1, 2022, liquid fuel class regulations are expected to come into force. As it relates to the gaseous and solid fuel classes of the CFS, ECCC has indicated that regulations for these classes will be published in mid-2021, in the Canada Gazette, Part I, followed by consultations on proposal. Final gaseous and solid fuel regulations are planned for 2022, with a coming into force date of January 1, 2023, for these regulations.
Supreme Court of Canada to Determine Constitutionality of GGPPA
As noted above, the Supreme Court of Canada will hear the Saskatchewan and Ontario governments’ appeal of the opinion by each of those province’s Courts of Appeal that the federal Greenhouse Gas Pollution Pricing Act is constitutional. This will be the final determination of the validity of this legislation and, more generally, on federal vs. provincial jurisdiction to regulate and impose a price on greenhouse gas emissions. In the meantime, the federal fuel levy and output-based pricing system established by the federal Greenhouse Gas Pollution Pricing Act will continue to apply in Saskatchewan and Ontario.
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