Regulating greenhouse gases in Canada: constitutional and policy dimensions.

• Author: Hsu, Shi-Ling

Canada's greenhouse gas emissions have risen dramatically since the 1997 negotiation of the Kyoto Protocol, and that rise has continued through Canada's 2002 ratification of the Protocol. Along with economic dislocation, constitutional barriers to regulation have sometimes been cited as the reason for caution in regulating greenhouse gases. This article critically evaluates the constitutional arguments and examines the policy considerations surrounding various regulatory instruments that might be used to reduce greenhouse gases. We conclude that the Canadian constitution does not present any significant barriers to federal or provincial regulation and that policy considerations strongly favour the use of two instruments: a federal carbon tax to impose a marginal cost on emissions and the Canadian Environmental Assessment Act to review federal projects that may increase greenhouse gases.

Les emissions de gaz a effet de serre du Canada ont augmente dramatiquement depuis les negociations du Protocole de Kyoto en 1997. Cette augmentation a continue meme subsequemment a la ratification du Protocole par le Canada en 2002. En pins de la dislocation economique, les barrieres constitutionnelles a la reglementation ont parfois ete citees comme justification a la prudence dans la reglementation des gaz a effet de serre. Cet article evalue de maniere critique les arguments constitutionnels et examine les considerations de politiques entourant les differents instruments reglementaires qui pourraient etre utilises pour reduire les gaz a effet de serre. Nous concluons que la constitution canadienne ne presente pas de barriere significative a la reglementation federale ou provinciale et que les considerations de politiques favorisent fortement l'utilisation de deux instruments, soit une taxe federale sur le carbone pour imposer un cout marginal aux emissions et la Loi canadienne sur l'evaluation environnementale pour evaluer les projets federaux qui pourraient augmenter les gaz a effet de serre.

Introduction I. Regulating Greenhouse Gas Emissions in Canada A. Potential Regulatory Instruments B. Federal Attempts at Greenhouse Gas Regulation C. Provincial Experiences with Greenhouse Gas Regulations II. The Constitutional Dimension A. Provincial Jurisdiction 1. Carbon Taxes 2. Cap-and-Trade and Intensity-Based Trading Regimes 3. Command-and-Control Regimes B. Federal Jurisdiction 1. A Carbon Tax 2. A Cap-and-Trade or Intensity-Based Trading Regime a. Criminal Law b. The National Concern Branch of POGG c. The National Emergency Branch of POGG 3. A Command-and-Control Regime 4. The Canadian Environmental Assessment Act C. Summary III. The Policy Dimension A. The Canadian Environmental Assessment Act B. Cap-and-Trade vs. Intensity-Based Emissions Trading C. Carbon Taxation vs. Cap-and-Trade D. Command-and-Control Regulation Conclusion Introduction

In a 2007 speech to the Canadian Bar Association, former Alberta Premier Peter Lougheed warned of an impending constitutional crisis over the regulation of greenhouse gases. A "major constitutional battle" was brewing between the federal government, which faces increasing international and domestic pressure to regulate the emissions of greenhouse gases, and the government of Alberta, which jealously guards its provincial prerogative to oversee emissions-producing oil and gas development. (1) "Public pressure", in Lougheed's view, was likely to "force the passage of strong federal environmental laws," while the economic forces driving oil sands development were likely to lead to resistance from Alberta in the form of conflicting legislation. (2)

Is there really a constitutional storm on the horizon? Although there is tension between federal and provincial authority over the regulation of Canadian greenhouse gases, this tension need not and should not be an obstacle to sensible greenhouse gas regulation.

1. Regulating Greenhouse Gas Emissions in Canada

   Canada's greenhouse gas emissions have risen sharply since 1990, the baseline year from which the commitments under the Kyoto Protocol to the United Nations Framework Convention on Climate Change are derived. (3) Indeed, Canada's increase in total aggregate greenhouse gas emissions from 1990 to 2007 was the highest among G8 nations, (4) rising from 596 megatonnes in carbon dioxide equivalents (C[O.sub.2] equivalents (5)) to 747 megatonnes in this period. (6) It is now impractical for Canada to comply with its Kyoto commitment to lower its emissions to 563 megatonnes. There have been increases across almost all sectors between 1990 and 2007, including emissions from electricity generation, transportation, petroleum production, mining, agriculture, waste, and fugitive releases from natural gas production. (7) It no longer makes sense for Canada to unilaterally and immediately cease the upward momentum of emissions and begin an emissions reduction of more than 25 per cent over the next three years. (8) However, given the direness of the climate change problem, Canadians must embark upon an effective greenhouse gas emissions strategy. Fortunately, as this article argues, a number of federal and provincial regulatory possibilities are available that avoid constitutional confrontation.

   1. Potential Regulatory Instruments

      While the many possibilities for greenhouse gas regulation have been treated extensively elsewhere, a brief review of potential regulatory instruments will help frame the discussion in the Canadian context. This part of article outlines the most frequently discussed types of schemes: command-and-control regulations; cap-and-trade programs; intensity-based emissions trading; carbon taxes; and regulation under the Canadian Environmental Assessment Act. (9) Alternative means of reducing greenhouse gases include regulation that mandates information disclosure, government subsidies, voluntary initiatives, and common law litigation. A comprehensive treatment of all such methods, which would involve scores of ideas, is beyond the scope of this article.

      First, greenhouse gas regulation could take a traditional form of environmental regulation sometimes referred to as "command-and-control" regulation. This term typically contemplates some administrative standard that serves as a baseline for pollution control performance. The standard could be fixed as a specified numerical expression of performance, such as in the regulations governing chlor-alkali plants under the Canadian Environmental Protection Act, 1999. (10) These regulations provide that "[t]he quantity of mercury that the owner or operator of a plant may release into the ambient air from that plant shall not exceed (a) 5 grams per day per 1,000 kilograms of rated capacity, where the source of the mercury is the ventilation gases exhausted from cell rooms." (11) Alternatively, a standard could be linked to industry practices and could contain keywords that hint at how ambitious the polluter must be relative to the industry practice, such as the "Best Available Technology Economically Achievable" (BATEA) standard. (12) While command-and-control regulatory schemes take on a wide variety of forms, the distinguishing feature of command-and-control systems is that compliance is determined administratively. This determination often (but not always) focuses on whether an emitter has adopted the right technology or industrial practices, or has achieved a level of performance administratively deemed to be acceptable or attainable.

      Second, in a marked break in philosophy from the traditional means of environmental regulation, "cap-and-trade" programs have gained popularity as a regulatory instrument. Rather than defining compliance in terms of some administratively set standard, cap-and-trade programs involve the issuance of allowances to emitters that permit them to emit a certain quantity of pollution. Compliance is thus determined solely by whether the emitter has enough allowances to cover its emissions. Allowances can be traded, and economic theory predicts that the allowances will flow to their highest and best use--to those emitters for whom emissions reduction would be the most costly. This flow has the effect of concentrating emissions reductions among those for whom it would be cheapest, thereby minimizing overall industry compliance costs. Additionally, cap-and-trade programs are thought to spur innovation because imposing a cost on emissions should induce emitters to undertake self-interested efforts to reduce their emissions. Cap-and-trade programs in the greenhouse gas context typically involve the issuance of allowances to emit some quantity of carbon or C[O.sub.2].

      Third, in the wake of concerns about the compliance costs of cap-and-trade programs, a less effective alternative has emerged, one favoured by the last two Canadian federal governments: "intensity-based emissions trading". Intensity-based emissions trading involves not hard and fixed caps, but moving caps that seek only to reduce greenhouse gas emissions relative to the amount of goods produced, or the greenhouse gas intensity, and not necessarily the absolute amount of emissions. Under the intensity-based emissions trading programs proposed by Canadian governments, allowances are issued to emitters on the basis of their productive output. Thus, any emitter that becomes more efficient in operations will be given more allowances. Because the cap is dependent upon productive output and can be ratcheted up by the achievement of productive efficiencies, there is no hard and fixed emissions "cap" per se, and no control over the absolute amount of emissions.

      Fourth, similar in economic philosophy to cap-and-trade programs, Pigouvian taxes have long been popular among economists to address large-scale pollution problems, (13) suggesting that a "carbon tax" may be appropriate. A carbon tax is a payment based on the actual or anticipated quantity of carbon emissions released into the atmosphere. In practice...