CANADA Law and Practice Contributed by: Thomas McInerney, Selina Lee-Andersen, Sonia J. Struthers and Elyse Bouey, McCarthy Tétrault LLP
Regulations under CEPA The legal framework under CEPA serves as the foun - dation for a number of key federal GHG reduction regulations administered by ECCC. The first of these regulations to be enacted is the Regulations Respecting Reduction in the Release of Methane and Certain Volatile Organic Compounds ( Upstream Oil and Gas Sector ) (SOR/2018-66), which serve to regulate methane – a potent GHG and the main component of natural gas – and certain vola - tile organic compounds in the upstream oil and gas sector. They impose equipment-level and facility- level requirements – including conservation, destruc - tion, and venting limits, leak detection and repair, and pneumatic-device controls – originally targeting a 40-45% cut in upstream methane below 2012 lev - els by 2025. Amendments introduced in 2025 add, among other things, stricter fugitive-emissions man - agement, venting prohibitions and destruction limits, plus a performance-based compliance option. The Clean Fuel Regulations (SOR/2022-140) (CFR) are also made under CEPA and require producers and importers of gasoline and diesel (“primary suppliers”) to reduce the lifecycle carbon intensity (in gCO₂e/MJ) of those fuels against a 2016 baseline, by a minimum amount that increases each year from 2023. The obli - gation applies company-wide, in aggregate tonnes of CO₂e, subject to exemptions. Suppliers comply by creating or acquiring compliance credits (each one tonne of CO₂e) or by paying into a compliance fund. Both primary suppliers and “voluntary credit creators” may generate tradable credits through three catego - ries – reducing a fuel’s lifecycle emissions, supplying low-carbon fuels, and end-user fuel switching. Credit generation follows government-approved quantifica - tion and third-party verification, and a credit clearance mechanism lets suppliers that fall short buy pledged credits. Finalised in December 2024, the Clean Electricity Reg- ulations (SOR/2024-263) also belong to the suite of emission-reduction regulations made under CEPA and drive the electricity sector toward a net-zero grid by prohibiting excessive CO₂ emissions from fossil-fuel- fired generation. They are technology-neutral, setting an annual emissions limit for covered generating units
whose environmental, social and economic effects are primarily provincial, while upholding the portions of the Act addressing projects carried out or financed by federal authorities on federal lands and outside Canada. Parliament amended the IAA in June 2024 to respond to the Supreme Court’s ruling but ques - tions still remain as to how the amendments will be implemented in practice to provide greater certainty of process, timelines and designation criteria. Prudent investors should therefore treat the federal–provincial regulatory boundary – and its attendant approval time - lines, costs and litigation risk – as a project-specific diligence question at the outset of any Canadian development, rather than a settled matter. 2.3 National Legal Regime Federal Legal Regime GGPPA and the Output-Based Pricing System (OBPS) The GGPPA is the central federal carbon-pricing stat - ute. Part 1 established a fuel charge (administered by the Canada Revenue Agency), and Part 2 establishes the OBPS for large industrial emitters administered by Environment and Climate Change Canada (ECCC) through the Output - Based Pricing System Regula- tions (SOR/2019-266). The Act operates as a “federal backstop” for carbon pricing: it sets minimum nation - al stringency standards that provincial and territorial systems must meet, failing which the federal system applies. Compliance obligations under the OBPS may be met with tradeable compliance units representing GHG reductions or removals, which take three forms: sur - plus credits (created where a covered facility reduces emissions beyond its OBPS requirement); recognized units (issued under a recognized provincial offset regime); and federal offset credits (created by project proponents under government-approved protocols and subject to third-party verification). The Canadian Greenhouse Gas Offset Credit System Regulations (SOR/2022-111) establish the federal mechanism for creating, tracking and using federal offset credits for OBPS compliance. Notably, some but not all provin - cial credits can be traded federally, and not all federal credits can be traded in provincial systems.
12 CHAMBERS.COM
Powered by FlippingBook