August 2008

Eye on Business

The opportunities and threats of climate change

By F. Dagicour

The development of Canadian and international carbon-related regulation deeply concerns the mining industry, an important consumer of energy that employs some highly energy-intensive processes. While climate-related risks are significant, the mining industry can benefit from opportunities arising from the new and emerging carbon markets.

Climate-related risks

In April 2007, the Canadian federal government announced its intention to regulate greenhouse gases (GHG) and air pollutant emissions in specified industrial sectors, including mining. An initial 18 per cent reduction target from 2006 emission intensity levels would be required in 2010 for existing facilities, followed by a compulsory annual two per cent continuous improvement. The reduction target will be applied at the sector-wide, corporate or facility levels. The latter level will govern most of the mining industry, with individual facilities within a sector being assigned an 18 per cent target applicable to their respective 2006 emission intensity level.

Proposed GHG regulations are expected to be published by the end of 2008 and finalized in 2009, so as to come into force, as planned, on January 1, 2010.

The main task for the mining industry is, therefore, to prepare for the 2010 GHG reduction targets, starting by assessing current GHG emissions and determining the most suitable options for achieving compliance with the federally proposed GHG regulations, which include:

  • Investing in new technologies reducing the GHG emissions (i.e. in-house reduction).
  • Contributing to a technology fund, for $15 per ton between 2010 and 2012, with price increases thereafter corresponding to GDP. Such contributions are limited to 70 per cent of the total regulatory target in 2010, decreasing and falling to 0 per cent in 2018.
  • Using the trading system, under which facilities can receive “emissions credits” — tradable title representing ownership of the GHG emissions reductions — in order to bank or sell such emissions credits. As of June 19, 2008, the Canadian carbon price traded at $10.75 at the Montreal Climate Exchange. It is expected that the price of one ton of CO2 will remain below $15 in Canada.
  • Obtaining offset credits through the “offset system,” under which offset credits are granted for emission reduction projects in Canada, outside of regulated activities and under certain conditions.
  • Purchasing certified emission reductions (CERs), issued under the Clean Development Mechanism (CDM) under the Kyoto Protocol limited to only 10 per cent of each regulated company’s target.

Other climate-related risks include:

  1. Legal proceedings targeting heavy emitters, as demonstrated by the action in 2007 against a mining company on account of its GHG emissions in Queensland, Australia, or against several oil, gas, electricity and coal companies in California (case filed February 26, 2008) seeking over US$400 million to relocate a village.
  2. Securities legislation, given the stringency of emerging transparency standards for corporate disclosure and carbon claims, as previewed in the February 2008 environmental report of key findings of the Ontario Securities Commission.
  3. Various business losses and property damage resulting from storms, decreased rainfall, variation in water availability, etc.

Opportunities for Canadian mining industries

Canada’s early-action program makes emissions credits available to mining companies that have reduced their GHG emissions between 1992 and 2006. Conditions apply, including registration with the federal government no later than June 27, 2008, and specifics on reductions achieved between 1992 and 2006.

Companies — regulated or otherwise — can develop carbon capture and storage projects eligible for the offset system and obtain offset credits applicable to compliance with the 2010 reduction target.

Canadian companies operating in certain developing countries may receive CERs for each GHG emission reduction for projects approved and registered by the CDM Executive Board, such as coal methane capture, energy efficiency and bio-mass fuel switch projects. Canadian companies may be suspended from participating in CDM projects and denied CERs pending a United Nations investigation of the Canadian obligations under the Kyoto Protocol.

Florence Dagicour is a lawyer with the Energy, Environmental, Climate Change and Regulatory Practice Group of Fasken Martineau DuMoulin LLP. Florence was born and raised in a rural setting and has preserved her love of nature. For this reason, she remains deeply committed to protecting the environment and developing a consciousness and sensitivity to the preservation of nature in others.

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