With pressure mounting on Canadian climate action, 2011 should shed some light on the future of climate regulation in Canada. First, the recent action by the US has resulted in calls for Canada to follow suit. Also, we have the pressures on provincial climate (and green energy) policies. With the Western Climate Initiative (WCI) set to launch in 2012, provinces will developing regulatory requirements for the WCI’s cap and trade system, but with an election in Ontario that could send that province’s green plans into reverse and limited participation in the U.S., the liquidity (read effectiveness) of the WCI system looks shaky at best.

Focusing on the U.S. action…

On January 2, 2011, the Prevention of Significant Deterioration (PSD) requirements (under s.160 of the Clean Air Act) began applying to GHG emissions. These requirements result in source-specific emission limits for the biggest new and modified sources. Emission limits are based on what is achievable given the best available control technology (BACT) for the source. So new and modified sources need to build using clean technology and operate under an emissions limit associated with that technology.  The fun here, comes from the numerous and ongoing litigation, a Congressional vendetta, and Texas, who has refused to incorporate new GHG requirements in their PSD regulations.

On December 23, 2010, the EPA announced that in addition to the PSD requirements for new and modified GHG sources, there will also be national ‘sector-based’ performance standards – New Source Performance Standards (NSPS) – (under s.111 of the CAA) for GHG emissions from new (and modified) electricity generators and petroleum refineries. These standards are a question mark right now in terms of how they will be set out and what, if any, work standards or techniques will accompany the NSPS. In terms of stringency, the NSPS acts as a ‘floor’ for any PSD BACT-based standard – meaning the PSD emission limits will not be any less-strict than the NSPS.  The final standards are due by the end of 2012.

Also of interest here is that action under s.111 by the EPA for new sources, requires States to address existing sources in these sectors. To help fulfill that requirement, the EPA will release guidance for States. This specific requirement for States to regulate existing sources in a sector for which an NSPS has been set, has a narrow application (only for pollutants that don’t have a National Ambient Air Quality Standard (NAAQS) and aren’t addressed as a hazardous air pollutant (HAP)) and has rarely, if at all, been used… this is for all intents and purposes, new ground. Some even say that the NSPS provisions give just enough room to for the EPA to start an emissions trading system. EPA guidelines are due at the same time as the NSPS but won’t likely be required any earlier than 2015.

What is interesting here as well, is how this move to address GHGs using NSPS provisions came about. Various States and environmental groups were in the course of litigation with the EPA to force them to include GHGs in new/existing NSPS. As part of two settlement agreements to end the litigation, the EPA agreed to include GHGs in NSPSs for electricity generators and petroleum refineries. Read the settlement agreements here.

So in addition to the current and no doubt forthcoming PSD litigation and the new chapter of the decades-old Texas v. EPA battle, there will be lots of discussion around NSPS and layered over all of this will be a congressional attempt to block any EPA action. For Canadian emitters, the key here is the fact that the US is poised regulate GHGs from new, modified and existing sources using middle to low stringency performance (read intensity) standards, primarily based on energy efficiency improvements rather than ‘step-change’ technology improvements. There might even be a push for emissions trading, making the US picture eerily similar to Canada’s 2007 Turning the Corner plan.  Now this is all tempered with a new Republican-led Congress in the US that is bent on stopping (or at least delaying) the EPA from acting on climate change regulations so stay tuned for more updates as things progress.

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