Canadian Energy Law : Lawyers & Attorneys for Environmental Energy Law

Mexico ranks 11th in the world based on measurements of both economy size and level of carbon emissions and industry estimates suggest that the legislation could result in the development of a new US$3 billion market over the next 20 years. This is the first climate change law of its kind to succeed in North America, and the first from a developing nation.

Global Trend

Mexico is following a global trend of countries implementing their own climate change laws, rather than relying on the international community. As the Kyoto Protocol winds down without a replacement, countries have begun executing their own strategies to reduce global warming.

As we’ve previously blogged, countries such as Australia, New Zealand, South Korea and China have all taken steps to create their own regimes for mitigating climate change, including the establishment of carbon markets. There have also been strong regional initiatives undertaken such as the EU Emissions Trading System and the Western Climate Initiative (California, British Columbia, Ontario, Quebec and Manitoba).

We will continue to follow these and other carbon trading initiatives on this blog.

A “qualified majority” – 255 votes from a total of 345 – was needed to accept or reject the proposal. The committee voted as follows: 89 points in favour of the proposal, 128 against, and 128 abstained.

Key to the result was the abstention of France, Britain, and the Netherlands, home to oil companies with significant oilsands interests.

Europe does not directly buy crude oil from the oilsands, but Canada’s concern is presumably that it any adverse conclusion by the EU may damage the image of the oilsands, set a precedent for possible similar actions in other jurisdictions, and affect potential future sales.

Canada has lobbied against the proposal for months, arguing that it is discriminatory and could hinder trade relationships. It has even threatened to take the matter to the World Trade Organization if the committee approved the plan.

North America:

Canada has announced that it will formally withdraw from the Kyoto accord and the United States federal government has shown persistent opposition. In fact, a major European bank recently closed its US carbon trading business in a sign that there continues to be uncertainty regarding North American emissions trading systems.Even so, there is considerable policy development in the absence of national standards, as state and provincial-level governments are leading the way toward controlling GHGs. 

As described in an earlier blog-post, Quebec is working toward launching a cap-and-trade system regulating greenhouse gas emissions. It will be the first Canadian province to start enforcing cap-and-trade regulations for carbon emissions. Quebec Environment Minister Pierre Arcand said that from January 1, 2013 onward the ceiling for allowable emissions will gradually become stricter.

The California Air Resources Board has designed a cap-and-trade program which started implementation activities on January 1, 2012, with an enforceable compliance obligation beginning in 2013. Currently, the first auction is scheduled for August 15, 2012. The program is aiming to bring transportation fuels under the cap by 2015, at which point 85% of the industry in California will be covered. California is also working closely with British Columbia, Ontario, Quebec and Manitoba through the Western Climate Initiative (WCI) to develop a harmonized cap-and-trade system.

Europe:

In Europe, the EU Emissions Trading System (ETS) is marching forward despite resistance from outside the union. The ETS has recently been validated by a European High Court of Justice (ECJ) ruling that the inclusion of the aviation industry in the ETS was valid under international law. The ruling came under heavy fire from China and United States, which have criticized Europe’s “unilateral” approach and have threatened to disregard the system or take retaliatory measures.

Oceania:

Australia and New Zealand have revealed plans to link their emissions trading systems as soon as 2015. Australia plans to move from a fixed carbon tax to a flexible price mechanism so as to be compatible with New Zealand’s program. The combined scheme would create the largest emissions trading system outside of Europe.  It would also help to lock-in the system as, once the systems are linked, it becomes more difficult for either country to cancel their respective system.  This is a particular benefit for Australia as the carbon tax scheme narrowly passed through the country’s lower house.

China:

Chinese state media reported that the Chinese government has announced plans to launch a carbon trading system across seven carbon exchanges by 2013 and there has also been some talk of using a carbon dioxide tax to curtail GHGs. The pioneering carbon exchanges are facing some challenges – such as a lack of technical knowledge but no change in plans has been announced.

We will follow these and other initiatives carefully on this blog and look forward to an interesting year ahead!

 The Niko prosecution is a signal that Canada is serious about ramping up enforcement of the CFPOA. The guilty plea comes shortly after Canada was criticized by two international organizations for ineffective enforcement of anti-bribery legislation. In May 2011, Transparency International, a group that monitors global corruption, issued a report that criticized Canada for failing to enforce its foreign bribery laws, noting that the Canadian legal system and courts “do not handle complex ‘white collar’ criminal cases very well.” This followed a similar report by the OECD Working Group on Bribery, published in March 2011, which found that “Canada’s regime for enforcement of the Corruption of Foreign Public Officials Act remains problematic in important areas.”

Canada’s foreign bribery legislation

The CFPOA was enacted in 1999 and brought Canada into compliance with the 1997 OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

The CFPOA prohibits giving or offering to give a benefit of any kind to a foreign public official, or any other person for the benefit of the foreign public official, where the ultimate purpose is to obtain or retain a business advantage. It is applicable both to individuals and corporations, whether acting directly or through an agent or third party. An individual need not be Canadian to be charged. The extraterritorial reach of the CFPOA means that a Canadian business could be liable in Canada and elsewhere: double jeopardy does not apply.

Violation of the CFPOA is an extraditable offense punishable, in the case of an individual, by imprisonment for up to 5 years. A company can receive an unlimited fine for failing to prevent bribery. There is no limitation period for indictable offenses. Because sanctions under the CFPOA are solely criminal, proof “beyond a reasonable doubt” is required.

Unlike parallel enactments in most other OECD countries, whose jurisdiction is based on the nationality of the accused, the CFPOA only applies when the bribery has a “real and substantial” connection to Canada (i.e., presence, action or effect in Canada). However, the involvement of a Canadian parent or subsidiary may be sufficient to trigger its application. In 2009, the Minister of Justice introduced legislation (Bill C-31) that would have added provisions to the CFPOA based on the nationality principle so that, in certain cases, offences committed outside Canada would be deemed to have been committed in Canada. However, it died on the order paper with the prorogation of Parliament in December 2009 and has not since been reintroduced.

Anti-Bribery in the United States and the United Kingdom

The United States (Foreign Corrupt Practices Act) and the United Kingdom (Bribery Act) also have legislation that prohibits the bribery of public officials and makes it a crime at home to bribe foreign officials or fail to maintain appropriate accounting records that would reveal such corruption. Canadian and American anti-bribery offenses are similar, making compliance less complex for corporations that fall within both jurisdictions. The UK’s Bribery Act, enacted on July 1, 2011, is in some respects stricter than its Canadian and U.S. equivalents. For example, rather than dealing only with bribery of government officials, the Bribery Act also covers corruption between commercial entities.

The limited number of convictions under Canada’s anti-bribery legislation contrasts with the situation in the United States, which has dramatically increased its enforcement in recent years. Significant fines – frequently in excess of US$100 million and ranging as high as US$800 million – have been levied on companies under the Foreign Corrupt Practices Act.

Canada’s Corruption of Foreign Public Officials Act: No Longer a Paper Tiger

The Niko case indicates that Canada is stepping up its enforcement of the CFPOA. The RCMP has indicated that its International Anti-Corruption Unit, established in 2008 with offices in Ottawa and Calgary, is currently conducting over 20 investigations of Canadian companies allegedly involved in overseas bribery. There is also a pending case involving an individual accused of bribing an Indian government official in connection with a contract for the supply of a security system.

In light of the above, Canadian companies with business activities overseas (especially in countries with high levels of corruption) would be well advised to review their processes and to implement adequate corporate compliance programs, which should include the following key elements:

1. proportionate procedures, including regular and comprehensive auditing, as well procedures for the reporting of potential violations;
2. top-level commitment: identification of an authoritative officer within the company who is responsible and accountable for anti-bribery compliance;
3. risk assessment of business projects involving business with other countries;
4. extensive due diligence of business projects involving business with other countries;
5. communication strategy (including training programs for employees and officers); and
6. monitoring and review of relationships with foreign government and business partners to establish and document compliance with anti-bribery legislation.

For more information concerning the Corruption of Foreign Public Officials Act, and what you should do to ensure your company is not caught unawares, please get in touch with your usual contact at Stikeman Elliott, or with the author.

In Ontario, support for nuclear energy appears comparatively stable, if not untouched. The current Liberal government remains committed to the province’s nuclear portfolio which provides nearly 50% of the province’s energy. More interestingly, the opposition Progressive Conservatives appear equally supportive of existing nuclear infrastructure. Recently, Progressive Conservative Leader, Tim Hudak, has defended nuclear as “the workhorse of [Ontario’s] system”, characterizing it as “affordable” and “reliable”. Indeed, both parties endorse plans to build new reactors and refurbish ageing ones. Therefore, despite potential as a wedge issue in the upcoming provincial election, it would appear that nuclear energy’s future will continue unscathed in Ontario.   

            Globally, nuclear energy’s future remains uncertain as two questions loom. 

First, will others follow Merkel’s lead? The 2022 plan is merely a retraction of an earlier plan to extend the life of Germany’s aging plants. An industry analyst at TD Securities asserts, “Germany has long been regarded as ‘weak’ on nuclear power and was not expected to be a significant factor in reactor growth over the medium to longer term”. Former International Atomic Energy Agency head, Hans Blix has characterized the Fukushima tragedy as, “[a] bump in the road, but not the end of the road”. Nevertheless, Germany’s announcement has sent shockwaves through the nuclear industry as insiders await any indication that others may follow.

Second, how will this impact GHG reduction targets? Most experts agree that nuclear energy is a central element in the struggle to cut green-house gas emissions in half by 2050. The International Energy Agency has concluded that “nuclear’s share of the global power supply would have to grow to 24 per cent from 14 per cent currently to achieve that goal”. Some environmentalists tolerate nuclear’s role in GHG mitigation. However, most continue to oppose it due to safety and waste management concerns.

In Germany, the 2022 plan calls for increased reliance on renewable energy and stringent conservation measures. However, not everyone is convinced of the plans merits. Sweden’s Environmental Minister has written off the plan as “unrealistic”, asserting that it will result in greater dependence on imported coal and nuclear-generated electricity from France.

In the end, the nuclear energy has reached a cross-road. On the one hand nuclear’s future and its role in GHG mitigation appears secure, in Ontario and most other nuclear jurisdictions. On the other hand, Germany’s bold plan has the world watching to see if there will be any followers of Merkel’s lead. For the time being, commentators will wait to see if Fukushima is “a bump in the road” or “the end of the road” for nuclear energy’s global aspirations.        

Snapshot of the WTO Dispute Settlement Process

The WTO Dispute Settlement process is a multi-stage process, with consultation being the initial stage before the establishment of a DSB panel. During the consultation stage, the parties to the dispute are required to reply to one another, with the objective of resolving the dispute without the need to advance to a panel review. After 60 days, if no resolution has been reached, the complainant may request the DSB to establish a panel1;The parties are then given up to 20 days to discuss the terms of reference and the composition of the panel. Ultimately, with the parties’ input, a panel of three to five independent experts will be chosen to examine the complaint. Examinations involve meetings with the parties, third parties and may also include an expert review group, and may take up to nine months to conclude. The final report, containing the panel’s findings and recommendations, are provided to the parties within six months of the completion of examinations. Any decision of the panel may be appealed to the WTO Appellate Body. If a complaint is upheld, then once all appeals have been settled, the losing party must inform the DSB of its proposed measures to implement the recommendations. If it is impractical to comply immediately, the losing party will be given a “reasonable period of time” for implementation, which can be determined by the DSB based on either the losing party’s proposal, agreement between the disputing parties, or through arbitration. If the losing party fails to act within the defined “reasonable period of time”, it is obliged to enter into compensation negotiations with the complainant, subsequent to which, the DSB may authorize the implementation of retaliatory trade sanctions by the complainant(s) against the losing party.2

Japan’s Complaint against Canada

The Japanese complaint targets the domestic content requirements in the Ontario FIT Program, arguing that such requirements discriminate against equipment for renewable energy generation facilities produced outside Ontario, and also constitutes a prohibited subsidy. Japan and the other complainants are arguing that, by providing guaranteed, long-term pricing for the output of the renewable energy generation facilities that contain a defined percentage of domestic content, the FIT Program is inconsistent with Canada’s WTO obligations. In particular:

• Under Articles III.4 of the General Agreement on Tariffs and Trade (GATT), Japan is to be accorded treatment no less favourable than that accorded to like products of national original in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use. Further, under Article III.5, Canada shall not establish or maintain any internal quantitative regulation relating to the mixture, processing or use of products in specified amounts or proportion of equipment for renewable energy generation facilities that require equipment to be supplied from Ontario sources. Japan is arguing that the measures imposed by the FIT Program afford protection to Ontario production of renewable energy generation equipment in a manner contrary to the principles of the GATT3
• Under Article 2 of the Agreement on Trade-Related Investment Measures (TRIMs), Japan also argues that the measures imposed by the FIT Program appear to be trade-related investment measures that are inconsistent with Article III of the GATT, and therefore also inconsistent with the TRIMs. 
• Under Article 3 of the Agreement on Subsidies and Countervailing Measures, Canada shall neither grant nor maintain subsidies contingent, whether solely or as one of several other conditions, upon the use of domestic over imported goods. Japan argues that the measures imposed by the FIT Program (requiring the use of equipment for renewable energy generation facilities to be produced in Ontario) appear to be a subsidy because they represent a form of income or price support that confers a benefit;

Japan has requested a reply from the Government of Canada, and has reserved the right to request production of further information and documents regarding the measures imposed by the FIT Program. Following the DSB consultation procedure, Canada has until the middle of November to settle the matter before Japan may return to the DSB to request the establishment of a panel. Both the Government of Canada and the Government of Ontario have taken the position that Ontario’s Green Energy Act is consistent with Canada’s international trade obligations under the WTO, and will defend the policy accordingly

In January 2010, Ontario signed a deal with a South Korean consortium led by Samsung C&T Corp, which agreed to build four wind and solar power manufacturing facilities in Ontario with a combined power-generating capacity of 2.6 gigawatts by 2016. In exchange, Ontario has agreed to provide the Samsung consortium premium energy prices, access to the transmission system and CDN$437 million in incentives tied to the timely completion of the manufacturing facilities. Samsung is trying to establish itself as a key renewable energy player that will compete directly with existing Japanese companies such as Sharp, Mitsubishi and Kyocera. Some critics have speculated that Japan chose to target Ontario in response to the deal with the Samsung consortium.   

Under the Agreement, countries have committed to looking at extending the Kyoto protocol with a new round of emission-reduction targets for the post 2012 period. However the heavy lifting of such negotiations have been left for subsequent COP summits in Durban, South Africa in 2011 and South Korea in 2012.

For its part, at COP16 Canada refused to provide a commitment to new Kyoto targets, preferring the more flexible Copenhagen approach. Canada also objected to the commitment for developed nations that are signatories of Kyoto to cut emissions by 25 to 40 percent from 1990 levels by 2020. As a result of its commitments under the Copenhagen Accord, the Government of Canada has pledged to reduce greenhouse gas emissions by 17 percent from 2005 levels by 2020, but only if the United States takes comparable action. These commitments have not changed as a result of COP16.

Following the Cancun summit Canada’s Environment Minister, the Hon. John Baird, described the Cancun Agreement as a modest step forward, noting “It’s a first step to a single, new, legally binding agreement”. Guy Saint-Jacques, Canada's Chief Negotiator and Ambassador for Climate Change noted “We have laid good groundwork for further progress in these complex negotiations.”