The good, the bad, and the equivalent

Last week, the governments of Nova Scotia and Canada finalized what’s known as an Equivalency Agreement, standing down the federal coal power regulations in favour of Nova Scotia’s hard cap on emissions in the power sector.

What might seem like a routine agreement between governments is actually a significant milestone in Canadian climate policy; this is the first such agreement that applies to greenhouse gases. And with Ottawa continuing to follow a “sector-by-sector” regulatory approach to carbon pollution — on paper at least — the Nova Scotia deal is expected to be the first of many.

Other provinces have certainly been watching the process with interest.

How does it work?

Section 10 of the Canadian Environmental Protection Act (CEPA 1999) allows an existing provincial or territorial instrument to apply in place of a federal regulation if it achieves an equivalent environmental outcome. The purpose, according to Environment Canada, “is to avoid duplication among the various orders of government and to enable the best-positioned jurisdiction to provide the highest environmental quality for Canadians.”

There are several requirements relating to reporting and investigations, but the primary test of equivalency is whether the provincial rules will deliver the same or better environmental results as the federal ones. In this case, that means GHG reductions.

Nova Scotia’s Greenhouse Gas Emission Regulations place a tightening cap on carbon pollution from the electricity sector. Between 2010 and 2020, the allowable amount of carbon pollution shrinks by roughly 20 per cent, from 9.6 Mt to 7.5 Mt. For the purposes of the equivalency agreement, Nova Scotia agreed to extend these caps to 2030, continuing at roughly the same rate of reduction.

NS power ghgs 1990 2030

The agreement with Environment Canada, essentially unchanged from the draft published in September 2012, outlines how these regulations meet the requirements to be declared “equivalent” to those from Ottawa. Most importantly, the parties agree that “the effect on greenhouse gas emissions levels” of Nova Scotia’s limits, determined in tonnes of carbon dioxide equivalent, “is, for the calendar years 2015 to 2019, equivalent to the effect on greenhouse gas emissions levels of the limits imposed under” the federal regulations. The same determination is made for the 2020 to 2030 calendar years.

As it turns out, “equivalent” is something of an understatement. Nova Scotia’s regulations far exceed the likely outcomes of the federal standard, particularly if measured in terms of cumulative impact on emissions levels.

NS v fed cuml

This is because the provincial rule progressively ratchets electricity emissions down in a series of steps. These are the legislated emissions caps are shown in the graph above. The federal regulation, on the other hand, simply requires a coal-fired unit to retire periodically. In the case of Nova Scotia, this means two units would retire at the end of 2019, followed a decade later by four more, at the end of 2029.

Equivalency certainly appears justified in this case, and Nova Scotia deserves credit for leading on the file. But the broader implications of agreements like these are more troubling.

Challenges ahead

Equivalency won’t always be so clear-cut. Several provinces have broader systems that allow offsets, technology funds, and emissions trading across sectors. Others, like Ontario, are considering them, with an eye to avoiding ponderous federal standards with an equivalency agreement. But how do you determine whether Alberta’s system, for example, leads to equivalent outcomes in a specific sector that Ottawa is regulating? Do offsets or performance credits purchased from another sector count? How about payments into Alberta’s technology fund? It’s bound to be complicated, to say the least.

More significant is the concern that agreements like these further accelerate the fragmentation of Canada’s climate policy into a crazy-quilt of provincial and sectoral rules.

Ever since the last cohesive national climate plan, Turning the Corner, was shelved, policy in Canada has been a choose-your-own-adventure affair. Any residual hope for federal leadership seems to have fully evaporated, and provinces are grappling with how to move forward on their own.

In this context, equivalency agreements are not the cause of this fragmentation so much as a symptom of the leadership vacuum in Ottawa.

The implications are troubling either way. While taking a rosier view on the challenges of determining equivalency in complex systems, an analysis from the law firm Bennett-Jones warns of the high costs and other risks that fragmentation could bring. “Although legally do-able, it is hard to see how Equivalency Arrangements can work for the Canadian economy,” they conclude. “The resulting patchwork of regulations will be expensive for the Canadian economy and will pose major difficulties when major additional reductions are required during the next three to four decades.”

Equivalency approaches can help bridge some gaps in the short term, but can’t hide the enormous challenges facing whoever forms government in 2015 as they seek a coordinated and effective approach to meeting our climate obligations.

In this sense, while Nova Scotia’s efforts are praiseworthy, the milestone established here is a troubling one.

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