Turning the Corner: An Action Plan to Reduce Greenhouse Gases and Air Pollution Regulatory Framework for Industrial Air Emissions October 2007

Page 2 The Government announced the Regulatory Framework for Air Emissions On April 26, 2007, the federal government announced Turning the Corner: An Action Plan to Reduce Greenhouse Gases and Air Pollution and made public the regulatory framework for air emissions The regulatory framework for air emissions presents mandatory and enforceable reductions in emissions of greenhouse gases and air pollutants from industrial sectors Consultations and formal comments on the Notice of Intent (October 21, 2006) were instrumental in shaping/refining this Regulatory Framework for Air Emissions

Page 3 The Regulatory Framework provides a nationally consistent approach to reduce air emissions Responding to –Uneven effort across the country to reduce air emissions –Inconsistent messages to industry –Insufficient action to protect health and the environment This approach provides –Tangible benefits for Canadians and their environment –Nationally consistent regulations –Continued competitiveness of our economy –A level playing field across Canada –The basis for negotiations with our international partners

Greenhouse Gases

Page 5 Greenhouse gas emission targets Target Existing facilities  6% improvement each year from 2007 to 2010, giving an enforceable 18% reduction from 2006 emission intensity in 2010  2% annual improvement thereafter New facilities  3 year grace period  Clean fuel standard  2% annual improvement Total Industrial Target 2006 Emission Intensity Level % Change from 2006 Intensities -35% -30% -25% -20% -15% -10% -5% 0% Total Industrial Target 2006 Emission Intensity Level

Page 6 Greenhouse gas compliance options Ways to comply In-house reductions Climate Change Technology fund: one fund/two components  Deployment & Infrastructure: focus on opportunities for near term emission reductions: access as % of total target over period - 70%, 65%, 60%, 55%, 50%, 40%, 10%, 10%  Research & Development: focus on new transformative technologies: access over period - 5 Mt annually  Explore credit for certified project investments  Contribution rate to funds ($/tonne over period) - $15, $15, $15, $20, $20 escalating with GDP Trading  Domestic inter-firm trading  Access to domestic offsets  Access to the Clean Development Mechanism at 10% of firms’ total target  Actively explore Canada-US linkages Credit for early action of 15 Mt  With a maximum of 5Mt any given year

Air Pollutants

Page 8 Air pollutant targets are aligned with the best in the world Benchmarking to other jurisdictions –Examined the most stringent standards for each pollutant in each sector in Canada (provinces), in the U.S., and internationally –Where no benchmark exists, targets developed based on specific activities and equipment in similar sub-sectors (e.g.: oilsands) –Adjustment to Canadian circumstances where appropriate Identified sectoral targets based on these stringent regulatory emissions requirements Calculated national caps for the four main smog-forming pollutants

Page 9 Air pollutant emission targets Targets NATIONAL CAPS for 2012 to 2015 (% reduction from 2006 emissions)  NOx – 600 kt Cap (~40%)  SOx – 840 kt Cap (~55%)  VOCs – 360 kt Cap (~45%)  PM – 160 kt Cap (~20%) + SECTOR SPECIFIC CAPS for 2012 to 2015 ALL TO BE VALIDATED BY SPRING 2008, INCLUDING THE DATE OF COMING INTO FORCE ,000 1,500 2,000 2,500 Nitrogen Oxides (NOx) SulphurOxides (SOx) Volatile Organic Compounds (VOC) Particulate Matter (PM) -40% 600kt -55% 840kt -45% 360kt -20% 160kt kilotonnes 2006 Industrial Air Emissions 2015 Projected Industrial Air Emissions with proposed targets

Page 10 Air pollutant compliance options Ways to comply In-house Reductions  Fuel switching  Equipment and Process Upgrades  Control technologies Domestic Trading for NOx and SOx  Cap and trade system  Feasibility of offsets will be assessed Pursue discussions on Canada- US trading for NOx and SOx

Anticipated Impacts & Benefits of Regulating Industry

Page 12 National economic impacts will be manageable Total package (regulations and eco-Action initiatives) has impacts that are below -0.5% of GDP for any given year throughout the forecast period –Costs are highest in post-2015 period when package is mature –Regulatory package for climate change and air pollutants the largest contributor to GDP impacts Compliance options provide the time and flexibility to meet targets through technology improvements rather than output changes –Complements normal capital turnover cycles –Permits relatively cost-effective roll-out of major technologies such as carbon capture and sequestration by 2016 or so As a result, GDP impacts in the pre-2015 period in particular are somewhat offset by increased investment activity –Energy efficiency savings dampen cost impacts throughout the forecast period

Consultations and Next Steps

Page 14 Section 71 notice The government will require facilities in sectors to be regulated to report 2006 emissions and other relevant data under a notice issued under section 71 of the Canadian Environmental Protection Act,1999 (CEPA 1999) Section 71 data will be used to: –validate the baseline data and inform the allocation considerations for the sector caps –assist in the development of the reporting requirements –inform the detailed regulation design –enhance the level of detail in the current inventories The Section 71 notice will be published in Canada Gazette this fall Facilities will be required to report back by spring 2008

Page 15 Intensive consultations followed release of Framework in April Immediately following the release of the regulatory framework, work commenced with provinces and territories, industry sectors, and with non-governmental organizations on: –Validation of sector-specific air pollutant targets including their date of coming into force – priority issue –Allocation of air pollutant and implementation of GHG targets within each sector –Broad parameters of compliance mechanisms (scope of offsets system, governance of technology fund, etc.)

Page 16 What we’ve heard: Greenhouse gases Industry generally accepts the stringency and structure of the targets –Doable if compliance options not too constrained Some provinces and NGOs feel targets not stringent enough and would prefer different approach (cap and trade) Technology fund may be most controversial issue – differing views –Industry concerned over phase-out and investment constraints –Some fear the fund will interfere in market trading Credit for early action –Concern that 15 Mt not enough –Criteria for allocation may be too restrictive Other outstanding issues –Definitions: Clean Fuel Standard, New Facilities –Scope and timing of Offsets System

Page 17 What we’ve heard: Air pollutants Timeline for validation of air pollutant targets too short Air pollutant targets not based on local air quality conditions Potential for overlap/duplication with provincial regimes Differing views around stringency of targets Questions around benchmarking approach Differing views around trading Questions over how air quality objectives will be developed and used

Page 18 Moving Forward Fundamental issues have been raised on air pollutant framework -- consultations will be extended to Spring 2008 –Allows continuation of joint federal/provincial/territorial work through CCME Finalize the Greenhouse Gas Regulatory Framework by December 2007 Finalize negotiation strategy for PM Annex by November 2007 Begin to publish draft regulations in Spring/Summer 2008, to be amended later for air pollutant provisions