Going Green: Preparing Your SME For the Carbon Constrained Economy
March 29, 2010
Originally printed in the Spring 2010 Issue of Enterprise Magazine. Reproduced with Permission.
By Laura Zizzo
By now, owners and managers of small and medium size enterprises (SMEs) have likely been exposed to the issue of climate change. The overwhelming majority of scientists around the world agree that human-induced climate change is a serious concern and efforts are needed to reduce emissions and prepare for the physical changes that may be inevitable. Governments and policy makers are indentifying responses to what many call the greatest challenge humanity has ever faced. In light of this new reality,have owners and managers of SMEs thought about how their businesses will be affected by climate change?
Although national and international law to address climate change has not been fully developed, there may be immediate and short-term implications for SMEs. By being aware of current developments and taking pro-active measures,SMEs may be able to lead Canada into our low-carbon future.
Because of their central role in the Canadian economy,it is certain that SMEs are integral to a successful Canadian response to the climate crisis. Increasing numbers of SMEs are considering what the coming physical, policy, and market changes might mean for business. Some are taking the lead in responding to these changes and exploring new business opportunities. SMEs are often well positioned to respond to the changing business environment and test out new business models.
Innovative SMEs can see immediate benefits from adopting climate-friendly policies. For great success stories we can look to companies like VeriForm, a medium-sized metal fabricating company based in Cambridge, Ontario. VeriForm has reaped tremendous rewards by embracing energy efficiency and, in turn, reducing carbon emissions. VeriForm owner, Paul Rak, saw a vast opportunity in greening his business, saving money, and creating a new revenue stream by making resource efficiency a priority. In the process, VeriForm found ways to reduce its electricity cost by 58%, even while increasing the size of its plant by 145%. Mr. Rak says he was able to increase the company’s profits by 76% while becoming a leader and advocate for sustainable business; VeriForm is now sought after by customers for its green credentials. In addition, VeriForm’s efforts were so successful other business managers started seeking Paul’s advice. Now, in addition to reaping the profitable results at VeriForm, Paul also heads up VeriGreen, an independently owned Energy Management company.VeriForm’s successes should inspire others to action.
The Canadian Patchwork and U.S. Influence
In Canada, both the provincial and federal governments can regulate environmental issues, with each province having its own goals and policy imperatives. This reality has lead to a patchwork of environmental, energy, and climate change policies across Canada. It can be a full-time job to keep track of the various regimes and opportunities in each province, however SMEs who find ways to participate in emerging fields can get ahead of the curve.
Just a quick look around Canada shows a variety of initiatives occurring at provincial and regional levels. In British Columbia, the provincial government has implemented numerous carbon-reducing policies, including a Carbon Tax and has pledged it will significantly reduce emissions from the public sector. It has also created the Pacific Carbon Trust, a Crown Corporation, to deliver quality BC-based greenhouse gas offsets in the province. In Alberta, the provincial government has implemented an intensity-based greenhouse gas reduction scheme that has created new offset opportunities. The system has directed money towards the development of technology aimed at reducing emissions from the oil and gas sector. Ontario recently implemented the GreenEnergy Act, which is creating new markets for renewable energy and related services in the province. Other provinces are also moving forward with innovative environmental and energy policies. SMEs can benefit from finding ways to participate in these new renewable and low-carbon markets.
In contrast to the notable provincial and regional action, federal policy performance is moving slowly. The Canadian government has come out with numerous climate plans, but so far has not implemented any comprehensive strategy to reduce emissions and adapt to climate change. Most recently, the federal government has indicated that it will follow whatever system is implemented by the United States.
The U.S. Congress is currently considering a comprehensive piece of legislation that, if passed, will implement a national cap-and-trade system along with numerous other initiatives aimed at reducing dependence on fossil fuels, reducing greenhouse gas emissions, and creating a green job revolution. These initiatives have the potential to change the rules of the game for many small and medium size businesses. The cap-and-trade system is the cornerstone of the proposed American climate legislation. In its current version, this system will set a cap on emissions for approximately 75% of the economy. Those subject to the cap will have to reduce emissions to the allocated amount or purchase emissions credits. These credits can be bought from other regulated entities that emit less than they are allocated or from non-regulated sources that create emissions reduction credits—called offset credits. To create reliable offset credits, entities must use stringent methodologies, which can be verified and sold to entities wishing to “offset” their emissions. Some of the more popular offset credits may come from the agriculture, forestry, and waste management sectors.
Although it is unlikely that many SMEs will be subject to initial caps on emissions, there will be opportunities created by this system for those who can lower emissions or create emissions reductions. Perhaps most importantly, there will be a new emphasis on products and services that will aid emitting entities to measure and manage emissions.
The time is now
Most SMEs’ venture into the low carbon economy will come from analyzing the costs of doing business. A great place to start looking for opportunities is in resource and energy efficiency, where significant cost savings can be found relatively simply. Those who seize the opportunities may find they become the leaders of the new low-carbon economy and have a significant role to play in the coming low-carbon revolution.
Laura Zizzo is a Partner at Zizzo Allan Climate Law LLPfocusing on climate and environmental law and policy. She can be reached at laura@zizzoclimate.com
BC Minister Lestrom hopes to have BC Clean Energy Act passed by June
March 29, 2010
It looks like the BC Liberals are getting closer to rolling out the province’s proposed BC Clean Energy Act.
Speaking at the Globe 2010 conference in Vancouver, BC’s energy minister Blair Lekstrom made a number of interesting comments.
- He noted that he hopes to present the BC Clean Energy Act to the legislature this spring, and he hopes to have it passed in early June.
- He also stated that the BC government will be taking a serious look at incorporating tidal energy in its renewable energy plans. He said that, on the tidal energy front, the Government is aware that getting public support for the implementation of new technologies is going to be crucial.
See the Vancouver Sun’s take on Mr. Lekstrom’s speech here.
The Supreme Court of Canada Dismisses FOE’s Leave to Appeal
March 26, 2010
The Supreme Court of Canada will not consider whether the Federal Government has failed to meet it statutory obligations related to the Kyoto Protocol Implementation Act, 2007 (KIPA). This disappointing decision for the applicant, Friends of the Earth, was released on March 25, 2010; Justices LeBel, Deschamps and Cromwell dismissed the leave to appeal application with costs.
The dismissal means that the decision of the Federal Court of Appeal will stand unchallenged. The Court of Appeal agreed with Justice Barnes of the Federal Court’s reasons, finding that there was no judiciable issue to consider, as the issue was political in nature. In essence, finding that accountability in this case was to come through the electorate, not the courts.
Friends of the Earth asked for a judicial declaration (a court-statement) confirming that the government is bound by the KIPA’s requirements and to require the government to comply with it (see the FOE press release).
This case appears suggest that the courts do not take the KIPA or the arguments made by the appellant seriously. Professor Elgie of the University of Ottawa, Faculty of Law was quoted in the Financial Post as saying that this case is not just about “whether Canada must comply with the Kyoto Protocol … but whether Cabinet must follow the will of Parliament. The Federal Court’s decision suggests that it does not, which is very troubling from a democratic and constitutional perspective.” See the Legal Post article for further discussion by Prof. Elgie.
In the lower court, Justice Robert Barnes agreed with the government lawyers, that the KPIA created a system of Parliamentary accountability involving public policy choices that the court should not evaluate. He confirmed that what the court was asked to consider was outside of the jurisdiction of judicial review.
By allowing the Conservative Government to disregard the will of parliament the courts may be weakening the rule of law in this country. The failure of the Supreme Court to take up this case is a lost opportunity for clarity on the role parliament vis-à-vis the role of government. In the meantime, those of us advocating for climate action must pursuing other avenues.
Hydro One Update: Capacity Constraints with Distribution System
March 26, 2010
Guest Blog By Robert Wakulat
In a conference call and webinar on March 24th, Hydro One addressed the capacity issues it currently faces in connecting distributed energy generation projects to the electricity grid. The session was titled Capacity Challenges with the Distribution System and the full presentation including Q&A is available here:
Hydro One is the largest transmission and distribution company in Ontario and operates 96% of the province’s transmission capacity by revenue. Geographically, it covers 75% of the province including 280 transmission stations and over 1,000 distribution and regulation stations. Its ability to implement the FIT program will be vital to the program’s success.
Mark Fukuzawa began the webinar by emphasizing Hydro One’s commitment to the principles of the Green Energy Act (GEA) and recognized that project proponents are relying on Hydro One to provide a smooth and predictable connection process. One concrete manifestation of this commitment was the assertion that Hydro One is targeting a maximum period of 60 days for its Capacity Impact Assessments (CIA) on individual projects. Nevertheless, Fukuzawa cautioned that Hydro One must ultimately ensure power quality and protect the grid’s integrity and reliability.
It was pointed out that Hydro One has only recently begun to fully appreciate the previously unforeseen impacts it must address in order to meet its GEA commitments and is in the process of working through various solutions. While Hydro One has connected more than 5500 MW of new generation to its distribution system since 2004, including 112 generators, the overwhelming response to the feed-in-tariff (FIT) program has gone beyond current system capacity (and expectations) and presents the LDC with new challenges.
Capacity Challenges
Hydro One’s has identified three primary challenges to the successful implementation of new renewable distributed generation. These challenges are
- Feeder Distance Limitation; and
- Short Circuits and Transformers.
The LDC has presciently pointed out that resolving these issues is not just important for current project proponents. It will also help ensure that both the GEA and renewable generation technology become broadly accepted developments in the Ontario political and consumer markets respectively. There is still a significant chasm of skepticism that most be traversed before early adopters have entrenched a green economy mentality within mainstream Ontario.
Feeder Distance Limitation
Unlike its more urban LDC cousins, such as Toronto Hydro, Hydro One faces a significant challenge in transmitting new generation over vast distances. As the distance of the generator’s connection point from a station increases, voltage levels become more sensitive. This is particularly true of renewable generation sources, which are intermittent in nature and add only small loads to the grid. These types of projects could lead to large changes in voltage that adversely affect end-use consumers. Thus, it is much easier for Hydro One to accommodate new generation if it is located closer to transformer stations.
The impact on project proponents is twofold. First, an additional technical analysis will be added to the proponent’s Connection Availability Assessment whereby there will be consideration of the effect of additional intermittent power on end-use consumers. Proponents will be notified by the OPA if it becomes a live issue. Second, the actual capacity available for additional generation may be less than it appears because published capacity assumed ideal connection conditions.
The former development should not increase the length of the assessment process given Fukuzawa’s assurances but may result in Hydro One requiring alterations to the project, though some of these may be done post-project completion. However, the latter issue may cause disappointment once proponents realize that capacity limitations in the province are even stricter than earlier anticipated. The LDC’s ability to manage proponent expectations will be an important part of its FIT public relations campaign.
Short Circuits and Transformers
Ontario’s grid was designed with power continually flowing from higher system voltage to lower system voltage and it was not anticipated that there would be a significant two-way flow of power along these lines. These reverse power flows and distributed generation connections increase the short circuit probability at substations. In preparing for the FIT program, Hydro One identified a lack of ability in some of its transformers to allow reverse power flow as a challenge. Transformer manufacturers have pointed out that an excessive imbalance could cause overheating and potential failure of the transformer. Moreover, short circuit levels were found to already be high at various substations.
Unlike the feeder distance issue, reductions attributable to transformer issues were contemplated when reviewing capacity constraints for FIT contracts. Hydro One’s most significant step to address the transformer issue is to potentially speed up the replacement of older transformers, while still looking into other solutions.
Project proponents can expect to have their potential short circuit contribution reviewed during the Connection Impact Assessment process and it will depend on the technology employed along with feeder distance. In this case, a greater distance is actually a benefit because it lowers the short circuit contribution.
Conclusion
As the FIT program rolls out across the province, new challenges will inevitably surface for both proponents and generators. And while this may slow down project development, if other LDC’s follow Hydro One’s lead, then at least the market will understand what those challenges are and what is being done to address them. A public webinar and commitment to continuous communication should be considered effective responses as Hydro One does its part to ensure as smooth a transition as possible to a green economy in Ontario.
Robert J. Wakulat is a GTA-based lawyer working with emerging renewable energy projects for individuals, firms and community co-operatives. He also likes chasing Frisbees. You can reach Robert at rwakulat(at)gmail(dot)com.
Disclosure of Climate Risks: SEC and OSC Guidance
March 10, 2010
Canadian Oil Sands and other large-scale emitting industries will be under new scrutiny now that the Securities and Exchange Commission (the body responsible for regulatory public companies in the United States) and the Ontario Securities Commission (the Ontario securities regulator) have determined that climate risks can be material to investment decisions and should be disclosed.
SEC released Climate Change Disclosure Guidance
The SEC’s Guidance Regarding Disclosures Related to Climate Change, effective February 8, 2010 clarifies the existing rules related to climate change disclosure and is intended to help companies comply with their existing obligations. As Commissioner Luis A. Aguilar stated in a January 27, 2010 speech:
The guidance clarifies that companies must discuss:
- Direct Regulatory Effects
- The direct effects of existing and pending environmental regulation, legislation, and international treaties on the company’s business, its operations, risk factors in Management Discussion and Analysis of Financial Condition and Results of Operations (MD&A).
- Indirect Regulatory Effects Linked to Demand
- The indirect effects of such legislation and regulation on a company’s business, such as changes in demand for products that create or reduce GHGs.
- Physical Effects of Climate Change
- The effect on a company’s business and operations related to the physical changes to our planet caused by climate change – such as rising seas, stronger storms, and increased drought. These changes to the environment could have a number of material effects on corporations, such as impairing the distribution and production of goods and damaging property, plant, and equipment.
The Commissioner also said that it will be important for companies to evaluate and understand their emissions information in order to evaluate risks appropriately and that registrants should consider whether the investor would want to know the information before deciding that climate issues are not material to their organization. It appears that the SEC is sending a clear signal to registrants that they must do a better job of disclosing these material risks and wont be able to simply say that climate risks are not material without some explanation. There is a clear need to measure and manage these risks, and the SEC will be watching for compliance with the rules.
OSC Identifies Need for Guidance, to be released by Fall of 2010
In Canada each province is responsible for securities regulation, although there is a movement for harmonization of securities regulators across the country. Here in Ontario, the OSC is undertaking a corporate sustainability reporting review, and has been considering the disclosure of corporate governance and environmental matters by reporting issuers (other than investments funds).
On April 9, 2009 MPP Laurel Broten introduced a broad resolution, which was unanimously supported by the Ontario Legislature, calling upon the OSC to undertake a broad consultation to establish best practice corporate social responsibility and environmental, social and governance reporting standards. Coming out of that resolution, the Ministry of Finance and the OSC agreed that the OSC would review existing disclosure requirements, consult with stakeholders and make recommendations to the Ministry of Finance by January 1, 2010.
The OSC released a discussion paper on the issue and undertook stakeholder consultations to address whether there was a need for additional guidance or some other measure. A number of us were invited to participate in the stakeholder consultation session that took place in 2009. We also prepared a submission (the submission and press release from Ceres can be viewed here) that was later cited by the OSC in its Report to the Minister of Finance. This Report to the Minister of Finance and the Notice 51-717 Corporate Governance and Environmental Disclosure were released on December 18, 2009, confirming the OSC’s intention to issue interpretive guidance in 2010.
The OSC is currently working with stakeholders and other Canadian Securities Administrators to develop guidance for environmental disclosures. By working with other securities regulators across Canada, the OSC will likely aid in a movement towards streamlining responses nationally. This will help ensure that the guidance released by the OSC has broad application across Canada. We can expect securities regulators in Canada, lead by the OSC, to encourage and perhaps demand improved disclosure of climate change risks and impacts in the near future.
For more information please contact Laura Zizzo at laura@zizzoclimate.com
BC still vying for gold (with a new Clean Energy Act)
March 1, 2010
The Vancouver Sun reports today that discussion is heating up around the proposed BC Clean Energy Act.
In the Speech form the Throne on February 9, 2010, the BC government promised to move forward with the creation of a Clean Energy Act to “generate new wealth and new jobs in our communities while we lower greenhouse gas emissions within and beyond our borders.”
The Vancouver Sun reports that “Premier Gordon Campbell has been promising the act will simplify and stabilize the process to develop renewable energy projects in B.C., and attract new investment and job opportunities.”
A recent Price Waterhouse Coopers report commissioned by the Independent Power Producers Association of British Columbia reports that renewable energy projects could draw $20 billion in capital spending by 2020.
It will be interesting to see how much support the BC government is able to offer under the proposed Clean Energy Act, given increasing budgetary pressure. Even with tight finances, however, the BC Liberals are very aware of the hugely positive response Ontario has received to the introduction of its Green Energy Act, and they don’t want to be left out of the action. The race for clean energy bragging rights (and the economic development that follows) in North America is well under way and both BC and Ontario are coming out of the gate strong (it is clear that Olympic fever has affected this particular writer).
The promised introduction of the BC Clean Energy Act also raises some interesting questions about the environmental attributes associated with renewable energy production. Will BC follow Ontario’s lead (with the FIT program) and take environmental attributes from renewable energy projects in exchange for government support? Or will the program allow renewable energy producers to keep or sell environmental attributes such as offsets generated by their projects?
Some links:
Vancouver Sun Articles
http://www.vancouversun.com/technology/Victoria+unveils+three+clean+energy+deals/2570291/story.html
Background:
Throne Speech (2010 Legislative Session: 2nd Session, 39th Parliament)
Independent Power Producers Association of British Columbia Press Release
