As a national price on carbon looms across Canada and with the cap-and-trade system now up and running in Ontario, disclosure is an increasingly important issue with regards to financial liabilities and risk assessment. Lawyers say that because there is a mandated federal carbon price that is a backstop and most prices will be administered provincially, the patchwork approach across the country will mean different requirements from province to province.
As a national price on carbon looms across Canada and with the cap-and-trade system now up and running in Ontario, disclosure is an increasingly important issue with regards to financial liabilities and risk assessment. Lawyers say that because there is a mandated federal carbon price that is a backstop and most prices will be administered provincially, the patchwork approach across the country will mean different requirements from province to province.
“It’s not going to be a standard one-size-fits-all approach across every province, and that’s something that a lot of clients need to get their heads around,” says Laura Zizzo, founder and CEO of management consulting firm Zizzo Strategy and a practising lawyer.
Zizzo says that because there is already a price in Ontario and Quebec through their cap-and-trade system and a carbon tax in B.C., the majority of the Canadian economy is already thinking about how to go about dealing with it.
She says that as the price rises over time, it will make the long-term perspective a more interesting one, though the initial impact should be limited.
Zizzo says that for her clients, the rules for the cap-and-trade systems in Ontario, Quebec and California all differ slightly, which means that lawyers will have to ensure that the specific issues of the facilities in-province will be addressed.
David McRobert, an environmental lawyer in Peterborough, Ont., agrees that the patchwork approach could be a problem as it rolls out, particularly that provinces such as Manitoba are planning to implement a carbon price that is lower than those in other provinces, despite the federal plan for a national price.
“One of the concerns has to be . . . if there’s uneven implementation of carbon pricing across Canada, do you end up with businesses being attracted to other parts of the country?” asks McRobert.
“That’s always a risk.”
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Zizzo says that, going forward, most of the work around helping clients adapt to things such as carbon pricing will be less legal work than it will be consulting.
“Lawyers will have to be working with consultants to understand that the legal considerations are being taken into account, but most of the work on how to comply with this will be outside of the legal services realm,” says Zizzo, noting that it’s mostly what she is focused on currently.
She says most of her work is focused on Britain’s Task Force on Climate-related Financial Disclosures, which stems from the Financial Stability Board in the U.K., and the implementation of the approach it put out. Those recommendations were released this past June.
“The Canadian Securities Administrators are currently doing a review of climate-related disclosures in Canada, so it’s very active,” Zizzo says of the adoption of the recommendations.
“Carbon price is playing into that.”
She adds that there has been movement in the Canadian financial services sector for what climate change means for their business and disclosing that to investors.
Paul Manning, principal of Manning Environmental Law in Toronto, says companies have been required to report their carbon emissions for years now above a certain threshold, but he says that listed companies will be required by securities regulation to make their disclosures.
“This is just the natural outflow of carbon pricing,” says Manning.
He notes that many companies for years have been demanding a carbon price so that they can build their business models around it.
Manning adds that oil company BP had an internal carbon trading system in order to model how it would work more broadly.
“The problem for companies, and why we have an emissions trading system rather than a tax, is so that industry can come toward its targets in a gradual and shared manner,” he says.
“There’s some arguments that taxation does it more efficiently, but that’s always more controversial philosophically and politically.”
Manning notes that the companies that have to worry are those that haven’t been moving toward improving their carbon footprint, which may find their assets stranded if the legislation and the requirements move too quickly for them.
“I can see a situation where there are some companies where they are unable to comply, and they’re just going to have assets that will never come into compliance, but the large final emitters have been required to report on their carbon emissions along with a series of other toxic discharges for some while, both federally and provincially,” says Manning.
Zizzo says that insurance companies are a good example of an industry looking to see how their products will survive into the climate change-related future, as well as their role as institutional investors, meaning that they get to look at it from both perspectives, as are banks that are weighing these considerations when it comes to loans.
Zizzo says lawyers need to be thinking about climate change in every aspect of their work.
“It’s part of our due diligence expectations that we’re thinking about risks and thinking about climate change and the broader context,” says Zizzo.
“It’s no longer just a niche environmental law issue — it needs to be integrated across the board if we’re going to properly adapt to climate change.”