Due Diligence in Buying Residential Property – Beware Leaking Oil Tanks

Tony Crossman, Vancouver
Charles W. Bois, Vancouver
Sarah D. Hansen, Vancouver

For most of us in today’s age of natural gas and electricity, we don’t often think about the implications of home heating oil tanks and the contamination that they can cause to residential properties.  For those who have bought or sold residential properties in the past, it was likely not an issue of concern.  However, a recent decision of the B.C. Supreme Court shows that you should be concerned about residential fuel tanks when buying and selling land, because the cost implications can be in the hundreds of thousands of dollars. 

The case in question concerns a series of transactions.  The Colbecks purchased a property in September 1998.  Their offer to purchase was subject to a satisfactory building inspection.  The building inspector reported that there was evidence of a buried oil tank because there was a vent and fill pipe and the inspector recommended locating the tank and testing for oil products.  The Colbecks did not act on the inspector’s recommendation until after they decided to sell the property in 2000.  At that time, the Colbecks retained a contractor to deal with the tank.  The contractor said that he pumped out 580 gallons of water, oil and sludge, cleaned the tank and filled the tank with sand for $900.  (As an aside, the Court found that the contractor, if he took any steps to decommission the tank, he did not do so in a workmanlike manner.)

Ms. Aldred bought the property in 2000.  In negotiating the contract, the Colbecks advised Ms. Aldred about the inspection two years earlier and the work that they had completed which meant that no additional inspection would be required.  Ms. Aldred was given a copy of the inspection report.

After purchasing the property in 2001, Ms. Aldred decided to sell the property in 2007.  Her realtor advised her to check the property’s disclosure statement regarding the oil tank and Ms. Aldred retained another contractor to inspect.  This company located a tank at the same location identified by the previous contractor. 

Ms. Aldred signed the contract on the basis that she would be responsible for removing the tank and dealing with any contamination arising from the tank.  Unfortunately, although the cost of removing the tank was in the thousands of dollars, the total bill for cleaning up the contamination caused by the leaking oil tank was over $200,000. 

Ms. Aldred sued the Colbecks for negligently misrepresenting the condition of the property under the B.C. Environmental Management Act (the cost recovery action).  Although the Court found that the Colbecks did not tell Ms. Aldred that the tank had been removed, the Court did find that the reasonable meaning to be accorded to the Colbecks’ statement that the tank had been “decommissioned”, and the meaning they intended to convey, was the tank had not damaged the property.  That representation was incorrect. 

The Colbecks had contacted the appropriate municipal authority which was the local Fire Department and followed the recommendation concerning the decommissioning of the tank by retaining a person recommended by the Fire Department. 

The Colbecks argued that they did the right thing by retaining the contractor, but the Court did not agree that that was sufficient.  The Court found that the cost and time it was said to have taken to do the work (1 day) suggests that an appropriate amount of work was not done.  In other words, the description of the work, the small amount of time taken and the price charged were sufficient to raise a suspicion that the work was not properly done or not done at all.  In addition, there was no evidence that the Colbecks inquired as to whether there had been any testing done for leaks from the tank and therefore contamination into the surrounding soil and groundwater as a result of leaks from the tank.  This was despite some of the previous experience by the Colbecks where they had completed remediation work for a leaking tank.

The Court found the Colbecks liable for negligent misrepresentation.  The Court also found the Colbecks responsible persons under the cost recovery provisions of the Environmental Management Act.

In particular, the Court concluded the Colbecks did not undertake all appropriate inquiries consistent with good commercial customary practice at the time, in order to fall within the “innocent purchaser” exemption under the Environmental Management Act.  Rather, the Court found that the Colbecks were warned about the possible problems in the building inspection report – about the presence of an oil tank – and did nothing to avoid that or deal with it. 

Further, the failure to examine the state of the tank over two years, during which the Court found the leakage must have continued, suggested to the Court that the Colbecks contributed to the contamination of the site. 

The Colbecks did not succeed on the doctrine of caveat emptor (buyer beware).  Ms. Aldred’s questions about the property and the Colbecks’ statements that the tank had been dealt with negated this argument.

As between the parties in this action, the Colbecks were found to be solely responsible for the remediation of the property.  The Court left open the question of whether the Colbecks could pursue prior owners for contribution.

On the question of what Ms. Aldred recovered, the Court found that she could recover for the costs of purchasing the property, about $6,000. 

However, the Court declined to award Ms. Aldred damages for:

• loss in value of the property (because there was no evidence of loss in value);
• losses as a consequence of the delay in selling the property due to the contamination, such as property taxes, utility costs and vacant home insurance (because those losses were “too remote”);
• finance costs; and
• general damages for discomfort, disappointment, anxiety and frustration.

However, the Court found that Ms. Aldred was entitled to the “reasonable cost” for the remediation of the contamination.  That was not quantified because there was some dispute about the actual costs and whether they were “reasonable”.

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Berendsen v. Ontario

Brian P. Kaliel, Edmonton

Bernard Berendsen, Maria Berendsen, and their children sued her Majesty the Queen in Right of Ontario for losses sustained by their dairy farm operations as a result of contamination of their water supply by toxic road fill.  The previous land owner had allowed the Ontario Minister of Transport (MTO) to bury the road fill on the farm.

In the 1960s, the MTO undertook roadwork at a highway intersection near the farm.

The previous owner of the farm gave the MTO permission to deposit a large amount of concrete and asphalt waste near the farm well. No information was given to the previous owner concerning what was in the waste. No release was signed or payment made to him.

The waste material was spread out and covered with a layer of gravel. The Berendsens purchased the farm in 1981 and converted it into a dairy operation. Their total investment in the farm, cattle, and equipment was about $550,000.

Within a year after taking possession serious problems emerged. There were unusual numbers of sick and dying cows, as well as low milk production. The Berendsens noticed the water had an oily smell. By 1988 they had stopped using the water for drinking. By 1989, Mr. Berendsen started hauling water for his cattle.

In 1989, Mr. Berendsen drilled a new well away from the buried materials, however, herd health problems continued.

In 1980, two veterinarians started monitoring the water intake of the cattle. The veterinarians concluded that the health problems and lack of milk production resulted from under consumption of water. They believed the cattle were not drinking the water because it was unpalatable. Corrective measures to filter the water were attempted without success.

In 1992, an independent environmental consultant conducted tests on both the waste materials and the water. He concluded that there were a number of “organic hazardous contaminants” in both the buried asphalt and the water. The contaminants included significant levels of benzo(a)pyrene, and dioxins and PCBs.

The MTO and the Minister of Environment were provided with the results, but refused to take remedial action. The Ontario Government took the position that the amount of chemicals detected in the water did not exceed “Ontario Drinking Water Objectives for Human Consumption”.

In 1994, the Berendsens moved to a different location, at which they eventually developed a successful dairy. The previous farm was abandoned, but had not been sold. The buried materials remain on the farm which was uninhabited and inoperable as a working farm.

A number of expert witnesses gave evidence at trial, including veterinarians with expertise in dairy herd health and production, veterinary pathologists, veterinary toxicologists, environmental toxicologists and hydrogeologists. The immediate cause of the health problems in the cattle was their unwillingness to drink enough of the contaminated water.

Madam Justice Seppi of the Superior Court of Justice held at trial that the Ontario Government was negligent and liable for damages of $1,732,000 for health, hardship and related losses sustained by the Berendsens. She found the Government negligent for both its initial careless disposal of toxic materials in the 1960s, as well as its subsequent careless investigation and its failure to remedy the problem once it was brought to its attention in the 1980s and 1990s.

The Government of Ontario appealed on the following grounds:

Causation: The Government challenged the trial judge's finding that it materially contributed to the unpalatability of the well water provided to the cattle.

Duty of Care: The Government argued that the trial judge erred in finding that it had breached a standard of care because there was no evidence a reasonable person in the 1960s would have foreseen the risk of a deposit of waste material 60 feet away would contaminate a water well and cause harm to animals, and that it had no statutory duty to remove the waste material or remedy the contaminated well water in the 1980s and 1990s.

Laskin, J.A., Juriansz and Epstein, J.J.A. of the Ontario Court of Appeal allowed the appeal of the Ontario Government, set aside the decision of the trial judge, and dismissed the action.  Laskin, J.A. considered the following issues:

1. Did the Ontario Government owe the Berendsens a duty of care?

The Ontario Court of Appeal had previously granted summary judgment dismissing the Berendsens' claim on the ground there was no duty of care, however the Supreme Court of Canada reversed this decision and stated:

…the disposal of waste asphalt on private land gives rise to a duty of care owed only to the landowner involved and possibly a few other individuals who could be impacted by the disposal.

This issue was not, therefore, in contention before the Court.

The Government did not challenge the trial judge's finding that the Berendsens had sustained damages of approximately $1.7 million.

Laskin, J.A. reviewed the evidence with respect to causation in detail. Although Laskin J.A. was critical of a number of the trial judge's findings, (in particular on the issue of whether or not the chemicals made the well water unpalatable to the Berendsens' cows), he did not decide whether these concerns would warrant setting aside the factual finding of causation.

Laskin, J.A. observed that:

To succeed in showing a breach of the standard of care in this case, the Berendsens had to show that, back in the 1960s when Ontario deposited asphalt and concrete waste on the dairy farm, harm to the cattle from this buried waste material was a reasonably foreseeable risk. It is not necessary that the precise way the harm occurred be foreseen; but the risk of harm in a general way from drinking or not drinking the water had to be reasonably foreseeable to impose liability.

Laskin, J.A. concluded that there was no evidence to support the trial judge's finding that the Ministry of Transport knew or ought to have known in the 1960s that dumping a large quantity of road bed waste near the site could potentially result in toxicity to the natural water supply to the farm. Neither common sense nor the statutory provisions in place at the time answered the question of whether this was reasonably foreseeable. No expert evidence was called by the Berendsens on this point, and Laskin, J.A. concluded that the cross-examination of the one Government witness who testified on this point did not establish reasonable foreseeability.

Laskin, J.A. also concluded that there was evidence to establish that this type of loss was not foreseeable in the 1960s, including the fact that the disposal of waste material was not regulated and was reasonably common at the time.  No guidelines for the disposal of toxic waste existed in the 1960s, and none of the witnesses could point to any studies or evidence which supported the proposition that it was understood, in the 1960s, that toxic materials could migrate or contaminate water or make it unfit for cattle. He concluded:

In the present case, I am not persuaded there is any evidence that the harm occurring to the Berendsens was reasonably foreseeable when Ontario deposited waste material on the dairy farm. Absent evidence, the trial judge's finding that Ontario breached the standard of care was an error of law. Since Ontario did not breach the duty it owed to the Berendsens, the Berendsens' negligence action must fail. Although this result may seem harsh in the light of what we now know about the environment, it is inappropriate to use our current knowledge to measure conduct occurring more than 30 years ago.

Laskin, J.A. agreed that having made the policy decision to investigate whether the Berendsens' well water was contaminated in the 1980s, the Ontario Government owed a duty to carry out the investigation properly relying on Kamloops (City) v. Nielsen.

The Ontario Government did not challenge the trial judge's finding that its investigation was negligent, however it argued that nothing turned on the finding because it had no duty to remove waste material or remedy the well water. Laskin, J.A. agreed. Laskin, J.A. observed the investigation was conducted for the specific and limited purpose of determining whether it met the applicable water standards for human consumption -- the Ontario Drinking Water Objectives. Testing showed that none of the chemicals in the water exceeded this standard. There were no standards at the time for water consumed by animals. Even if the investigation was negligent, there was no duty at the time to remove contaminants in excess of the existing standards for human consumption. He stated:

After in concluded that the Berendsens' well water met the Objectives it was not required to spend more public money to go beyond the enforcement of its own standards. Therefore, Ontario cannot be held liable in damages for failing to remove the waste material or remedy the contaminated well water: see Kamloops.

An appeal to the Supreme Court of Canada was abandoned, and hence, the decision stands.

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Can Title Insurance Protect You from Environmental Defects?

Tamara Farber, Toronto

Sometimes, looking at US case law can provide a real pick me up for how well we do things in Canada. But you have to give the Americans credit for attempted ingenuity – after all, that’s what gives us such great cases (who can forget the McDonald’s coffee case!).  According to a recent US case in Louisville, Kentucky, a title insurer cannot be held liable to its insured for pre-existing environmental contamination (Pavilion Park LLC v First American Title Insurance Co.).  In that case, the insured sued its insurer under its title insurance policy claiming that a restrictive covenant documenting the property’s former use as a solid waste disposal site was an “encumbrance” under the title insurance. Pavilion argued that it precluded development of the property unless and until the property was cleaned up.  The problem for Pavilion was a very basic recommendation made to purchasers of real property; investigate the property pre-purchase thoroughly, particularly in relation to the property’s former uses.  Pavilion was not aware of the restrictive covenant at the time of purchase, despite the fact that it was properly recorded in the municipal clerk’s office.  The purchase was an “as is” purchase on a foreclosure.  Unfortunately, the purchaser only became aware of the property’s former use two years after the purchase.

The court was not particularly motivated to assist the insured purchaser because the purchaser had negotiated a contractual right to inspect the property during the due diligence period but apparently chose not to.  One would think that such searches are commonplace.  In the end, the court held that since the restrictive covenant did not create any legal impediment to title to the property, the insurer had no coverage responsibility. While it may have affected development, use, valuation and marketability, title insurance is not intended to address these issues. At its essence, it insures the prior chain of title; not an intended use. Challenges to marketability due to a regulatory restriction for a future clean up does not equal “title marketability”.

The insured purchaser’s argument in this case was not the first attempt at such an argument in the US and not the only context in which it has been made: asbestos, lead paint and former tanks have all been determined not to affect marketability of title under title insurance.

Not all title insurance policies are drafted equally, but the moral of the story is: due diligence is called due diligence for a reason.  Read the policy, do the due diligence.

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Record Seizure of an Ozone-Depleting Substance

Luc Gratton, Montréal
Julien Morier, Montréal

On March 7, 2011, Environment Canada announced in a press release that it had made a record seizure of approximately 120,000 kg of an illegally imported substance worth over 1 million dollars.

The substance in question is a strictly regulated gas known as chlorodifluoromethane, also referred to as HCFC-22 or R-22, that is used in the refrigeration industry and that is known to deplete the ozone layer.

The company, Gestion Alexis Dionne Inc., and its president, Mr. Alexis Dionne, imported HCFC-22 between September 2008 and June 2009 in contravention of the Canadian Ozone-Depleting Substances Regulations, 1998 and were charged with four counts of illegal importation.

On March 2, with the agreement of the Attorney General of Canada, they signed an Environmental Protection Alternative Measures Agreement (EPAM) as provided under the Canadian Environmental Protection Act, 1999 under which they agreed to forfeit the 5,315 cylinders of HCFC-22 seized at a warehouse in Saint-Jérôme, Québec and to publish an article in a specialized magazine and on the company’s website.  The agreement also imposed the immediate voluntary payment of $4,500 to the Environmental Damages Fund.

Gestion Alexis Dionne Inc. and its president must respect the agreement’s conditions in their entirety during a 36-month period or their case will be brought before the court.

Mr. Dionne’s company, which specializes in Chinese importations and conducts business under the name of Votreimportation.com, was not involved in the use or commercialization of HCFC-22.  Montréal newspaper La Presse contacted Mr. Dionne who described the importation as “transparent” since the Canadian Customs authorized it, inspected his container and even collected taxes.

But Environment Canada’s Robert Daigle, also contacted by the Montréal newspaper, noted that it is not the Canadian Customs’ mandate to apply the regulations on refrigeration gases.  It is the importer’s responsibility to inquire about applicable regulations and not only on the customs aspect of the law.

This case stresses the growing financial and penal liability associated with environmental laws.  As in many other business practices, when dealing with certain substances one must be aware of applicable federal and provincial environmental laws such as the 1998 Ozone-Depleting Substances Regulations.

The Canadian Ozone-Depleting Substances Regulations represent Canada’s commitment pursuant to the 1987 Montréal Protocol on Substances that Deplete the Ozone Layer.  These regulations control the import, export, manufacturing, use, sale and offering for sale of certain substances such as HCFCs as well as any product that contains or is designated to contain those substances.  As of September 2009, the Montréal Protocol had been signed by almost 200 countries and is on its way to accomplish its goal, which is to eliminate ozone-depleting substances. Environment Canada asserts that the production and consumption of these substances have been phased-out by 95% and that with the implementation of the Montréal Protocol's provisions, the ozone layer should return to its pre-1980 levels by 2050 to 2075.  As for the HCFC-22, the Canadian government aims at a complete elimination by 2030.

Until then, HCFC-22 is still used in products such as residential heat pumps although since January 1, 2010, all new refrigeration or air-conditioning appliances must use another gas.  In any case, only certain distributors may import and distribute HCFC-22.

The Ozone-Depleting Substances Regulations also regulate substances such as chlorofluorocarbon (CFC), halon, bromofluorocarbon, bromochlorodifluoromethane (HBFC), tetrachloromethane and 1,1,1 trichloroethane.

Every person who contravenes these regulations commits an offence under the Canadian Environmental Protection Act and is liable to fines of up to 1 million dollars and imprisonment of up to 3 years.

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Climate Change Legislation & Transportation Transformation

Daniel L. Kiselbach, Vancouver
Emma Lehrer and Kelsey Thompson (Vancouver), Articling Students

Introduction

The Minister of Finance for British Columbia introduced a consumer based carbon tax on July 1, 2008, which was one of the first substantial carbon taxes in North America.  While it is expected that carbon regulations will be introduced in the near future in other jurisdictions across North America, and some jurisdictions have already implemented carbon regulations, Canada’s transportation sector is already being affected by new climate change legislation and policy.  The recent introduction of various Federal and Provincial government greenhouse gas reduction legislation, regulations and policies have targeted energy intensive transport.  Transportation businesses should plan now to respond to these new changes.  This article provides an overview of current air emissions regulations and discusses how governments are expected to tax or regulate air emissions in the near future in Canada.

The Transportation Industry and Greenhouse Gas Emissions

Studies show that the transportation sector is a leading contributor of greenhouse gases.  The six greenhouse gases listed in the Kyoto Protocol include carbon dioxide; nitrous oxide; methane; sulphur hexafluoride; hydrofluorocarbons; and perfluorocarbons, and are created by the production and combustion of fossil fuels and contribute to climate change when released into the atmosphere.  In Canada, transportation represents the country’s largest source of greenhouse gases, accounting for 27% of total greenhouse gas emissions. 

As a party to the Kyoto Protocol, Canada’s federal government is responsible for monitoring and reporting national greenhouse gas emissions pursuant to the United Nations Framework Convention on Climate Change (UNFCCC).  The National Inventory Report reveals that domestic aviation, domestic marine, and railways each contribute between 3-4% of national transportation emissions.  Another 20% of emissions come from pipelines, and off-road diesel and gasoline. Finally, road transportation contributes the remaining 67% of greenhouse gas emissions.  Greenhouse gas emissions from road transport have increased substantially since the 1990s.  The primary source of this trend is the increase in the number of passenger-kilometres travelled, in other words people drove further.  Another major cause is the trend in personal vehicle use from automobiles to minivans, sport utility vehicles (SUVs) and small pickup trucks.  These larger vehicles emit an average of 40% more greenhouse gas emissions per kilometre than automobiles.  Additionally, the Canadian Environmental Sustainability Indicators 2006 indicates that emissions from heavy-duty vehicles have almost doubled as a result of just-in-time delivery production systems.

Thus, the transportation sector has been and is expected to continue to be a key target of emission control and climate change legislation.  Currently, both the federal and provincial governments regulate greenhouse gas emissions. 

Federal Air Emission Regulations

Under the federal Canadian Environmental Protection Act (CEPA), regulations exist to limit the sulphur content in diesel and gasoline to comply with maximum allowable emissions.  In addition, Renewable Fuels Regulations require fuel producers and importers to have an average of 5% renewable content in gasoline. A further requirement for an average of 2% renewable content in diesel will be implemented through future amendments to the Regulations subject to technical feasibility, such as biodiesel being used successfully under Canadian weather conditions. 

In addition, the Motor Vehicle Fuel Consumption Standards Act authorizes the federal government to regulate fuel consumption standards for any class of motor vehicle.  In April 2005, car manufacturers entered into a Memorandum of Understanding with the Federal government, whereby the manufacturers committed to voluntarily cut greenhouse gas emissions by selling light duty vehicles that met U.S. fuel consumption standards.  However, critics have argued that a voluntary agreement will not do enough to reduce light duty vehicle emissions.  As a result, the federal government acknowledged the need to provide regulatory standards and accordingly has enacted the Passenger Automobile and Light Truck Greenhouse Gas Emission Regulations, pursuant to the CEPA.  The Regulations establish mandatory greenhouse gas emission standards for new vehicles of the 2011 and later model years that are aligned with U.S. standards.  The Regulations require that vehicle manufacturers and importers meet fleet average greenhouse gas emission standards for their passenger automobiles and light trucks as well as vehicle-specific standards for emissions of methane and nitrous oxide.  They also include provisions that establish compliance flexibilities, to ensure the automobile industry has appropriate lead-time for technological improvements.  Finally, they include reporting requirements relating to the greenhouse gas emission performance of the manufacturer’s fleets, to establish compliance with the Regulations.

The federal government has also approved other initiatives and incentives with the goal of reducing greenhouse gas emissions, such as eliminating federal excise tax on certain low carbon fuels like natural gas, propane, ethanol and methanol etc. and an ecoAUTO rebate program to encourage Canadians to purchase fuel-efficient vehicles.

Federal Regulations Respecting Aviation, Marine and Rail

The federal government shares responsibility for the environment, but it is also able to regulate transportation under other heads of power such as navigation and shipping.  Under this head of power, the federal government has enacted legislation regulating the aviation, marine, and rail sectors.  For example, emissions from the shipping sector are governed by the Regulations for the Prevention of Pollution from Ships and for Dangerous Chemicals made under the Canada Shipping Act, 2001.  Rail transportation is governed by the Canada Transportation Act, however, there are no regulations specifically dealing with rail emissions. While the authority to regulate locomotive emissions exists under the Railway Safety Act, Environment Canada monitors locomotive emissions through information provided under a Memorandum of Understanding with the Railway Association of Canada, which sets a cap on annual emissions. However, this could be an area targeted for increased legislative and regulatory control in the future.

The aviation sector is also governed, in part, by a voluntary compliance program.  Airline travel is expected to expand over the next 20 years, which will result in an increase in emissions.  In anticipation of this expansion, in 2005, the federal Minister of Transport entered into a Memorandum of Understanding with the Air Transport Association (ATA) of Canada to reduce greenhouse gas emissions.  This voluntary agreement requires ATA members to improve their fuel efficiency by an average of 1.1% per year.  In addition, the government is working through the International Civil Aviation Organization (ICAO) to reduce aviation emissions by developing a carbon dioxide emissions standard for new carrier types which is anticipated by 2013.  There is also ongoing discussion regarding a global approach to greenhouse gas emissions management for the aviation industry, including emissions targets, however, it is too early to ascertain the effect this global approach will have on domestic policy.  It is expected that the federal government will impose aviation emissions regulations pursuant to the federal Aeronautics Act or the Canada Transportation Act. 

Provincial Air Emission Regulations

Although the federal government regulates fuel content, the provinces have played a much more predominant role in the emission regulation field.  In British Columbia, provincial air emissions regulations have been in place for years and new provincial legislation includes renewable and low carbon fuel requirements; legislation addressing climate change targets; legislation introducing a carbon tax; and finally legislation providing a framework for a cap and trade system.

British Columbia has established various emissions regulations under its Environmental Management Act (EMA). These include the Cleaner Gasoline Regulation and the Gasoline Vapour Control Regulation; which respectively establish gasoline standards to reduce emissions of volatile organics, nitrogen oxides and sulphur oxides; and prevent the escape of gasoline vapours. However, the EMA has not served as the only legislation driving climate change in the province. British Columbia has enacted new legislation, the Greenhouse Gas Reduction (Renewable and Low Carbon Fuel Requirements) Act, which, similar to the Federal Renewable Fuels Regulations, enables the government to set requirements for the amount of renewable fuel and fuel blends for transportation in British Columbia.  The Act and Regulation require fuel suppliers of gasoline or diesel to ensure that the renewable fuel comprises at least a prescribed percentage of that fuel, which is currently set at 5% renewable fuel content by volume in gasoline and 3% renewable content in diesel, in addition to a low carbon fuel requirement aimed at a 10% reduction in carbon intensity by 2020.  The Act and Regulations also contain reporting requirements to ensure the objectives of the Act, to reduce the environmental impact of transportation fuels and contribute to a new low carbon economy, are met.  With respect to future emissions legislation, the government plans to reduce tailpipe emissions by implementing vehicle greenhouse gas emission standards equivalent to those laid out in California’s 2004 Low-Emission Vehicle II regulations, which are expected to cut greenhouse gas emissions standards by 30% relative to current vehicle models.

Provincial legislation specifically addressing climate change has also been created.  In 2007, British Columbia enacted the Greenhouse Gas Reduction Targets Act, which commits the province to reducing emissions by 33% below 2007 levels by 2020 and 80% by 2050, along with interim reduction targets of 6% by 2012 and 18% by 2016 to guide and measure progress.  Pursuant to the Reduction Targets Act the government of British Columbia has committed to ensuring all provincial public sector operations are carbon neutral and has enacted accompanying regulations which address the quality of greenhouse gas offsets, for the purposes of fulfilling the provincial government's commitment to a carbon neutral public sector.

In addition, as noted, the Minister of Finance for British Columbia introduced a revenue neutral carbon tax scheme in its 2008 Budget.  The tax is described as “revenue neutral” because the revenue raised by the carbon tax will be returned to taxpayers through reductions in other taxes with the goal of reducing British Columbia’s income tax to strengthen British Columbia’s competitiveness.  In addition, to offset the burden on lower income residents, the province provides a refundable Low Income Climate Action Tax Credit. 

The tax applies to the retail purchase or use of fuels in British Columbia, such as gasoline, diesel, natural gas, heating fuel, propane and coal; and includes aviation fuel, and is payable at the time of purchase or at the time of use.  Businesses operating in the transportation industry, especially aviation, should note the exemptions from the tax that are provided for under section 14 of the Carbon Tax Act, and those listed under Part 4 of the Carbon Tax Regulation. 

Initially the tax was introduced in 2008 at $10 per tonne of carbon emissions, rising $5 per tonne a year until 2012, when it will reach $30 per tonne.  This translates to a tax of 2.14 cents per litre of gasoline, as of July 1, 2008, increasing to 7.24 cents per litre by 2012.  The purpose of a phased approach was to give individuals and businesses time to reduce their use of fossil fuels. Whether there will be future rate changes will depend in part on whether the province is meeting its emission reductions targets, the impact of a cap and trade system, the actions of other governments and the advice of the Climate Action Team.  

Carbon taxes serve the dual-purpose of reducing carbon fuel consumption and generating funds to finance “green” initiatives.  The theory is that, by putting a price on the amount of greenhouse gas emitted, the economy will respond by reducing fuel consumption, improving fuel efficiency, switching to cleaner fuels or implementing new technologies, with the result being an overall reduction in emissions.  Whether this theory proves valid is questionable given that the staggering increase in the price of gas over the past few years has not been accompanied by a radical decrease in emissions.  Furthermore, critics of carbon taxes argue that it is an unfair burden on consumers who have to pay the tax for daily living, for example those who live in rural areas, rather than taxing the industries which are the big polluters.  However, the government has recognized that the carbon tax will not, on its own, meet British Columbia’s emission-reduction targets, but rather it will be integrated with other complementary measures such as a cap and trade system. 

British Columbia has been the first province to introduce hard caps on greenhouse gas emissions pursuant to the Greenhouse Gas Reduction (Cap and Trade) Act.  The Cap and Trade Act provides a basis for setting up a market-based cap and trade framework to reduce greenhouse gas emissions from large emitters operating in the province.  A cap and trade system involves setting an overall cap or limit on allowable emissions.  Emitters who reduce emissions below the cap are able to sell their excess quota.  Emitters whose emissions exceed the cap must purchase emission credits to bring them within their allowable limit. Under the British Columbia Cap and Trade Act, the province will establish caps for designated large greenhouse gas emitters by issuing tradable compliance units that correspond with specific periods of time.  Emitters will be required to surrender to the government the number of compliance units that are equivalent to the amount of greenhouse gas emissions from its operations.  Failure to do so could result in penalties under the Cap and Trade Act. In addition, the Reporting Regulation sets out the requirements for the reporting of greenhouse gas emissions from British Columbia facilities emitting 10,000 tonnes or more of carbon dioxide equivalent emissions per year, beginning on January 1, 2010.

At this time it is still unclear how this system could be applied to the transportation sector generally, and more specifically whether aviation and shipping will be part of the cap-and-trade system in British Columbia.  However, it has been recommended by British Columbia’s Climate Action Team that aviation and shipping should be included in any cap and trade system as it is anticipated that air travel is only increasing and, as a result of the lack of alternative fuels available for aircrafts, as there are for motor vehicles, air travel will begin to represent an increasing proportion of emissions. 

From an international perspective, the Cap and Trade Act provides the framework for British Columbia to participate in a market-based cooperative approach to reduce greenhouse gas emissions with other members of the Western Climate Initiative: Arizona; California; Manitoba; Montana; New Mexico; Ontario; Oregon; Quebec; Utah; and Washington.  This regional climate partnership is designing a cap and trade program, which could be used as the model for a continental cap and trade program in the United States, Canada, and Mexico.  Despite the foregoing, on January 25, 2011, the National Round Table on the Environment and the Economy released a report which explores the economic and environmental implications of harmonization with the United States on climate policy.  The report concluded that given the uncertainty about U.S. commitment and direction on climate change and the difference between Canadian and U.S. economies and emissions profiles, and the need to stay competitive, the report recommended that Canada should begin to implement emissions rules now and harmonize with the U.S. in the future.  Therefore, businesses in the transportation sector should expect that Canada may go forward with its own economy-wide cap and trade system and leave harmonization for the future.

Other Measures

The ultimate success of a carbon tax depends heavily on the existence of fuel efficient alternatives.  In the transportation sector, taxing gas at the pump will not reduce the number of drivers on the road unless safe, efficient and convenient public transportation is available.  In this regard, British Columbia has announced plans to make substantial investments in alternative transport.  British Columbia recently pledged $14 billion to fund a Provincial Transit Plan, which is intended to double transit ridership by improving and expanding the public transit system.  The Union of British Columbia Municipalities has also allocated $50 million to help communities build a safe network of bicycle paths.  British Columbia is also investing in alternative fuel sources and fuel cells to advance the development of a hydrogen highway.  In addition, the province has introduced an expanded Scrap-it program to get older and less efficient vehicles off the road and is providing provincial sales tax exemptions on the purchase of hybrid and fuel efficient vehicles.

Finally, British Columbia’s Climate Action Team is recommending greater use of marine and rail transport and more efficient operation of major ports.  British Columbia has recently completed Canada’s first electric shore power project at Port Metro Vancouver to reduce marine diesel engine emissions from cruise ships.  As well, British Columbia is working with its four Pacific Coast neighbours: Alaska; Washington; Oregon; and California, collectively the Pacific Coast Collaborative, to standardize environmental practices and standards for the pacific ports. 

Conclusion

This article has provided a brief outline respecting current air emissions regulations and plans for future regulations in Canada.  As can be seen, the governments have introduced and are developing a number of policy and legislative initiatives aimed at reducing greenhouse gases. The main thrust of these initiatives have been in the area of personal transportation.  However, this does not mean that the new and emerging legislation will not have an impact on the larger transportation industry.  British Columbia’s revenue neutral carbon tax may be a model for other jurisdictions to follow in North America.  In addition, mandatory carbon credit payments at points of travel to offset emissions associated with air travel have been recommended, as well as the potential for the inclusion of emissions from air travel into the new cap and trade system; all of which can be expected to make fuel dependent transportation related activities more expensive in the near future.  In addition, the ability of the federal government to manage air, marine and rail transport, may be an area that it will target in its efforts to reduce emissions in the transportation industry and lead to increased regulation.  Businesses in the transportation sector should monitor the situation and plan to deal with the expected costs associated with climate change legislation. 

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What's Happening at Miller Thomson

Luc Gratton and Teresa Meadows were quoted in the December 2010 Climate Change Business Journal. 

Sandra Gogal spoke at the 9^th Annual Aboriginal Oil and Gas Forum on December 7, 2010 in Edmonton.

Teresa Meadows spoke on “Getting to Green: What Will Green Procurement and Green Construction Mean for Future Projects?” at LORMAN's Fundamentals of Construction Contracts on January 27 in Edmonton.

Teresa Meadows presented guest lectures on environmental assessment for mining engineers and an overview of environmental law at the University of Alberta's Engineering, Agriculture and Forestry Faculties.

Tony Crossman spoke on “The Fisheries Act” at EPIC’s Understanding Environmental Regulations conference on February 2 in Vancouver.

Sarah Hansen spoke on “Environmental Assessment” at EPIC’s Understanding Environmental Regulations conference on Febraury 2 in Vancouver.

Tamara Farber spoke on “Air, Soil and Water Issues – A Year of Many Changes Put into Context” at OBA’s Institute 2011 conference on February 3 in Toronto.

Tony Crossman spoke on “Enforcement: Inspection and Investigation” at EPIC’s Environmental Regulations conference on February 3 in Vancouver.

Charles Bois spoke on “Water Regulations” at EPIC’s Understanding Environmental Regulations conference on February 3 in Vancouver.

Sarah Hansen moderated a panel at the Environmental Managers’ Association of BC’s workshop on “Managing Moving Targets: Evolving Legislation and Migrating Contamination” on February 25 in Vancouver.

On March 9, Tamara Farber won an appeal at the Ontario Court of Appeal, Caledonia Service Station Inc. v. Cango Inc., dealing with the issue of responsibility under a lease agreement for underground tanks and lines.

In April, Teresa Meadows presented “How Much is Enough? Environmental Due Diligence Issues for Real Estate Professionals” at the luncheon meeting of Canadian Real Estate Women (Edmonton Chapter).

Tony Crossman moderated a panel on water law at the CBA’s 2011 National Environmental, Energy and Resources Law Summit on April 8 in Banff.

The Firm’s Vancouver office held a Climate Change Roundtable on April 21 featuring speakers from the Climate Action Secretariat and Pacific Carbon Trust. 

Tony Crossman spoke on “Conducting a Thorough Environmental Due Diligence” at Federated Press’ 5^th Environmental Deal-Breakers in Real Estate and Business Transactions Conference on April 26 and 27 in Vancouver.

Sandra Gogal will co-chair the Ontario Mining Forum workshop and speak on “Developing an Impact and Benefit Agreement” on June 15 in Thunder Bay.

Tony Crossman and Sarah Hansen will speak on “Winning Advocacy Skills: Tips and Techniques for Appearing Before an Administrative Tribunal” at the CBA Canadian Legal Conference & Expo in Halifax from August 14 to 19.

Miller Thomson is a proud sponsor of VerdeXchange 2011 Canada Green Marketmakers Conference to be held in Toronto for the first time June 5th and 6th, 2011 at the AllstreamCentre in Toronto’s Exhibition Place. VerdeXchange is a Los Angeles based international conference with the mission of building a community of sustainability leaders from across all sectors of the economy including finance, technology (energy, waste, water, transport, buildings), business, infrastructure, industry, and government.  For more information on the conference or to register please visit www.vxcanada.ca

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