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generated it or when a facility is a joint- owned venture. Issues like the mountain pine beetle epidemic in British Columbia can also affect the validity of an offset. The epidemic has wiped out 13.5 million hectares of pine forest. Warmer winters are credited for the beetle's survival. "At the same time as those trees dis- appear, your reduction also disappears," says Bellemare. "So, there's the question of whether it's a permanent effect versus a temporary effect of the carbon sink." Nevertheless, Bellemare notes that with Tembec having reduced its green- house gas emissions by 30 per cent be- tween 2003 and 2007, in part through a switch to using biomass fuels at its facili- ties, the company hopes to benefit from emissions trading, either through volun- tary exchanges or regulatory schemes like the WCI. But at Direct Energy, Malo says al- though the "bad news" is that a cap-and- trade system will mean added costs, ac- tion is necessary. "I guess the good news is we'll be living in a cleaner environment, one which to be honest I personally be- lieve is very fragile and very threatened and worryingly so." Still, as at Tembec, Malo says her com- pany has begun taking advantage of its green activities, which include invest- ments in wind power in Texas. It has a team of traders involved in selling "re- newable energy certificates" but, as she points out, who will buy them depends on the criteria that jurisdictions regulat- ing greenhouse gas emissions have set out. "Now, in the WCI, they'll be making their own rules as to what qualifies and what doesn't." Ironically, in Canada it's the oil rich province of Alberta that likely has the most experience dealing with carbon credits, since that province's Specified Gas Emitters Regulation took effect last year. It requires companies that fail to reduce the intensity of their emissions to either purchase offset credits or pay a $15-per-metric-tonne fee into a so-called technology fund. In Edmonton, city-owned Epcor Utili- ties Inc. has since stepped up its carbon trading activities, particularly through the purchase of credits from farmers who sequester carbon in the soil and from landfill gas recovery projects. Epcor buys credits "over the counter" directly from whomever is behind the project rather than through an exchange, something Oliver Bussler, the company's manager of commercial environment, says carries some uncertainty. "There are risks associated with the credits because the government could come back and find fault with them at some point," noting sellers of credits of- fer varying levels of guarantee into the contracts. Nevertheless, Bussler says rig- orous auditing of the projects, along with the discounted price that offset credits usually sell for, make them worthwhile. "The way you hedge that risk is by en- suring that you follow the Alberta rules, and [that] the independent verifier has that if you're not covered by the federal government's program but you might be covered by the WCI program, I would think you'd want to get in the offset busi- ness because the offsets that you generate to reduce your greenhouse gas emissions will be the very same things that will help bring you in compliance with a capped system. So, if it turns out that the WCI doesn't go forward, which won't surprise me . . . you've got the ability to generate revenue if only the federal system comes in." For its part, B.C. says although the fed- eral government plans to bring in its own rules, its expectation is that Canadian Prime Minister Stephen Harper's Conser- vatives will accept the WCI as equivalent to a national system. "We all have been saying that we would like to enter into a formal equivalency that would allow us "The WCI is planning to roll itself out in 2012, which is exactly the time when the U.S. feds are likely to have their program ready to go. So, in the U.S., the federal government can simply pre- empt state programs — they don't have this constitutional problem that we have in Canada," — GRAY TAYLOR, BENNETT JONES LLP confirmed the farmer has in fact changed their practices and the emission reduc- tions are taking place." It's farmers like the ones Bussler deals with who could benefit significantly from the WCI, which under its draft rules would permit companies to meet up to 49 per cent of their compliance ob- ligations on purchases of offset credits. While Taylor has doubts about the future of the WCI, he says it nevertheless sends a signal for companies to get serious about their greenhouse gas profiles by, for ex- ample, getting a handle on the sources of their emissions. "The second thing is to proceed with the WCI cap-and-trade system because it will have a better out- come for the environment," says Graham Whitmarsh, the head of the B.C. govern- ment's climate action secretariat. He's advising businesses to get ready for the WCI, whose participants say they hope to finalize the reporting regulations by 2009. "You can get ahead of the game in terms of measurement, and I think for a corporate perspective, this [has] a lot to do with managing future risk. Carbon emissions are going to become a risk fac- tor for business going forward." IH C ANADIAN Lawyer INHOUSE DECEMBER 2008 15