Managing Regulatory Risks from Changing Climate Policy

Abstract

Significant business risk derives from the likelihood that the policy and legal environment with respect to climate change will change quickly, imposing costs on greenhouse gas emitters and other businesses with large carbon footprints. Advice on how to manage this kind of risk is written largely on a tabula rasa; there is precious little on climate change, conflicting signals on where law and policy will go next, and little guidance or signals from government on what to do to prevent or prepare for climate change. This short paper discusses management of the legal and regulatory risks posed by changes in law or policy for Canadian businesses. It does so in three areas of law in which the risks appear to be the most specific: (a) Canadian federal law and policy, (b) British Columbia provincial law and policy, and (c) securities disclosures law in the United States and Canada. The most dangerous policy risk faced by Canadian businesses stems ironically from the Canadian federal government's desire to avoid imposing costs from climate policy. The problem is that in this environment of policy uncertainty, Canadian businesses will still have to make decisions on capital expenditures, and prudent decision-making may still cause them to bet on a continued lack of Canadian federal seriousness on climate policy. In fact, the current proposed regulation requiring carbon capture and storage technology for coal-fired power plants nudges them towards making a bad bet on future policy. The regulation's unambitious carbon capture target of 30% ensures that money spent on carbon capture technology will be poorly spent on technology that will quickly become obsolete.Truly prudent business planning requires Canadian businesses to anticipate a future global policy environment in which greenhouse gas reductions will be taken much more seriously and will involve a carbon price, and that foreign pressures will force Canada to follow suit. This is still an ambitious proposition for publicly-traded companies that must justify capital expenditures to investors. As a result, the Canadian federal policy of trying to insulate Canadian businesses from geo-political realities with respect to climate change enables and encourages not only greenhouse gas-emitting behavior, but also the ultimately wasteful expenditure of money on capital investments that will prove ineffective in a post-climate change economy.