Environment Minister Jim Prentice has indicated that Canada might have to change its strategy for regulating greenhouse gas emissions in order to avoid U.S. tariffs.

Canada's Conservative government has advocated intensity-based targets to cut greenhouse gas emissions such as carbon dioxide that have been linked to climate change. The targets would cap carbon emissions for each plant or factory, but the cap would be raised if the plant or factory's productivity goes up.

Excerpt from the executive summary of the American Clean Energy and Security Act of 2009, introduced as a draft in the U.S. House of Representatives on March 31:

To ensure that U.S. manufacturers are not put at a disadvantage relative to overseas competitors, the draft authorizes companies in certain industrial sectors to receive "rebates" to compensate for additional costs incurred under the program. Sectors that use large amounts of energy, and produce commodities that are traded globally, would be eligible for the rebates. If the president finds that the rebate provisions do not sufficiently correct competitive imbalances, the president is directed to establish a "border adjustment" program. Under that program, foreign manufacturers and importers would be required to pay for and hold special allowances to "cover" the carbon contained in U.S.-bound products.

In contrast, a bill introduced in the U.S. House of Representatives on March 31 proposes hard caps on emissions, and tariffs on imports from countries that allow greater emissions than the U.S.

In an article published Thursday in the Globe and Mail, Prentice said the measures being planned in the new U.S. bill clearly "would have trade-related consequences for Canada if we don't have equivalent environmental legislation in place."

However, he added that the proposed U.S. system is one "that has flexibility" and it was "too early to say how we will resolve those questions of architectures between ourselves and the Americans."

In an email to CBC News on Thursday afternoon, Environment Canada officials emphasized that there are a lot of commonalities between the U.S. and Canadian climate change plans.

"Canada will continue to work with the U.S. to develop a co-ordinated approach that will advance our respective environmental objectives and renew the North American economy at the same time," the email said.

It added that Canada remains committed to its own goals and is on track to meet them.

Both Canada and the U.S. have proposed trading systems to allow companies that exceed the caps to buy extra emission credits from companies that produce fewer emissions, and Prentice has floated the idea of a joint cap-and-trade system between Canada and the U.S.

Prentice has acknowledged in the past that Canada could come under pressure to adopt hard caps, which are also favoured by environmental groups. But he has also said up until now that there's no reason the two approaches couldn't be designed to work together.

Prentice 'facing up to the realities': Sierra Club

Stephen Hazell, executive director of the Sierra Club of Canada, a national environmental group, said Thursday that it seems Prentice is finally "facing up to the realities of the situation" in the U.S., where President Barack Obama has indicated he plans to make serious efforts to cut carbon emissions.

"It's been clear since Obama was elected that the idea that Canada could continue with this wacky regulatory approach to greenhouse gas emissions in which we look at intensity targets and not absolute reductions was just not going to fly," Hazell said.

'Canada is going to be a policy taker, not a policy maker.'— Stephen Hazell, Sierra Club of Canada

Since the Conservative government announced in 2007 its climate change plan, which included intensity-based targets, it has talked very little about its proposed actions to reduce greenhouse gas emissions, Hazell added.

It remains unclear what the Canadian government is going to do now, he said, but what is clear is that "Canada is going to be a policy taker, not a policy maker," Hazell said. "I expect that we will trail along after the United States and basically do what they tell us to do."

That is a lost opportunity, he added, because now Canada is far behind in its progress on greenhouse gas reductions, despite having adopted in 1997 the Kyoto Protocol, and international agreement that calls for countries to cut carbon emissions to 5.2 per cent below 1990 levels by between 2008 and 2012.

'It's really very early days': oil industry

Meanwhile, Canada's oil and gas industry is keeping an eye on discussion between Prentice and the U.S.

"From our perspective in this whole process in North America … it's really very early days in developing how we're going forward on climate change," said Tom Huffaker, vice-president, policy and environment, for the Canadian Association of Petroleum Producers.

"We think it makes a huge amount of sense to have a compatible approach to climate change in North America. We don't have a detailed [idea] exactly what that ought to look like at this point."

He added that his industry is encouraged by the dialogue between the two governments, and accepts that carbon pricing and caps are coming, but he did not want to comment on what it would mean if the Canadian government was pressured to abandon intensity-based targets in favour of hard emissions caps.

"We're just not ready to make a commitment on that issue," he said.

A draft of the bill titled the American Clean Energy and Security Act of 2009 was introduced in the House of Representatives on March 31 by congressmen Henry Waxman and Edward Markey.

Waxman chairs the House energy and commerce committee and Markey chairs the energy and environment subcommittee.

Their bill calls for U.S. greenhouse gas emissions to be cut to 20 per cent below 2005 levels by 2020.

Environment Canada's website says the government now plans to reduce emissions to 20 per cent below 2006 levels by 2020.