On June 28, 2019, Environment and Climate Change Canada released the Output-Based Pricing System Regulations – a key piece of the federal government’s pollution pricing regime.

The Output-Based Pricing System Regulations regulate industrial greenhouse gas emissions and give effect to Part 2 of the Greenhouse Gas Pollution Pricing Act. The regulations are yet to be published in the Canada Gazette, but are expected to be shortly.

Federal Pollution Pricing Regime

The Greenhouse Gas Pollution Pricing Act sets out the legal framework for the federal carbon pollution pricing backstop system. It has two parts:

  1. various charges on specified fuels (“Fuel Charge”); and
  2. an output-based pricing system for industrial facilities (“OBPS”). Facilities subject to the OBPS can obtain a certificate exempting them from the Fuel Charge.

The Fuel Charge rates are intended to reflect a carbon pollution price of $20 per tonne of carbon dioxide equivalent in 2019, and are intended to increase by $10 per tonne annually to $50 per tonne in 2022.

The OBPS sets greenhouse gas emissions limits for industrial facilities that:

  1. are located in provinces and territories that do not have a carbon pollution pricing system in place that meets the Pan-Canadian Approach to Pricing Carbon Pollution;
  2. emit 50,000 tonnes or more of CO2e per year; and
  3. carry out an activity for which an output-based standard is prescribed.

If a facility’s greenhouse gas emissions are less than its emissions limit, the facility earns surplus credits that it can sell or use to reduce its emissions in future years.

If a facility’s greenhouse gas emissions exceed its emissions limit, the facility is required to pay compensation for its excess emissions. Under the current regime, compensation can be paid at the Fuel Charge rate or through the remittance of surplus credits. Once the regulatory details are finalized, facilities will be able to remit credits generated by offset projects that meet the federal requirements.

The Output-Based Pricing Regulations apply retroactively to January 1, 2019. Industrial facilities subject to the federal pollution pricing regime are required to report on their 2019 greenhouse gas emissions on or before June 1, 2020.

Next Steps

Environment and Climate Change Canada also released:

  • a discussion paper with respect to how the federal government will return the proceeds from the OBPS to the provinces and territories where they are collected;
  • a discussion paper with respect to proposed options for the federal greenhouse gas offset system; and
  • regulatory details with respect to the treatment of liquid fuels under the Clean Fuel Standard.