On October 24, 2018, the federal government announced its intention to move forward with a federal carbon pricing system beginning in 2019. As we reported in previous blog posts, the federal government has been working on implementing a federal “price on pollution” since 2016, when it announced its Pan-Canadian Framework on Clean Growth and Climate Change. Earlier this year, the government released the Greenhouse Gas Pollution Pricing Act, setting out a carbon pricing system that will consist of a two-pronged approach: (i) a charge on fossil fuels that are consumed within a province, which will be administered by the Canada Revenue Agency (the fuel charge will generally be paid by fuel producers and distributors); and (ii) an output-based pricing system (OBPS) that applies to emission-intensive industrial facilities, which will be administered by Environment Canada and Climate Change (ECCC).
The federal government’s intent has always been for the federal backstop price on pollution to apply only in provinces or territories that either do not have their own carbon pricing systems in place, or have ones that do not meet federal requirements. The key requirement is a price on carbon of $20/tonne starting in 2019, which will increase by $10/tonne annually until it reaches $50/tonne in 2022. If a province or territory has a system in place, but that system does not meet federal requirements, the intent is for the federal system to supplement the provincial or territorial system.
The federal government announcement confirmed that on January 1, 2019, the federal carbon pricing backstop will be implemented in Saskatchewan, Manitoba, Ontario and New Brunswick, the four provinces that do not have a provincial system in place which meets federal carbon pricing requirements. In support of the announcement, the Department of Finance Canada release a set of draft regulatory proposals under the Greenhouse Gas Pollution Pricing Act. The following information was released regarding the federal fuel charge and its application in the four provinces:
- The Department of Finance released the fuel charge rates that will apply starting in 2019. For example, in 2019, the price on gasoline will be $0.0442 per litre and the price on aviation turbo fuel will be $0.0516 per litre, both based on a carbon price of $20/tonne. The fuel charge will become effective as of April 2019.
- The proceeds from the fuel charge that forms part of federal carbon pollution pricing system will be returned directly to individuals and families, through Climate Action Incentive These payments will be delivered as part of federal tax returns, and the government has indicated that most people should receive more in rebates than they pay as a result of the fuel charge.
- There will be some exemptions and/or supplements from the fuel charge for greenhouse operators and power plant operators that generate electricity for off-grid communities, and there will be targeted relief for farmers, fishers and residents of rural and remote communities.
- The government has also announced that it will provide support to municipalities, universities, colleges, schools, colleges, hospitals, non-profits and Indigenous communities, as well as to small and medium-sized businesses, that incur an additional cost as a result of pricing carbon pollution.
The Department of Finance is accepting comments on the draft regulatory proposals until November 23, 2018.
With respect to the other provinces, British Columbia, Québec and Alberta have carbon pricing systems in place that currently meet federal requirements, which means that the federal backstop will not apply in those jurisdictions. Nova Scotia and Newfoundland recently released their carbon pricing plans, which have been accepted by the federal government. Nova Scotia will introduce a cap-and-trade program, while Newfoundland will implement a hybrid pricing system. In PEI, the province and federal government entered into a two-year agreement which provides that while the federal carbon backstop will not be implemented in PEI, the province will be required to implement a new fuel charge of four cents per litre (with exemptions for home heating fuels, as well as gas and diesel used in agriculture and fishing). The Northwest Territories, Yukon and Nunavut have said that they will adopt the federal carbon pricing regime in 2019, with plans to provide rebates to local residents and businesses to minimize the impacts of the expected increase in fuel costs.
With respect to the output-based pricing system, the government has indicated that draft regulations will be released in the next few weeks. Proceeds from the OBPS will be returned to the four provinces, however, these proceeds will not be realized until 2020 and the federal Government has not yet released details on how such proceeds will be returned to the provinces. Impacted industrial facilities in the four provinces that are subject to the federal OBPS will need to register by December 31, 2018.
In the coming months, ECCC is also expected to announce details on other emission reduction initiatives that will complement the carbon price, including those aimed at reducing methane emissions from oil and gas production and improving energy efficiency in buildings.
Meanwhile, the governments of Ontario and Saskatchewan have launched constitutional challenges to the federal government’s pollution pricing regime, arguing that the federal government does not have the jurisdiction to impose a carbon price on the provinces. These challenges are moving through the courts and are expected to be heard sometime in 2019.
Stay tuned for future developments.