On August 26, 2022, the Ministry of the Environment, Conservation and Parks (the MECP) announced proposed regulatory amendments (the Proposal) to the current Emissions Performance Standards (EPS) Program, which initially came into effect on January 1, 2022.
Ontario facilities are currently required to register in the EPS Program if: (a) they reported Greenhouse Gas (GHG) emissions of 50,000 tonnes carbon dioxide equivalent (tCO2e) or more to the MECP for any year since 2014; and (b) the primary industrial activity engaged in at the facility is listed in paragraphs 1 to 38 of Schedule 2 of the Greenhouse Gas Emissions Performance Standards regulation (O. Reg. 241/19 or the EPS Regulation).
The Proposal will enable the continued implementation of the EPS Program for the 2023–2030 period by aligning the EPS Program with the updated federal benchmark for 2023–2030, under the Greenhouse Gas Pollution Pricing Act (GGPPA). The comment period for the Proposal is open for 45 days, ending October 10, 2022.
In this blog post, we discuss the proposed changes to Ontario’s EPS Program regulatory framework and the complementary changes to the GHG Emissions Reporting Program regulatory framework, the details of the measures and strategies proposed to meet the updated federal benchmark, and the implications for Ontario industry participants.
For more information about Ontario’s transition to the EPS Program and the details of the Program, including reporting requirements and compliance obligations, see our previous blog post.
Background: the updated Federal Benchmark
On October 3, 2016, the Government of Canada published the Pan-Canadian Approach to Pricing Carbon Pollution (the Federal Benchmark), which established Canada’s approach to carbon pricing for the 2018–2022 period. The Federal Benchmark is an explicit price-based system composed of two parts: (i) a fuel charge; and (ii) an output-based pricing system (OBPS) for large industry. Among other things, it establishes minimum national criteria that all systems must meet, and indicates that the federal carbon pollution pricing system would be applied in provinces and territories that request it or that do not implement a system that meets the Federal Benchmark.
In response to the federal government’s publication of the Federal Benchmark and the later enactment of the GGPPA, Ontario created the EPS Program in July 2019, which was designed to align in scope with the federal OBPS.
On August 5, 2021, the Government of Canada published the updated Federal Benchmark which replaces the 2018–2022 Benchmark and associated guidance and will apply for the 2023–2030 period. The updated Federal Benchmark, among other things, revises the minimum national price on carbon pollution for explicit price-based systems to $65 per tCO2e in 2023, increasing by $15 per year to $170 per tCO2e in 2030. For cap-and-trade systems, the minimum carbon pollution price is translated into an equivalent cap on emissions.
Additionally, the updated Federal Benchmark includes a directive to the provinces and territories to implement and maintain a recognized carbon pollution pricing system for the 2023–2030 period, which may be an explicit price-based system or a cap-and-trade system. It also introduces minimum criteria and tests for assessments, depending upon the recognized carbon pollution pricing system implemented.
The proposed regulatory amendments to the EPS Program
The Proposal [PDF] was introduced in order to meet the updated Federal Benchmark set by the federal government, so that Ontario’s EPS Program can continue as an alternative to the federal OBPS and help Ontario achieve GHG emissions reductions. It includes proposed regulatory amendments to
- the EPS Regulation and the incorporated GHG Emissions Performance Standards and Methodology for Determination of the Total Annual Emissions Limit
- the Greenhouse Gas Emissions: Quantification, Reporting and Verification regulation (O. Reg. 390/18, or the Reporting Regulation) and the incorporated Guideline for Quantification, Reporting and Verification of Greenhouse Gas Emissions
If filed, the following proposed amendments to the EPS Program would be implemented, among others:
- It will apply for the 2023–2030 period.
- Its pricing will align with the minimum carbon pollution pricing set out in the updated Federal Benchmark.
- Schedule 2 of the EPS Regulations will be amended to add the following sectors that have been assessed as being at risk of carbon leakage and competitiveness impacts from carbon pollution pricing, as required by the updated Federal Benchmark:
Table 2: NAICS Codes Proposed to be Added to the List of Industrial Activities
NAICS Code NAICS Industry Group Description High Risk 3114 Fruit and vegetable preserving and specialty food manufacturing 3116 Meat product manufacturing 3121 Beverage manufacturing 3222 Converted paper product manufacturing 3261 Plastic product manufacturing 3262 Rubber product manufacturing 3321 Forging and stamping 3326 Spring and wire product manufacturing 3327 Machine shops, turned product, and screw, nut, and bolt manufacturing 3336 Engine, turbine and power transmission equipment manufacturing 3339 Other general-purpose machinery manufacturing 3363 Motor vehicle parts manufacturing 3364 Aerospace product and parts manufacturing 3372 Office furniture (including fixtures) manufacturing 3399 Other miscellaneous manufacturing Medium Risk 3115 Dairy product manufacturing
- Facilities that expect to emit 10,000 tCO2e or more within the three years following a retrofit or expansion will be allowed to apply to register under the EPS Program.
- It will include a process for Ontario businesses to cease being covered under the Program under certain circumstances.
- It will replace energy-based standards with alternate performance-based standards and develop new or adjust existing performance standards in certain circumstances.
- It will increase the annual emissions reduction requirements, in combination with the strengthened performance standard for generating electricity using fossil fuels, to meet the updated Federal Benchmark.
- It will apply a decline rate of 2.4% in 2023 from the stringency factors in 2022 and 1.5% per year from 2024–2030 and implement the stringency factors for both fixed process and non-fixed process emissions, in line with federal modelling.
Revised compliance obligations
To comply with the EPS program and the related GHG Emissions Reporting Program requirements, facilities are currently required to
- submit a GHG report for the previous year
- submit a verification statement and verification report regarding the GHG report
- have the number of compliance instruments in their EPS account equal to their compliance obligation, if applicable
- if there is a shortfall, meet an additional compliance obligation
The Proposal includes the following deadlines for the 2022 compliance period:
- Reporting Deadline – June 1, 2023
- Verification Deadline – September 1, 2023
- Compliance Deadline – December 15, 2023
- Additional Compliance Deadline – February 15, 2024
The compliance obligations for facilities largely remain unchanged, with certain amendments set out in Section 8 of the Proposal, including
- relaxed compliance requirements for new sites
- partial year adjustments for covered facilities undergoing modifications
- expanded authority for the Director to adjust compliance deadlines
- adjustments to the number of Excess Emission Units (EEUs) or Emissions Performance Units (EPUs) that a facility may be required to surrender in certain circumstances where a revised GHG report is submitted
The Proposal also introduces measures to decrease a facility’s Total Annual Emissions Limit (TAEL) in the event that it fails to collect the required number of compliance instruments in its account by the additional compliance deadline (February 15).
Implications of the amendments and next steps
The Government of Ontario will engage with stakeholders on certain program components to refine the Proposal over Q3 and Q4 of 2022 and to develop alternate performance standards for facilities presently using energy-based methods.
Should the Proposal be implemented, regulated emitters in Ontario will continue operating under the provincial EPS Program, and will need to take necessary steps to ensure compliance with the updated requirements of the Program. For emitters already covered by the Program, the compliance requirements are largely unchanged; however, businesses should take advantage of the compliance relief described in Section 8 of the Proposal. Ontario businesses that expect to emit 10,000 tCO2e or more within the three years following a retrofit or expansion should also consider applying for the Program.
Table 2 of the Proposal, reproduced above, includes sectors proposed to be added to the list of covered industrial activities. Emitters captured in these categories will need to pay particular attention to the Proposal and, if the Proposal is accepted in its current form, begin taking steps to comply with Program requirements.
As we stated in our previous post, existing regulated facilities with significant compliance obligations should consider options for reducing their GHG emissions. The federal government’s announced plan to reach a minimum national price on carbon pollution of $170 per tonne by 2030 has the potential to impact the bottom line of facilities with emissions-intensive operations as well as to create more meaningful financial opportunities for emission reduction technologies and projects.