Pan-Canadian Approach to Carbon Pricing - The Ontario Cap and Trade Forum April 18-19, 2018
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Pan-Canadian Approach to
Carbon Pricing
The Ontario Cap and Trade Forum
April 18-19, 2018
Kate Rich
Director, Carbon Pricing Bureau
Environment and Climate Change Canada
Pan-Canadian Framework on
Clean Growth and Climate Change
• Pricing carbon pollution
• Complementary mitigation actions
- energy efficiency - buildings and vehicles
- clean fuel standards
- electricity transition (coal phase-out,
renewable capacity)
- methane emissions from oil and gas sector
•Clean technology, innovation and jobs
- R&D, commercialization and adoption of
clean technology
•Adaptation and climate resilience
- information centres and expertise
- infrastructure and standards
- protect vulnerable, coastal and northern
regions
Page 2 – 19 avril 2018Pan-Canadian Carbon Pricing Approach –
Milestones
Oct • Pan-Canadian Approach to Pricing Carbon Pollution released
2016
Dec • Pan-Canadian Framework on Clean Growth and Climate Change signed by First Ministers
2016
• Ontario cap and trade launched
Jan • Alberta carbon levy launched
2017
May • Technical Paper on the proposed federal system released for comment
2017
Aug • Additional Benchmark Guidance provided
2017
• Timelines confirmed for provincial/territorial plans and backstop application
Dec • Supplementary Benchmark Guidance provided
2017
• Draft Legislative Proposals released
Jan • Federal Output-based Pricing System Regulatory Framework released for comment
2018
• Ontario, Quebec California linked
• Alberta Carbon Competitiveness Incentive regulation launched
Mar • Federal carbon pricing bill (C-74) introduced in the House of Commons (authority for federal
2018 system)
Page 3 – 19 avril 2018Pan-Canadian Carbon Pricing Benchmark
• Timely introduction - in 2018
• Common scope - broad set of sources
• Two systems - flexibility for explicit pricing system or cap-and-trade
• Legislated increase in stringency
– explicit pricing system: $10/t in 2018, rising by $10 each year to $50/t in 2022
– cap-and-trade: 2030 emission reduction target at least matching Canada’s
and declining caps that correspond at minimum to projected reductions
resulting from the carbon price
• Federal backstop - apply in jurisdictions that do not meet the benchmark
• Revenues remain in the jurisdiction of origin
• Five-year review
• Reporting
Page 4 – 19 avril 2018Federal System - Overview
• Will only apply in whole or in part in provinces and territories that request it, or
that do not have a carbon pricing system in place in 2018 that aligns with the
federal benchmark
• The proposed federal backstop has two elements:
1. a fuel charge applied to fossil fuels
2. an output-based pricing system (OBPS) for industrial facilites
(emissions-intensive trade-exposed)
• $10/t in 2018, rising $10/t annually to $50/t in 2022
• All direct revenue from backstop to be returned to jurisdiction of origin
Page 5 – 19 avril 2018Federal System - Fuel Charge
• Applies to a broad range of fossil fuels
• Generally be paid by registered distributors (e.g., fuel producers or distributors)
• Limited instances in which the fuel charge would not be payable
– Fuel removed from a listed province/territory
– Prepackaged fuel in a sealed container of 10 litres or less
– Fuel used as a raw material in an industrial process
– Gasoline and diesel used in eligible farming activities
– Fuel used at a facility under the OBPS
– Special rules for certain inter-jurisdictional air, marine, rail and road carriers
operating in part in a province/territory where the backstop applies
Examples of Fuel Charges unit 2018 2019 2020 2021 2022
Gasoline $/litre 0.0221 0.0442 0.0663 0.0884 0.1105
Diesel $/litre 0.0268 0.0537 0.0805 0.1073 0.1341
Marketable Natural Gas $/m3 0.0196 0.0391 0.0587 0.0783 0.0979
Page 6 – 19 avril 2018
Propane $/litre 0.0155 0.0310 0.0464 0.0619 0.0774Federal System - Overview
FUEL PRODUCTION
• Consumers do not
AND DISTRIBUTION pay the fuel charge
directly to the federal
government
FUEL CONSUMPTION
& HEATING FUEL • Fuel price paid by
consumers may have
DELIVERY
costs of the fuel
FUEL
charge embedded
• Pay fuel charge to GoC • Registered OBPS
• Proposed 2019 rates (= $20/t facilities would generally
CO2e) not pay the charge on
− Gasoline: 4.42 ¢/L fuels that they purchase
− Light fuel oil: 5.37 ¢/L
− Natural gas: 3.91 ¢/m3 • Instead, would be
− Propane: 3.10 ¢/L OBPS FACILITY subject to the carbon
• Some exclusions price on the portion of
emissions above a
facility emissions limit
Page 7 – 19 avril 2018Federal System - Output-based Standards
• Mechanism to reduce carbon leakage
and competitiveness risk
• Includes industrial facilities emitting
50kt CO2e/yr or more; opt in
capability for smaller facilities
• Based on emissions-intensity
30% standards - in general, proposing
these start at 70% of production-
weighted national average emissions
intensity
• At sector or sub-sector level, or for a
70% product or grouping of products
• Stringency will increase over time –
timing and approach to be determined
• Where competitiveness risks are
high, adjustments to the starting point
Facility A Facility B Facility C Facility D Facility E Facility F
may be considered
Page 8 – 19 avril 2018Federal System – Output-based Pricing
System
• Annual facility emissions limits calculation:
• Compliance obligation calculation:
• If a facility emits over its annual limit, its compliance obligation can be met by
▪ submitting surplus credits issued by the federal government;
▪ submitting eligible offset credits; and/or
▪ paying an excess emissions charge to the Government of Canada
• If a facility emits under its annual limit, it will generate surplus credits that can
be traded or used for compliance
Page 9 – 19 avril 2018Federal System – OBPS Design Principles
Deliver incremental GHG emissions reductions
CO 2
Minimize carbon leakage and competitiveness risks
Treat OBPS participants in a consistent manner
Provide transparency
Commitment to review
Page 10 – 19 avril 2018Federal System - Legislation & Regulatory
Framework
• Greenhouse Gas Pollution Pricing Act: introduced as part of the
Budget Implementation Act (Mar 27, 2018)
o Authority for federal backstop (2 components)
o Does not specify where it will apply (decision to be made by
Governor in Council once legislation is passed)
• Regulatory Framework paper on the proposed design of the
output-based pricing component (Jan 15, 2018)
o ECCC seeking input on the proposed approach
o output-based standards and emissions trading
• Federal government plans to implement backstop in jurisdictions
that do not have carbon pricing system that meets the benchmark
criteria Jan 1, 2019
Page 11 – 19 avril 2018Pan-Canadian Approach – Existing Systems
• Letter to provincial/territorial governments outlined next steps:
– By Mar 30, 2018 - All P/Ts asked to declare if they intend to adopt the backstop
– By Sep 1, 2018 - All P/Ts to provide details on their own systems, if applicable, for
assessment against the federal benchmark
– By Jan 1, 2019 (at latest) - All jurisdictions must have a system in place
– Ongoing annual verification process to ensure carbon pricing systems continue to meet the
benchmark
Provincial / Territorial Progress
Cap-and-trade Systems Explicit Price Systems
Existing Quebec – established in 2013 and linked British Columbia – carbon tax (2008),
Systems with California (2014) and Ontario (2018) current price of $35/tonne (rising annually
by $5/tonne to $50/tonne in April 2021)
Ontario – established in 2017 and linked
with Quebec and California (2018) Alberta – carbon levy on heating &
transport fuels (2017) and emissions
intensity requirements for large emitters
(2007), current price of $30/tonne
Page 12 – 19 avril 2018Pan-Canadian Approach – Emergent
Systems
Provincial / Territorial Progress
Cap-and-trade Systems Explicit Price Systems
Systems In Nova Scotia –cap and trade Northwest Territories – discussion paper and survey regarding
Development program; legislative carbon levy released in Jul 2017
amendments introduced Sep
2017 Yukon – survey indicating intent to adopt federal backstop
released Aug 2017 and results released in Dec 2017
Manitoba – paper released in Oct 2018 and tabled The Climate
and Green Plan Implementation Act in Mar 2018
Saskatchewan – released proposed climate plan including
output-based pricing system for some industrial sectors in Dec
2017
New Brunswick – released climate plan and proposed
legislation, including federal output-based pricing system
delivery in Dec 2017
Newfoundland and Labrador, Prince Edward Island, Nunavut assessing options.
Page 13 – 19 avril 2018Pan-Canadian Approach – Studies & Reviews
• Studies and Reviews:
o Territorial Analysis - complete
o Emissions-intensive Trade-exposed (EITE) Review – launched
o 2020 Interim Review
o 2022 Review to inform path forward
• Canadian Council of Ministers of the Environment project teams:
o Pan-Canadian GHG Offsets Framework
o International Mitigation
Page 14 – 19 avril 2018Milestones to Implementation
• Provinces and territories to confirm their plans to adopt carbon
Sept. 1, pricing systems that meet the federal benchmark
2018
• Benchmarking of provincial and territorial carbon pricing
systems
• Notices requiring fuel distributers and OBPS facilities in
Fall 2018 backstop provinces and territories to register
• Targeted date for implementation of the federal system in
January 1, backstop jurisdictions
2019
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