Federal Government Launches Review of Output-Based Pricing System

As part of the Government of Canada’s commitment to review the current federal Output-Based Pricing System (OBPS) Regulations in 2022, Environment and Climate Change Canada (ECCC) has released a paper titled Review of the Federal Output-Based Pricing System Regulations.

By way of background, under the Greenhouse Gas Pollution Pricing Act, the federal carbon pollution pricing system has two parts:

• a regulatory charge on fuel (federal fuel charge, “Carbon Tax”)
• a regulatory pricing system for industry – the federal Output-Based Pricing System (OBPS)

The two parts apply in provinces that have chosen to either adopt the federal system or have not committed to pricing carbon pollution at an equivalent scope or stringency for both types of emissions.

The federal OBPS places a price on carbon for large industry and is designed to ensure there is a price incentive for industrial emitters to reduce their greenhouse gas emissions and spur innovation while maintaining competitiveness and protecting against “carbon leakage” (i.e. the risk of industrial facilities moving from one region to another to avoid paying a price on carbon pollution).

The ECCC’s review will seek input on various parts of the Regulations, including:

• The continuing contribution of the federal OBPS to Canada’s GHG emissions reduction goals;
• The development of new output-based standards and, in certain circumstances, reviewing existing standards; and
• Ways to improve the system’s administrative efficiency.

Comments and feedback on the discussion paper are due by March 29, 2021 by email to ECCC is also hosting a webinar on Thursday March 11, 2021. Webinars will be held in French at 11am to 12pm and English at 1pm to 2pm, EST.

The Federal OBPS is wholly or partially in place in Ontario, Saskatchewan, Manitoba, New Brunswick, Yukon and Nunavut. In September 2020, the federal government accepted that Ontario’s Made-in-Ontario Environment Plan’s proposed Emissions Performance Standards (EPS) meet the federal stringency test and would transition the province out of the OPBS and into EPS either retroactive to Jan 1, 2021 or for Jan 1, 2022. Ontario has signalled its preference for the former. In December 2020, Ontario also proposed amendments to its existing EPS regulation, including permitting a number of new sectors covered by the federal OPBS to voluntarily opt-in to the EPS.

Ontario’s EPS covers similar sectors as the OBPS and includes facilities with annual emissions of at least 50,000 tonnes of CO2e and allows voluntary opt-in by facilities with annual emissions between 10,000 and 50,000 tonnes of CO2e. GHG emissions from both fixed processes (i.e., chemical or physical reactions not related to combustion) and non-fixed processes (i.e., combustion, fugitive and on-site mobile sources) are covered by the EPS. It is anticipated that that Ontario’s EPS may be amended to align with any federal amendments to their OBPS in 2022.

The federal government has also accepted New Brunswick’s Carbon Pollution Pricing System (CPPS). A date for transition is not yet announced. Contact your Sussex representative directly to discuss how proposing changes to the OBPS or shifting into EPS or CPPS may affect your sector.