Environment and Climate Change Canada Announces Update to Output-based Pricing System


Environment and Climate Change Canada (ECCC) released a technical backgrounder on July 27, 2018, providing an update on the federal government's forthcoming output-based pricing system (OBPS). The OBPS is one aspect of the federal carbon pricing system (the Backstop), set to take effect on January 1, 2019, in any province or territory that does not have a carbon pricing system that meets a federal benchmark.


ECCC originally proposed in its regulatory framework for the OBPS released in January, 2018, that all output-based standards be set at 70 per cent of the production-weighted national average of emission intensity (i.e., 30 per cent below the production-weighted national average of emission intensity). At the time, ECCC indicated that the percentage may be adjusted based on various considerations, such as the emissions intensity of the best-in-class performer (the facility with the lowest emissions intensity), the distribution of emissions intensities among facilities in the sector, and potential impacts on competitiveness.


ECCC has revised its original proposal based on two phases of preliminary analysis and makes the following two adjustments to the output-based standards:


  1. Four sectors (cement, iron and steel manufacturing, lime, and nitrogen fertilizers) assessed to be in a high competitive risk category will have their output-based standards adjusted to 90 per cent of the production-weighted national average of emissions intensity (i.e., 10 per cent below the production-weighted national average of emission intensity).

  2. All remaining industrial sectors will have their output-based standards adjusted to 80 per cent of the production-weighted national average of emissions intensity (i.e., 20 per cent below the production-weighted national average of emission intensity).


The July 27, 2018, update to the Backstop was reported in The Globe and Mail this morning. A detailed paper on the draft OBPS regulations is expected to be released in Fall 2018 for comment.


ECCC invites stakeholders to submit additional supporting information and analyses on aspects of competitiveness to supplement preliminary analysis. This information could include, for example: evidence of significant facility-level impacts, domestic or international market considerations, and consideration of indirect costs on sectors associated with carbon pricing.


Please contact Lisa DeMarco at lisa@demarcoallan.com should you wish to discuss the foregoing.

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