Federal Government Announces Next Steps in Carbon Pricing Plan


Prime Minister Justin Trudeau today announced the next steps in the federal government's implementation of the federal carbon pricing system (the Backstop).


The Backstop, under the Greenhouse Gas Pollution Pricing Act adopted on June 21, 2018, has two components:

  1. A fuel charge, which the Canada Revenue Agency will administer, effective April 2019; and

  2. An output-based pricing system (OBPS) for emission-intense industrial facilities, which Environment and Climate Change Canada will administer, effective January 1, 2019.


The federal government today announced that it will implement the Backstop in three provinces that the government has determined do not meet the federal standard for pricing carbon pollution: Ontario, New Brunswick, and Manitoba.


Saskatchewan and Prince Edward Island (PEI) have been afforded hybrid approaches reflecting the federal government's acknowledgement of the efficacy of significant, but not all, aspects of their provincial systems. In Saskatchewan, the fuel charge will apply and the OBPS will only apply to those emission sources not covered by Saskatchewan's output-based performance standards approach (electricity and natural gas transmission pipelines), which were proposed to be covered by regulation in Saskatchewan. In PEI, PEI's fuel charge will apply and the province will rely on the federal OBPS for major emitters.


The Backstop will also apply in Yukon and Nunavut, effective July 2019, with the support of governments in those jurisdictions.


The Backstop is expected to reduce greenhouse gas emissions by 50 to 60 million tonnes of carbon dioxide equivalent (CO2e) in 2022, according to the government's economic analysis.


Use of Federal Carbon Pricing Proceeds in Ontario, New Brunswick, Manitoba, and Saskatchewan


The federal government has committed to returning direct proceeds from the Backstop to the province or territory in which those proceeds were collected. The government will return proceeds collected through the fuel charge in two ways:

  • directly to the governments of those jurisdictions that choose to adopt the Backstop; and

  • directly to individuals and families, through proposed Climate Action Incentive payments, in Ontario, New Brunswick, Manitoba, and Saskatchewan, as well as to particularly affected sectors in those jurisdictions.


The federal government has, for each of Ontario, New Brunswick, Manitoba, and Saskatchewan, estimated (i) the direct proceeds from the fuel charge for fiscal years 2019-2020 to 2023-2024, (ii) the total Climate Action Incentive payments to individuals, and (iii) the proceeds that will be provided to support particularly affected sectors.


Proceeds from the OBPS in Ontario, New Brunswick, Manitoba, and Saskatchewan will also be returned to the province of origin, but the federal government has signalled its intention to decide in due course how best to return these proceeds.


Climate Action Incentive Payments


Most of the proceeds from the Backstop will be returned through Climate Action Incentive payments directly to individuals and families in the province in which they are collected. The federal government projects total Climate Action Incentive payments in 2019-2020 of $1.585 billion in Ontario, $80 million in New Brunswick, $170 million in Manitoba, and $265 million in Saskatchewan. Projections are also available for subsequent fiscal years through 2023-2024.


Support for Particularly Affected Sectors


The federal government intends to return a portion of the proceeds collected through the Backstop to small and medium-sized enterprises (SMEs) to help them take climate action and lower energy costs while remaining competitive. The government estimates that, in Ontario, SMEs will receive approximately $975 million between 2019-2020 and 2023-2024. SMEs in Saskatchewan will receive an estimated $295 million over the same period. A table provides additional details on the announcement and further details will be outlined in early 2019.


The federal government also intends to return of portion of the proceeds collected through carbon pricing to the municipalities, universities, schools, and hospitals (MUSH) sector, non-profit organizations, and Indigenous communities to assist these groups to take climate action and lower their energy cost. The government estimates that, in Ontario, these groups will receive approximately $475 million between 2019-2020 and 2023-2024. A table provides additional details on the announcement and further details on the program will be outlined in early 2019.


Fuel Charge Draft Regulatory Amendments


The Department of Finance has released a set of draft regulatory amendments to the Greenhouse Gas Pollution Pricing Act, listing jurisdictions in which the fuel charge will apply and the rates at which it will apply. The rates will become effective as of April 2019, with future increases effective as of April in each of the following years through 2022.


The fuel charge rates reflect a carbon price of $20 per tonne of carbon dioxide equivalent (CO2e) in 2019, rising by $10 per tonne annually to $50 per tonne in 2022, according to the government. The rates are based on the global warming potential factors and emission factors used by Environment and Climate Change Canada to report Canada's emissions to the United Nations Framework Convention on Climate Change.


Fuel Charge Relief Proposals


Fuel charge relief is proposed to be made available for farmers, fishers, residents of rural and small communities, users of aviation fuels in the territories, and Indigenous communities. The Department of Finance has also proposed additional fuel charge relief for power plant operators that generate electricity for remote (i.e., off-grid) communities and greenhouse operators. Comments on these proposals may be submitted until November 23, 2018.


Next Steps for the OBPS


Draft regulations on the OBPS, including proposed output-based standards, will be published for public comment later this fall.


Further, the federal government is targeting October 31, 2018, for publication of regulatory instruments (i) providing detailed information on which industrial facilities are required to register in the OBPS and (ii) setting out quantification, reporting, and verification requirements, with detailed quantification requirements specified for sectors initially identified in the OBPS regulatory framework. An amendment to add detailed quantification requirements for additional sectors is planned for later this fall, according to the government.


Facilities meeting the criteria published on October 31, 2018, will need to register with Environment and Climate Change Canada. Registration will open November 1, 2018, with more details to follow.


Please contact Lisa DeMarco at lisa@demarcoallan.com should you wish to discuss the contents of this bulletin.

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