IssuesCarbon Pricing

Carbon Pricing

First Published: Sep 24, 2019
Last Updated: Sep 24, 2019
Monitored by: Devin McCarthy

Background

Bill C-74, passed by the federal House of Commons in June, 2018, gave the Government of Canada the authority to introduce a national carbon pricing system. Provinces and territories were given the flexibility to implement their own carbon pricing system provided it meets or exceeds the federal standard. Jurisdictions that have not implemented a provincial system or have been deemed by the federal government to have an inadequate system in place are now subject to the federal backstop system.

The federal system has two components:
1. a charge on fossil fuels that is generally payable by fuel producers or distributors, with rates that will be set for each fuel such that they are equivalent to $20 per tonne of carbon dioxide equivalent (CO2e) in 2019, rising by $10 per year to $50 per tonne CO2e in 2022; and,
2. an Output-Based Pricing System (OBPS) for industrial facilities.

The OBPS

While the charge on fossil fuels is fairly straightforward, the OBPS is complex.

The OBPS applies automatically to facilities with CO2e emissions above 50,000 tonnes per year, as long as those facilities are in a covered province and a covered sector (more on these below). Facilities that meet the coverage criteria and emit between 10,000 tonnes and 50,000 tonnes may opt in.

For each covered product class a benchmark emissions intensity is established. Emissions are subsidized to 80%, 90% or, in two cases, 95% of that benchmark. A facility must calculate its emissions intensity at the end of each year, subtract the free allowances based on the benchmark and subsidy rate, and then remit the remaining liability to the Canada Revenue Agency (CRA) either in cash or in carbon credits. Facilities that emit below their OBS will generate credits that may be sold on the market or applied against future liabilities.

Each covered industrial sector has its own Output Based Standard (OBS) that multiplies the production-weighted national average emissions intensity for that product type by its subsidization percentage. For products that are produced in only a small number of facilities in Canada, there is a prescribed (and complex) calculation.

The electricity sector OBS takes a slightly different structural form. The current proposal from Environment and Climate Change Canada is to set different emissions standards for natural gas-fired generation (370 tonnes of CO2e per gigawatt hour [t/GWh]), diesel-fired generation (550 t/GWh) and coal-fired generation (800 t/GWh decreasing linearly to 370 t/GWh in 2030). Facilities that emit below these fuel-type standard will generate credits (e.g. combined cycle gas plants), while those above the threshold will be required to pay (e.g. single cycle gas plants). There is currently no mechanism for non-emitting generation types to generate credits.

Provincial Applicability

The federal system has been applied fully in Ontario, New Brunswick and Manitoba. In Saskatchewan the federal system will apply to all but the largest emitters, which are covered under a provincial system. On Prince Edward Island, the federal system will apply to large emitters, but the provincial government is developing its own fuel charge system.

Alberta is the most recent province to come under the federal carbon pricing system. On June 4th, the Alberta Legislature, led by Premier Jason Kenny, passed Bill 1 which repealed the provincial carbon pricing system put in place under the previous NDP government. Alberta will continue with a tax on carbon emissions from large industrial emitters but no longer taxes fuel use across the broader economy and by households.

Nine days later, on June 13th, the federal Environment and Climate Change Minister, Hon. Catherine McKenna, announced that Ottawa will impose on Alberta the fuel charge portion of its carbon pricing system beginning on January 1, 2020.

Premier Kenny has committed to reviewing and revising Alberta’s carbon pricing system for large industrial emitters. The federal government has said it will “monitor any proposed changes to Alberta's large industrial emitter system, and will undertake another benchmark assessment once sufficient details about the new system for large emitters are available.”

Current Status

Final regulations were released by the government on June XX. There were few surprises. OBPS sectors received subsidized emission allocations of 80%, 90% or 95%, depending on the sector.

There were two notable deviations from the draft regulations material released on December 20, 2018. The first is that process emissions are now subsidized in full. The second is that new-build natural gas electricity generation will begin at a standard of 370 t/GWh in 2019 and will move down to a standard of 0 t/Gwh in 2030.  

At a provincial level, court challenges continue. Saskatchewan was the first to challenge the federal authority to impose the system. The Saskatchewan’s Court of Appeal found in early May that the federal government does have the constitutional authority to regulate greenhouse gas emissions through a regulatory charge.

The Ontario court challenge was heard in April. The court has not yet rendered its ruling. In Alberta, Premier Kenny has committed to launching a third constitutional challenge against the federal carbon tax. Whatever the outcome of these challenges, this issue is almost certainly headed to the Supreme Court of Canada.

Liberal

The Liberals have signalled that they are quite comfortable running on climate change as a top issue. They will stand proudly behind the federal carbon pricing system. However, on June 14th Minister McKenna unequivocally stated that the Liberals do not plan to increase the carbon price after 2022, opting instead to keep it at $50 per tonne.

Conservatives

Leader Andrew Scheer has long committed to canceling the federal carbon tax as his first order of business if elected Prime Minister. On June 19th the Conservative Party released its much-anticipated climate plan. While the plan does away with a broad-based carbon tax (the ‘fuel charge’ portion of the Liberal system), it does include a regulatory structure for large emitters that resembles the Liberal OBPS. The program would require participation at 40,000 tonnes of C02 emissions per year. That is 10,000 tonnes less than the federal threshold for mandatory participation in the current plan. Revenues would be invested into technology innovation programs to incent the development of technologies that will lead to further emissions reduction. Mr. Scheer also stated that emissions standards would be stricter and there would be no sweetheart deals for anyone.

NDP

NDP officials state that if elected they will maintain the Liberal carbon pricing system. Specifically, the platform notes that “recognizing that putting a price on carbon is an important tool to drive greenhouse gas reductions at the source, we will continue carbon pricing, including rebates to households that fall under the federal backstop plan, while making it fairer and rolling back the breaks this Liberal government has given to big polluters.” The NDP would move the subsidized emission threshold under the OBPS to 70% (currently it is 80%, 90% or 95% depending on the sector).

Green Party

In its “Mission Possible: The Green Climate Plan” document, the Green Party takes a similar line to that of the NDP, noting that it will maintain the carbon pricing system while eliminating all subsidies to fossil fuels.

People's Party

Bloc Quebecois

September 24, 2019
Roberto Chavez

On September 24th, Liberal candidate for Ottawa Centre and Minister of Environment and Climate Change for the Trudeau Liberal Government currently running for re-election announced a number of environment related commitments if a Liberal Government were re-elected. The measures include:

  • Commit Canada to achieving net-zero emissions by 2050, joining 65 other countries and the European Union that made the pledge
  • Set legally-binding, five-year milestones, based on the advice of the experts and consultations with Canadians, to reach net-zero emissions by 2050;
  • Appoint a group of scientists, economists, and experts to recommend the best path to get to net-zero;
  • Exceed Canada’s 2030 emissions goal; and
  • Ensure energy workers and communities can shape their own futures by introducing a Just Transition Act, giving workers access to the training, support, and new opportunities needed to succeed in the future economy.

The Liberal Party press release reads that “these commitments build on the Liberals’ climate record that already includes over 50 measures to cut pollution and protect our environment.” Items highlighted on the release include:

  • Banning harmful single-use plastics and microbeads;
  • Phasing out coal power by 2030 and investing in renewables like wind and solar;
  • Putting a price on carbon pollution so it’s no longer free to pollute anywhere in Canada, while putting more money back into Canadians’ pockets;
  • Building 1,200 public transit projects across the country;
  • Making zero-emission vehicles more accessible and affordable; and
  • Investing in energy efficiency to help families and businesses save money.

September 20, 2019
Roberto Chavez

On Monday September 16th, Elizabeth May unveiled the Green Party Election Platform 2019. A Green Government would maintain a broad-based, revenue neutral carbon fee on all sources of carbon dioxide pollution. Revenues from the carbon fee would be returned to Canadians as a dividend. As well as a host of other climate change measures including q 60 per cent cut —double the current Canadian international commitment of 30 per cent— in GHG emissions below 2005 levels by 2030, reaching net zero in 2050. Set legal emissions limits for industries that decline over time, with penalties for exceeding those limits.

September 5, 2019
Roberto Chavez

According to Angus Reid polling, majorities say both climate action, oil & gas growth should be top priorities for next government.  Division remains over federal carbon tax, but most want to do more to meet 2030 emission reduction goal.

With both issues top of mind among persuadable voters, attention is turning to party platforms and expectations for the next government.

A new study from the non-profit Angus Reid Institute finds seven-in-ten Canadians (69%) say climate change should be a top priority for whichever party forms government after the October vote, including four-in-ten Conservative Party supporters.  At the same time, six-in-ten (58%) say that oil and gas development should be a top priority alongside climate action.

September 5, 2019
Roberto Chavez

Green Party Leader Elizabeth May says that based on her opponents' current climate plans she wouldn't be prepared to prop up any minority government.

That means, should the Oct. 21 federal election result in a minority government with the Greens holding the balance of power, May says Canadians could be headed back to the polls.

May would rather defeat a government and ultimately force Canadians back to the polls rather than allow a party with a climate plan not up to her standards to govern.

September 5, 2019

‘The Alberta economy needs to be a ballot question for you’: Conservative MP Michelle Rempel’s message to Canada.  Ms. Rempel, who is running for re-election in Calgary Nose Hill, is working to bring the concerns of her community and Alberta to the forefront of the election campaign this fall.

Alberta has been dealing with an economic downturn amid collapsing oil prices in recent years, a situation Ms. Rempel says the Trudeau government has exacerbated through its energy policies. She is concerned about growing separatist sentiment in the province as Albertans who once worked in the oil and gas sector struggle to make ends meet.

Frustration with Prime Minister Justin Trudeau’s government is on full display at Ms. Rempel’s campaign office, with signs reading “Trudeau must go" on the walls.  Alberta has lost nearly a quarter of its oil and gas jobs since commodity prices crashed in 2014, according to a Petroleum Labour Market Information report. Ms. Rempel accused the Trudeau government of leading a “hostile attack” on the province’s energy sector, citing its failure to get a pipeline built.

Liberals say that while they have tightened environmental-assessment rules and introduced carbon pricing to reduce greenhouse-gas emissions – two measures that are not popular in the oil patch – they have tried to support oil and gas workers. Last year, the government purchased Kinder Morgan’s Trans Mountain pipeline expansion project for $4.5-billion but construction was stalled when the Federal Court of Appeal quashed the federal permit last August and will start up again only this fall.

Natural Resources Minister Amarjeet Sohi, who represents the riding of Edmonton Mill Woods, defended the Trudeau government’s efforts to boost the province’s economy, pointing to the Trans Mountain purchase.

“If the Prime Minister doesn’t care about Alberta, why would he go to the lengths to invest those kinds of resources and protect a project that people like Michelle Rempel and other Conservatives feel that we don’t support?” Mr. Sohi said.

September 5, 2019
Roberto Chavez

A non-profit environmentalist group is publicly endorsing 25 individual candidates, representing all four major national parties, in the upcoming 2019 election who it believes will put the “environment first,” regardless of party platforms.

The list of candidates endorsed by GreenPAC features seven candidates each from the NDP and Liberals, six from the Green Party and four from the Conservatives, as well as one independent: former health minister Jane Philpott.

“We don’t look at party platforms or campaign promises. We look for individuals that have a proven track record of leading on issues like waste, land protection, energy production and climate change,” GreenPAC’s executive director Sabrina Bowman explained in a prepared statement.

GreenPAC says it will support the endorsed candidates by encouraging environmentally-oriented Canadians to “donate to or volunteer for their campaigns.” In the 2015 federal election, GreenPAC endorsed 18 candidates, of which 14 were elected.  For the 2019 pool, eight candidates are running in B.C. ridings, seven in Ontario and four in Quebec, three in Manitoba and three in the Atlantic Provinces, including two in Prince Edward Island.

Among the notable names: Environment Minister Catherine McKenna (Ottawa Centre, Ont.), Science and Sport Minister Kirsty Duncan (Etobicoke North, Ont.), Treasury Board President Joyce Murray (Vancouver Quadra, B.C.), Green Party Leader Elizabeth May (Saanich —Gulf Islands, B.C.), former Conservative leadership hopeful Michael Chong (Wellington —Halton Hills, Ont.) and Grassy Narrows Chief and NDP candidate Rudy Turtle (Kenora, Ont.).  Also included on the list is Quebec Liberal candidate Steven Guilbeault, a high-profile environmentalist who co-founded Equiterre and has been outspoken in his opposition to pipeline projects, including the Trans Mountain expansion.

August 28, 2019
Roberto Chavez

In response to an article in The Globe and Mail saying McKenna had opened the door to potential increases, McKenna said the government had committed to a price on carbon until 2022 and there was no intention to go higher.

August 26, 2019
Roberto Chavez

Minister of Environment Catherine McKenna has doubled back on her promise to stop the carbon price at $50 per tonne by 2022, suggesting that — if re-elected — the Liberal government will review the tax with provinces before making any definitive decisions.

McKenna originally pledged in June that the Liberals would not increase the price of the carbon tax beyond $50 per tonne. She was responding to a report released by the Parliamentary Budget Officer suggesting the federal government would need to increase the carbon tax to $102 per tonne to meet international GHG-reduction commitments.

While Ottawa is not currently planning to increase the tax beyond the original promise, McKenna reportedly told the Globe and Mail that a decision on future rates would be made “toward the end of the next mandate after consultations with provinces, territories, businesses and Canadians more broadly.”

July 30, 2019
Roberto Chavez

Six in ten Canadians want the government to take action to address climate change, even if the economy suffers, new results from a Mainstreet poll suggests. Over 85 per cent of respondents agreed that private companies should have to pay to pollute, including 69.1 per cent who strongly agreed. Support was highest in Quebec (89.1 per cent) and lowest in Alberta, though at 75.2 per cent agreeing, opposition to the concept is still rather marginal.


Also, just under 68 per cent of respondents agreed that there’s a collective moral duty to future generations to not destroy the environment further, even if it means paying more taxes in the short term. As with the other responses, support was highest in Quebec (70.2 per cent), above the national average in B.C. (71.5) and Ontario (69.9), and lowest in Alberta (53).


It is interesting to compare how the issue of Climate Change and the impact of climate action on the economy aligns with political support across Canadian provinces. Alberta saw the lowest percentage of support for climate action on these questions whereas Quebec saw the highest. Similarly, the CPC has a commanding lead in Alberta, per recent 338 polling, if the election were held today, 33/34 seats would be blue, in contrast, 49/ 78 of Quebec seats would be Liberal. With three out of four choices left of center on the climate change issue, the CPC stands to benefit from a fragmented left in traditionally progressive regions.

July 23, 2019
Naomi Shuman

On June 19th the Conservative Party released its Climate Plan titled A Real Plan to Protect our Environment. The plan takes aim at the Trudeau Government’s carbon pricing system, noting that “Canadian families and small businesses will pay 92% of Trudeau’s Carbon Tax, while big polluters are only on the hook for 8%.” The plan essentially presents a carbon pricing system for large emitters; however, Leader Andrew Scheer has avoided framing it a carbon tax or a carbon price as the money will not be collected by the government but will rather go directly nito a technology fund managed by industry.

July 23, 2019
Naomi Shuman

On June 16th the NDP released its election platform titled A New Deal for People. “Recognizing that putting a price on carbon is an important tool to drive greenhouse gas reductions at the source,” the plan says, “we will continue carbon pricing, including rebates to households that fall under the federal backstop plan, while making it fairer and rolling back the breaks this Liberal government has given to big polluters.”

July 23, 2019
Naomi Shuman

On June 13th the Parliamentary Budget Office (PBO) released a report noting that the federal carbon price would have to double if Canada is to meet its international commitments of reducing national GHG emissions 30% on 2005 levels by 2030. The analysis assumes that pricing carbon is the only thing Canada would change about its climate-change policies. It also assumes this new tax would be broadly applied across all sectors, except agriculture, and in all provinces and territories.

Recent Related Articles