Your Cheat Sheet to Carbon Pricing in Canada

by Melissa Harris – Director of Policy, The Delphi Group

This week the federal government released long-awaited details about how carbon will be priced across Canada. This is the next step in the Pan-Canadian Framework on Clean Growth and Climate Change (PCF), a federal-provincial-territorial initiative announced in 2016, encapsulating the strategy for meeting Canada’s 2030 carbon reduction targets.

The framework sets out a federal benchmark: a minimum of $20 per tonne of carbon, rising by $10 per year to $50 per tonne in 2022. The provinces and territories had the option to design their own equivalent or better carbon pricing system or adopt, in full or in part, the federal backstop: a carbon levy on fuels and an output-based pricing system (OBPS) for large emitting industrial facilities.

In light of these developments, we’d like to share our updated summary of the state of play in Canada. The map below gives you a snapshot of the various carbon pricing regimes across the country.

Diagram CPricing in Canada_Oct 24

(Click photo to enlarge)

 

In a Nutshell: Federal vs. Provincial Systems

Existing systems in BC, Alberta and Quebec were found to meet the federal benchmark outlined in the PCF. Updated plans from Nova Scotia, Newfoundland and Labrador, PEI and the territories indicated how they will comply. The federal system will be applied in Saskatchewan, Manitoba, Ontario and New Brunswick, although some of these jurisdictions are threatening non-compliance and/or legal action.

Nova Scotia will launch its cap-and-trade program in January 2019 with a floor price of $20 introduced in 2020 and two to four auctions per year.

The “Made-in-Newfoundland and Labrador” plan will include a $20 carbon levy on fuel starting January 2019, replacing a 4 cent gas tax and additional 5 cent diesel tax. Exemptions will include aviation fuels, home heating fuels, off-grid diesel generation, municipalities, and marine transportation between provinces. A performance standard is also being developed for large-scale electricity generation and large industrial facilities emitting over 25 000 tonnes annually.

In PEI the provincial government will administer a proposed carbon charge on fossil fuels while the federal government will administer an OBPS beginning in January 2019 for emissions-intensive trade-exposed (EITE) industries emitting 50 000 tonnes or more.

In Nunavut and Yukon, the federal government will administer both an OBPS and a fuel charge starting in July 2019. However, there will be no aviation fuel charge, as well as relief for diesel-fired electricity generation in remote communities.

The Northwest Territories plan will introduce a carbon tax on fuels starting July 2019 at $20 per tonne increasing annually to $50/tonne. It will exclude aviation fuel from carbon pricing and rebate 100% of the carbon tax for most heating fuel.

Saskatchewan plans to implement an output-based performance standard January 2019 applying to industrial facilities emitting 25 000 tonnes of CO2e or more, except for electricity generation and natural gas transmission pipelines so the federal OBPS will cover facilities in these sectors emitting 50 000 tonnes. The federal government will also introduce a fuel charge starting in April 2019.

For Ontario, Manitoba and New Brunswick the federal OBPS will apply in January 2019 with a fuel charge applied in April 2019.

Moving Towards Implementation

On October 31, we can expect to see draft regulations for the federal OBPS. The federal system is taking on more importance since it seems it will apply to more jurisdictions than originally expected.  In addition, facilities emitting more than 10 000 tonnes may have an option for early opt-in for 2019 which would expand the number of participants and potentially lower costs.

The announcements made this week go a long way to addressing recommendations developed earlier this year by 24 leading Canadian companies who are members of the Carbon Pricing Leadership Coalition (CPLC). They identified some key principles for effectively pricing carbon pollution, including:

  • Supporting measures to address competitiveness for trade-exposed industries
  • Increasing stringency over time
  • Aligning carbon pricing programs and other climate policies
  • Ensuring consistent and predictable pricing

The findings are reflected in the report The Role of Carbon Pricing in a Low-Carbon Transition and include perspectives from diverse sectors, such as finance, resource development, mining, transportation, construction, retail and technology.

Work is underway at various levels of government to ensure practical and effective carbon pricing approaches are introduced. Effective implementation will require public support, corporate leadership, and government cooperation. As the recent IPCC report reminds us, there is a lot riding on our ability to take decisive action on carbon in the next 10-12 years. An effective Canadian carbon pricing system is an important part of the solution.

Melissa Harris is Director of Policy at The Delphi Group. For more information about  the CPLC report or The Delphi Group, please contact Melissa directly at mharris@delphi.ca

We hope to see you at GLOBE Capital (February 26-28, 2018) in Toronto, where leaders in finance, infrastructure and cleantech meet to capitalize on opportunities in the clean economy.

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