Appearance before the Standing Committee on Environment and Sustainable Development – May 21, 2024

Carbon Pollution Pricing

Questions and answers

Q1. What is carbon pricing and why is it important?

• Carbon pollution pricing is widely recognized as the most efficient way to reduce greenhouse gas (GHG) emissions while driving innovation to provide consumers and businesses with low-carbon options
• The federal government is committed to ensuring that carbon pricing is in place across Canada at a similar level of stringency while ensuring provinces and territories have the flexibility to implement their own carbon pricing systems
• Carbon pollution pricing is central to Canada’s climate plan and is critical to delivering on Canada’s targets of reducing GHG emissions to 40-45% below 2005 levels by 2030 and reaching net-zero emissions by 2050

Q2. What is the federal benchmark and what does it do? Why not let provinces and territories decide for themselves how to price carbon pollution?

• The Government’s approach to pricing carbon pollution gives provinces and territories the flexibility to implement the type of system that makes sense for their circumstances as long as they align with minimum national stringency standards, or benchmark criteria
•  The federal benchmark has been updated to ensure that carbon pricing systems are at a similar level of stringency across Canada (2023-2030) and that they continue to drive low-cost emissions reductions required for Canada to build a cleaner, more prosperous economy
• The federal carbon pollution pricing system applies in provinces and territories that request it or that choose not to adequately price carbon pollution

Q3. How does carbon pricing impact competitiveness, and what is the impact on Canadian industries?

• Canada’s approach to carbon pollution pricing is designed to mitigate risks of adverse competitiveness impacts
• Under the federal approach, the Output-Based Pricing System (OBPS) is designed to put a price on the carbon pollution of large industrial facilities, while limiting the impacts of carbon pricing on their ability to compete in the Canadian market and abroad. Carbon costs can affect businesses that conduct activities that are emissions-intensive and highly internationally traded if they compete with similar businesses in countries that do not have carbon pricing in place
• Instead of paying the fuel charge, an industrial facility in the federal OBPS faces a compliance obligation on the portion of emissions that exceed an annual limit. Covered facilities are required to provide compensation for GHG emissions that exceed their emissions limit and are issued surplus credits if their emissions are lower than the applicable emissions limit. Facilities can sell surplus credits or bank them for use in future years. This approach minimizes the risk that businesses will move from Canada to jurisdictions that do not price carbon
• Provincial and territorial carbon pollution pricing systems have similar designs to protect against this risk

Q4. Has the federal government considered implementing border carbon adjustments to help mitigate carbon leakage?

• Avoiding carbon leakage is key to good climate policy. Carbon leakage occurs when companies move to countries with lower climate ambition to avoid carbon costs. The result is that emissions shift from one place to another rather than decline. Canada’s carbon pricing systems are designed to address this risk. The federal Output-Based Pricing System and similar provincial systems are designed to minimize the risk of carbon leakage
• Another way to address the risk of carbon leakage is with a border carbon adjustment. This can help level the playing field between domestic and foreign producers
•  Canada will continue to explore whether a BCA makes sense in the Canadian context, working with like-minded economies, including the European Union and our North American partners, to consider whether and how this approach could fit into a broader strategy to meet ambitious climate targets while avoiding carbon leakage

Q5. Why not expand the exemption on heating oil to support affordability?

• This was a targeted temporary suspension as part of a national package of measures designed to help Canadians transition from less environmentally friendly fuels like heating oil as quickly as possible
• In addition to a temporary suspension of the federal fuel charge on heating oil, this also included:
  • Doubling the supplement to carbon pollution price rebates (Climate Action Incentive Payments) to small and rural communities from 10% to 20%
  • Significant investments to help households switch from oil to heat pumps to heat and cool their homes, including through NRCan’s Oil to Heat Pump Affordability program
• Carbon pollution pricing remains a pillar of the Government of Canada’s Emissions Reduction Plan and is the most cost-efficient way to reduce emissions and incent innovation

Q6. What is the Government of Canada doing with the revenues it collects through carbon pollution pricing?

• All proceeds from the federal carbon pollution pricing system are returned to the province or territory of origin. Jurisdictions that requested or accepted the application of the federal fuel charge and/or the Output-Based Pricing System (OBPS) can choose to have these proceeds returned directly
• In jurisdictions where the federal fuel charge has not been requested but has been applied, the majority of direct proceeds are returned to households through Canada Carbon Rebate payments (previously Climate Action Incentive payments). Most households will get back more in Canada Carbon Rebate payments than they pay in increased costs due to the federal carbon pollution pricing system

 Q7. What is the Government of Canada’s plan to return fuel charge revenues?

• For the 2023-24 fuel charge year, around ninety per cent of fuel charge proceeds are returned via Canada Carbon Rebate payments (previously Climate Action Incentive payments). Remaining proceeds are returned to small and medium-sized enterprises and Indigenous governments. Proceeds relating specifically to the use of natural gas and propane by farmers are returned directly to farmers via a refundable tax credit
• The federal fuel charge currently applies to the provinces of Alberta, Saskatchewan, Manitoba, Ontario, Nova Scotia, New Brunswick, Newfoundland and Labrador, and Prince Edward Island, and the territories of Nunavut and Yukon. In the provinces, the Government remains committed to ensuring that proceeds are returned to the jurisdiction of origin though a combination of Canada Carbon Rebate payments (previously Climate Action Incentive payments) and federal programming. The governments of Nunavut and Yukon receive the proceeds directly and have their own programming to return them
• The Government of Canada continues to prepare to return over $3.1 billion of fuel charge proceeds to small and medium-sized enterprises in jurisdictions where the federal fuel charge applies. Information regarding available programming to return these fuel charge proceeds will be shared as soon as details are available
• The Government of Canada also remains committed to returning over $531 million of federal fuel charge proceeds to Indigenous governments and is currently engaging with First Nations, Inuit, and Métis partners on the approach for distributing these proceeds in each province where the federal fuel charge applies

Q8. What is the OBPS Proceeds Fund, and how much funding is available?

• Launched on February 14, 2022, the OBPS Proceeds Fund is designed to further reduce industrial greenhouse gas emissions and support clean electricity projects. The program has two streams:
  • The Decarbonization Incentive Program (DIP) stream is a merit-based program that incentivizes the long-term decarbonization of Canada’s industrial sectors by supporting clean technology projects to reduce greenhouse gas emissions. Most OBPS regulated facilities can apply and applications are currently being accepted
  • The Future Electricity Fund stream is designed to support provincially managed clean electricity projects and/or programs. Eligible projects will be determined during the negotiation of funding agreements in each jurisdiction. Formal negotiations are underway
• Available funding depends on the amount of proceeds collected from OBPS regulated facilities during a given compliance period. Approximately $162 million from 2019, $233 million from 2020, $291 million from 2021, and $223 million from 2022 was collected from the federal OBPS during the respective compliance periods. Jurisdictions that exit the federal OBPS by implementing their own system will no longer have proceeds collected by the federal government, but will see any previous amounts returned through the OBPS Proceeds Fund; New Brunswick exited the federal OBPS system in January 2021, Ontario in January 2022, and Saskatchewan in January 2023

The following table shows the estimated funding available in respective jurisdictions:

*New Brunswick exited the federal OBPS system in January 2021

Q9. How will the Government of Canada return proceeds to provinces or territories that have transitioned out of the federal OBPS and implemented their own carbon pollution pricing system for industrial emitters?

• If a province or territory implements its own carbon pollution pricing system that meets the federal benchmark and transitions away from the federal OBPS, the OBPS Proceeds Fund would continue to support any projects that have been approved for implementation in those jurisdictions. The program would continue in the jurisdictions where the OBPS is no longer in effect until proceeds have been returned

Q10. How will the Government of Canada return proceeds to Indigenous governments?

• In 2020, Canada committed to work on a distinctions-basis to jointly develop the mechanisms by which 1% of fuel charge proceeds would be returned to Indigenous governments in jurisdictions where the federal fuel charge applies. The purpose of this approach is to provide flexible transfer payment mechanisms that better support investments in self-determined priorities, including Indigenous-led climate action
• Beginning in 2021, officials from Environment and Climate Change Canada have engaged with First Nations, Inuit and Métis in the provinces where the federal fuel charge is in effect on the path forward for returning fuel charge proceeds. Inuit partners began being engaged in 2023
• The Minister of Finance has specified the Minister of Environment and Climate Change as responsible for returning over $531M of net fuel charge proceeds for the period of 2020-21 to 2024-25 to Indigenous governments in each province where the federal fuel charge applies
  • December 2023: specification of $282.19M, representing 1% of net fuel charge proceeds collected from 2020-21 to 2023-24
  • February 2024: specification of $249.3M, representing 2% of net fuel charge proceeds for the period of 2024-25
• In February 2024, the Government of Canada announced that, in recognition of the impacts of climate change on Indigenous communities, starting in 2024-25, the share of fuel charge proceeds returned to Indigenous governments will increase from 1% to 2%. The government intends to return 2% of fuel charge proceeds to Indigenous governments in subsequent years
• Environment and Climate Change Canada is working to complete engagement with Indigenous partners on the approach for returning the proceeds that have been specified thus far, and to announce programing as soon as possible

Q11. Why is the government refusing to pause the carbon price increase scheduled for April 1, 2024, as requested by Atlantic Premiers on March 12?

• Affordability is top of mind for the federal government, as it is for Atlantic Premiers and other provincial and territorial leaders
• But pausing the increase to the price on carbon pollution would be counter-productive, both for affordability and the fight against climate change
• The federal approach to carbon pollution pricing actually protects households against affordability impacts
• The Canada Carbon Rebate ensures that proceeds go back to households before they incur costs from the price on pollution
• The majority of households get more back than the costs they incur, in particular low- and medium-income households. This means that pausing the carbon price wouldn’t in practice help most households and could actually hurt some lower and medium-income households
• Doubling the rural top-up to 20% will also help those with fewer options to reduce emissions
• The small, steady increases to the carbon price each year (about 3.3 cents per liter of gasoline) are designed to avoid major price shocks, while the rebates protect household finances
• We also need to remember that carbon pricing is a pillar of our climate plan and projected to achieve about one third of all the pollution reductions it targets. It is more efficient than other types of measures, which could end up costing more and protecting affordability less

Cap and Cut Emissions from Oil and Gas

Q1. What is the approach to cap and cut oil and gas sector emissions?

• Canada is taking action across all sectors to meet its commitment to reduce GHG emissions by 40% to 45% below 2005 levels by 2030 and to reach net-zero emissions by 2050
• The oil and gas sector is the largest source of emissions in Canada producing 28% of national emissions in 2021. It is also a major employer and contributor to Canada’s GDP
• On December 7, 2023, the Government published a Regulatory Framework to cap GHG emissions from the oil and gas sector through a cap-and-trade system under CEPA for a 60-day comment period
• The approach to the emissions cap is designed to ensure predictable emissions reductions while enabling ongoing production. Facilities will have an incentive to reduce emissions to the level of the emissions cap but will have the flexibility to emit up to a maximum
• It will work together with new and existing policies to reduce oil and gas sector emissions, including carbon pollution pricing, proposed amendments to strengthen the oil and gas methane regulations and the CCUS investment tax credit, for example
• The Government of Canada will continue to engage with oil and gas companies, provinces and territories, Indigenous organizations and other stakeholders as we develop the emissions cap

Q2. How would an emissions cap affect oil and gas production, exports, and energy security?

• To be clear, the purpose of the emissions cap is to reduce GHG emissions not to cap oil and gas production in Canada
• The Regulatory Framework, published December 7, 2023, is clear that the proposed emissions cap is designed to ensure predictable emissions reductions while enabling ongoing production. It is designed to provide the sector with the flexibility to respond to changes in global markets and demand
• The emissions cap will ensure that the reductions and investments needed to achieve net zero in 2050 are made, which will help support the future competitiveness of the sector
• We will continue to work closely with provinces and the sector as we develop the details of the regulatory approach and remain attuned to evolving energy security and climate risk considerations

Q3. Is the oil and gas sector target achievable? If it costs too much won’t it just scare investment away from Canada?

• As proposed in the Regulatory Framework published Dec. 7, 2023, the cap on emissions will set a limit on emissions not on production
• The design will ensure predictable emissions reductions while enabling continued production and providing flexibility to respond to changes in global markets and demand
• The proposed emissions cap level and legal upper bound were designed based on extensive engagement with industry on the technologically achievable reductions in the sector by 2030
• Proposed compliance options, including the use of offsets and contributions to a decarbonization fund, provide flexibility and certainty
• The proposed approach will ensure that the reductions and investments needed to achieve net zero in 2050 are made, as committed to by many industries within the sector
• Demand for low carbon fossil fuels is expected to increase over time. Reducing emissions in Canada’s oil and gas sector is expected to help to maintain sector competitiveness
• The proposed approach is designed to enable increased production in response to global demand, incent investments in decarbonization, and ensure the sector reduces emissions to achieve net zero by 2050

Q4. What are the most promising decarbonisation pathways for the oil and gas sector?

• Large-scale deployment of multiple technologies are required for oil sands and other oil and gas producers to reduce GHG emissions
• Some key mitigation pathways include steam displacement (which includes solvent injections), CCUS, co-generation, electrification, fuel switching and energy efficiency applications
• CCUS can help us tackle emissions from the toughest-to-abate but crucial sectors of Canada’s economy (such as oil and gas and heavy industry); enable low-carbon pathways like hydrogen; and deliver negative emissions to support carbon dioxide removal

2030 Emissions Reduction Plan

Additional background information – ENVI Committee May 21, 2024

Q1. CCI analysis indicates fuel charge achieves few emissions reductions; what is rationale for a consumer fuel charge?

• CCI’s March 2024 analysis estimates that carbon pricing on fuels will contribute 8-14% of Canada’s total emissions reductions in 2030; in their analysis it is the 4^th most significant policy in terms of reductions
• Avoiding the worst impacts of climate change is an all-hands-on-deck emergency. We need every policy tool available to achieve our 2030 climate targets. Without carbon pricing, we’d need to implement more, likely costlier measures
• Carbon pricing is also uniquely useful in reducing emissions:
  • It sends a signal economy-wide and complements all other measures, making them more effective
  • The proceeds can be used to protect households from affordability impacts – through the Canada Carbon Rebate, 8 out of 10 households are better off, particularly low and medium-income households
  • It is flexible and lets individuals and businesses choose the most cost effective measures for them – this is why it is one of the most efficient, lowest cost tools we have
• Sources:
  • https://440megatonnes.ca/insight/industrial-carbon-pricing-systems-driver-emissions-reductions/

Q2. Why is GoC analysis taking credit in its modeling for provincial systems in BC, Alberta, Quebec and elsewhere? Why aren’t you looking at the impact of the federal system only?

• The federal approach to carbon pricing sets consistent, fair rules for all systems. It requires all systems to have the same broad scope; a gradually increasing price; and effective designs
• This is essential to let provinces that have had robust pricing systems in place for over a decade (QC, AB, BC) maintain their systems, and set a level playing field for all provinces and territories

Q3. Carbon pricing contribution to inflation

• Governor of Bank of Canada has said on several occasions (most recently May 2 2024) that the annual contribution of carbon pricing increases contributes roughly 0.1-0.15% to annual inflation
  • Considers only direct effects from three components of the Consumer Price Index – natural gas, heating oil, and gasoline
  • Does not account for the impact of Canada Carbon Rebate on household finances
• Note – has also said that eliminating the fuel charge would lead to a one-time decrease in inflation of roughly 0.7%, after which inflation would continue at previous levels (“ You are correct that if the carbon tax was eliminated, there would be a drop in the price level of about 0.7%, so for one year, inflation would be 0.7 percentage points lower”
• Sources:
  • May 2024: https://financialpost.com/news/economy/eliminating-carbon-tax-temporary-effect-inflation-macklem
  • May 2 2024 committee appearance: https://www.ourcommons.ca/documentviewer/en/44-1/FINA/meeting-141/evidence
  • Sept 2023: https://www.cbc.ca/news/canada/calgary/carbon-tax-inflation-tiff-macklem-calgary-1.6960189

Q4. Carbon pricing impacts on grocery prices

• Third party analysis finds it is very small – e.g. less than 0.5%
  • Trevor Tombe/Jennifer Winter analysis in 2023 found total carbon pricing impact in BC on most goods and services was less than 0.5%
    • Specifically their study looked at BC and the impact of the $65/t carbon price in 2023 and found 0.33% for food and 0.2% for clothing and footwear
• More broadly for Canada: “Emissions pricing is just one of many indirect taxes that households face. Other examples are sales taxes and alcohol levies. We estimate that the combined effect on Canadian consumer prices from all indirect tax increases between January 2015 and October 2023 was 0.6%.”
• Note: Jennifer Winter is currently the ECCC Departmental Science Advisor
• Sources:
  • https://policyoptions.irpp.org/magazines/december-2023/carbon-price-affordability/
  • https://www.policyschool.ca/wp-content/uploads/2023/12/EE-Trends-DEC.pdf

Q5. Carbon Pricing and Agriculture (May 2024 AAFC input)

• AAFC has estimated that approximately 97% of the greenhouse gas emissions generated by farming activities are exempt from or not subject to federal carbon pollution pricing
  • For example, biological emissions from crop and livestock production are not subject to pollution pricing
  • exemptions are provided for gasoline and diesel used in eligible farming machinery
  • commercial greenhouse operators are eligible to receive 80% relief from the fuel charge on natural gas and propane
• The Government of Canada has also implemented a refundable tax credit to return a portion of fuel charge proceeds directly to farm businesses operating in jurisdictions where the fuel charge applies
• The Canada Carbon Rebate is also available to eligible individuals and their families to help offset the cost of federal pollution pricing, with residents of small and rural communities, including farmers and their families, able to receive a supplement of 20% of the baseline amount
• The Government of Canada is creating economic opportunities for the sector through Canada’s GHG Offset System, which will enable credits for innovative actions being taken in the sector to reduce/remove emissions
• The Government has committed more than $1.5 billion into supporting farmers with adopting new practices and technologies that can reduce emissions and improve farm performance. For example, almost $170.2 million has been committed across the 415 projects announced to date under the Agricultural Clean Technology Program to support the development and adoption of clean technologies that can reduce emissions and help farmers adapt to climate change, including more than $50 million which is set aside for farmers to put towards the purchase of more efficient grain dryers

A Distributional Analysis of the Federal Fuel Charge under the 2030 Emissions Reduction Plan

2023 progress report on the 2030 Emissions Reduction Plan

National inventory report

Q1. What are the key highlights from the 2024 National Inventory Report?

• Canada’s greenhouse gas emissions were 708 Mt of CO2 equivalent in 2022. This is an increase of 9 Mt from the revised 2021 emissions, but 44 Mt below the revised 2019 pre-pandemic emission levels. Emissions for 2005 were revised upward by 17 Mt to 761 Mt
• Noteworthy changes in emissions between 2021 and 2022 came from:
  • Emissions from Transport increased by 7.8 Mt largely due to more travelling
  • Emissions from commercial, institutional, and residential fuel combustion increased by 3.8 Mt, driven by a colder winter
  • Emissions from public electricity and heat production also decreased by 4.3 Mt due to further reductions in coal consumption
  • Emissions from Fugitives Sources from Oil and Gas extraction decreased by 2.1 Mt
• The emissions data for 2022 confirms Canada’s economy continues to decouple from its GHG emissions. The emissions intensity for the entire economy has declined by 42% since 1990

Q2. Are GHG emissions data available by industrial facility in Canada?

• The Greenhouse Gas Reporting Program collects information on GHG emissions annually from over 1700 facilities across Canada under section 46 of the Canadian Environmental Protection Act. This data is complementary to NIR data, and is available online (Canada.ca/GHG-reporting)

Q3. ls Canada improving methane emissions estimates in future editions of the NIR?

• Continuous improvements to quantify and report Canada’s emissions are essential to ensure Canada’s inventory estimates are based on the best available science and data. This includes regularly engaging with experts and stakeholders to identify knowledge gaps and prioritize input to the scientific process that underlies GHG estimation and reporting
• In the 2024 edition of the NIR, significant improvements and revisions were made to methodologies for fugitive methane from oil and gas, incorporating atmospheric measurements of methane from upstream oil and gas facilities. Additional improvements are expected in a future edition of the NIR. These  improvements include methane estimates from wastewater, landfills and manure management as well as the addition of a new methane source from flooded lands

Q4. How is Canada consulting with Province and Territories on emissions?

• The National Inventory Report is one way federal, provincial and territorial governments take annual stock of emissions reduction progress of the various federal, provincial, territories climate plans           
• Improvements to Canada’s National GHG Inventory Report (NIR) often results in revisions to historical GHG estimates and changes to provincial and territorial GHG estimates. The commitment to quality and evidence-based information includes collaborating with stakeholders to reconcile national, provincial and territorial data towards nationally-consistent data sets
• As part of its regular consultation process, Environment and Climate Change Canada (ECCC) shares preliminary GHG emissions data with provinces and territories. ECCC reviews and addresses any comments received to the extent possible prior to the NIR’s publishing

Q5. How are wildfires reported in the National Inventory Report?

GHG emissions from natural disturbances are reported in section 6.3 of the NIR. Monitoring the impact of natural disturbances such as wildfire and severe forest insect outbreaks is important in Canada’s GHG inventory to understand total emissions and removals from our managed forest and track the total change in terrestrial carbon stocks.

Emissions of CO₂ that result from fire and removals of CO₂ that occur as the forests that have burned regrow are tracked under the natural disturbance component.  These lands are reported separately until they have regrown to maturity and the carbon loss resulting from the fire is replaced on the landscape.

Why are all fires considered natural?

All forest fires are tracked under the natural disturbance component of the NIR because it is not possible to clearly establish if human intervention has increased or decreased areas burned over time. Forest fires have been an integral part of the Canadian landscape for millennia.

Why are they reported separately?

This approach enables the inventory to assess how forest management activities affect GHG estimates relative to the fire regime. If this approach is not applied natural disturbances would dominate emissions and removals estimates. For example, natural disturbance emissions can vary by over 200 million tonnes of carbon dioxide equivalent (Mt CO₂e) from year to year, depending on the area burned by wildfire.

In Summary

To provide a clear picture of the impacts of human activity over time, the focus of Canada’s GHG inventory report is the emissions and removals that are a direct result of forest management practices. Having a clear understanding of direct human impacts can inform how we develop approaches to reduce carbon emissions and increase the carbon sequestered by our forests.

Nonetheless, wildfire and other natural disturbance are an important part of the terrestrial carbon cycle in Canada and for this reason, emissions and removals associated with natural disturbances are tracked and reported separately.

Q6. What is being done to ensure accurate forest GHG reporting following the CESD audit on Forests and Climate change?

As documented in the Departments’ response to the CESD Audit on Forests and Climate Change, the methodology used for reporting emissions and removals of greenhouse gases from Forests in Canada is informed by continual scientific consultation and review.

Since the publication of the results of the CESD audit in June 2023, Environment and Climate Change Canada and the Canadian Forest Service of Natural Resources Canada have finalized a major revision to the data underlying forest estimates, have negotiated the publication of provincial LULUCF estimates in the NIR and have initiated a broad stakeholder and expert consultation on forest carbon accounting.

The 2023 Blueprint for Forest Carbon Science in Canada was completed and published following extensive consultation with experts and stakeholders.

An external review of Canada’s NIR by independent experts assembled by the United Nations Framework Convention on Climate Change (UNFCCC) Secretariat was completed in September. This spring, a second review by UNFCCC secretariat experts was undertaken, this time of Canada’s 2022 Biennial Report (BR). The reports of recommendations stemming from these reviews are currently under development by the UNFCCC Secretariat, and are scheduled for publication in the first half of 2024.

These actions and others are underway in accordance with the Management Action Plan prepared in response to the CESD-audit.

November 30, 2023

Motion

That given the statement made by Mr. Derek Hermanutz, Director General, Economic Analysis Directorate, for Environment and Climate Change Canada on Thursday, November 9, 2023, at the committee:

“I think we’re probably in a world where we could say with some rough analysis that up to one-third, potentially, of the emission reductions that we’re projecting to 2030 would come from carbon pricing”;

And given that Canada’s Commissioner of the Environment and Sustainable Development has stated in their 2023 Fall Reports that:

“The federal government is not on track to meet the 2030 target to reduce greenhouse gas emissions”;

Pursuant to Standing Order 108(1)(a), the committee request the production of Environment and Climate Change Canada’s complete analysis including all economic modelling, referred to by Mr. Derek Hermanutz, of the government’s emission reduction projections specifically from the carbon tax, no later than Wednesday, December 13, 2023.

Mr. Adam van Koeverden (Milton, Lib.):

Adam van Koeverden
Caucus: Liberal
Constituency: Milton
Province/Territory: Ontario

Thank you, Mr. Chair.

I appreciate Mr. Mazier's interest in carbon pricing.

I note that it's not just the Liberals suggesting that carbon pricing is the foundation for any serious emissions reduction strategy. It was also the Conservatives in the last federal election—with the exception of Mr. Leslie, I might add, because he won a by-election and probably wasn't even allowed to say “climate change” in his campaign, but it does exist. We are here to fight climate change and determine how we might do that together, collectively.

It's a good thing, because yesterday we published ECCC's analysis on how carbon pricing is reducing our emissions. It is indeed responsible for up to one-third. It's challenging, as any economic modelling is, to come to a precise number, but the commissioner and the gentleman from ECCC at the meeting indicated that it was up to one-third.

That modelling and that economic analysis are now available on ECCC's website. I will forward it to every member of the committee. I don't think it's necessary to formally table it or request it from the government, given that it's on the website.

I would move to adjourn debate on this and return to the study.

Website Link provided by PS van Koeverden on November 30, 2024.

How pollution pricing reduces emissions - Canada.ca

Notice of Motion
Dan Mazier, MP
Friday, March 15, 2024

Given that:

(a) The committee unanimously passed a motion on November 30, 2023 to “request the production of Environment and Climate Change Canada’s complete analysis including all economic modelling”, on the government’s emission reduction projections;

(b) Environment and Climate Change Canada did not provide the complete analysis of the government’s emission reduction projections, including all economic modelling.

(c) Canada’s Commissioner of the Environment and Sustainable Development has stated that: “The federal government is not on track to meet the 2030 target to reduce greenhouse gas emissions” directly contradicting the statements made by the Minister of Environment and the Government of Canada.

(d) The Minister of Environment confirmed in Q-1988 that: “the Government used Environment and Climate Change Canada’s provincial-territorial computable general equilibrium model – EC-Pro” to project emission reductions.

(e) The Minister of Environment stated in Q-1988 that: “EC-Pro simulates the response of the main economic sectors in each province and territory (PT), and their interactions with each other, including interprovincial trade. It captures characteristics of each PT’s production and consumption patterns through a detailed input-output table, and links PTs via bilateral trade. Each PT is explicitly represented as a region and the rest of the world is represented as import and export flows to PTs, which are assumed to be price takers in international markets. To support analysis of energy and climate policies, the model incorporates information on energy use and greenhouse gas emissions (GHG) related to the combustion of fossil fuels. It also tracks non energy related GHG emissions.”

The committee order the production of “Environment and Climate Change Canada’s provincial-territorial computable general equilibrium model – EC-Pro” including (i) the “statistical technique to isolate the carbon pricing contribution”, (ii) a list of all “Ref” parameters including the ‘Ref22” and “Ref22A” parameters used in EC-Pro, (iii) the EC-Pro model that projected that “carbon pollution pricing will contribute as much as one-third of Canada’s emission reductions” including all (i) parameters, (ii) economic modelling, and (iii) assumptions; and that these documents be provided to the committee within one week of the adoption of the motion.

ECCC Response

Item i - Statistical technique to isolate the carbon pricing contribution

To quantify emissions in the absence of carbon pricing between now and 2030, the initial starting point is the reference case with current measures (Ref22) and with additional measures (Ref22A) reported in the 8^th National Communication Report and 5^th Biennial report (Ref 22 and Ref22A) submitted to the UNFCCC on December 31, 2022. The reference cases with and without additional measures were developed using the E3MC model.

The statistical technique to isolate the carbon pricing contribution is as follows.

• In the calibration of EC-Pro to Ref22 and Ref22A parameters, the carbon price prevailing in the relevant years is explicitly added. This means that the Output-Based Pricing System stringency and fuel levy coverage, as well as the provincial carbon pricing regimes are also explicitly introduced into the model’s response equations. By doing this, the model establishes a statistical relationship between the prevailing carbon pricing and fuel use and related emissions by sector by province by year.
• Using the EC-Pro baseline that explicitly includes carbon pricing as a default tax, taxes identified in Statistics Canada’s Supply and Use Tables. By explicitly identifying these taxes they can be modified as needed.
• The next step is to develop a relationship between the EC-Pro parameters (e.g., elasticities and cost curves) to match the CO2 and non-CO2 emissions by sector, by region and by source to target the emission levels in Ref22. For carbon capture and storage, and other technologies that are being driven by carbon pricing, we account for what would not have happened if there were no carbon pricing. To assess how carbon pricing, and policies to promoting reductions influences CCS activities, the level of CCS is held to the current historical level. This allows the model to then endogenously project CCS activities in response to policies.
• The final step is to run this scenario where the carbon price in the OBPS system and the fuel charge are set to 0. When the scenario is run, the model interprets this as a deviation from the reference case (i.e., a scenario with the carbon tax being removed).

Item ii - All “Ref” parameters including the ‘Ref22” and “Ref22A” parameters used in EC-Pro

The EC-Pro Model is a multi-sector, multi-region computable general equilibrium (CGE) model, with the following key features:

• 10 provinces and 3 territories (regions) and the rest of the world (RoW)
• Regions are interlinked through bilateral trade
• Regions are price takers in the international market and linked with RoW through international trade (small-open-economy assumption)
• 52 sectors with focus on energy and energy-intensive industries
• Representative household in each region owns all factors of production (i.e. capital and labour)
• Provincial and federal governments (tracks sources and revenues)
• Recursive-dynamic (i.e. simulates on an annual basis taking previous year’s investment decisions)

EC-Pro is aligned to the most recent Environment and Climate Change projections. While the current version of EC-Pro is aligned to the December 2023 Reference case, the version of EC-Pro used for the analysis referenced in Q-1988 was aligned to the ECCC Projections released in December 2022 and reported in Canada’s 8^th National Communication and 5^th Biennial Report submitted to the UNFCCC. The report can be found at: https://unfccc.int/documents/624782.

Below is an excerpt from this report to highlight the assumptions used in EC-Pro.

A3.1. Key Economic Drivers and Assumptions

The emissions projections baseline scenario is designed to incorporate the best available information about economic growth as well as energy demand and supply into the future. The projections capture the impacts of future production of goods and services in Canada on GHG emissions.

Historical data on GDP is provided from Statistics Canada. Consumer price index and population demographics are also produced by Statistics Canada while historical emissions data are provided by the National Inventory Report, 2022 (NIR 2022).

Economic projections (including real and nominal GDP growths, GDP inflation, exchange rate, three-month treasury bill rate, ten-year government bond rate, unemployment rate and consumer price index inflation) to 2027 are calibrated to Finance Canada’s 2022 Fall Economic Statement. Economic projections between 2028 and 2035 are based on Finance Canada’s long-term projections.

Forecasts of oil and natural gas price and production are taken from the Canada Energy Regulator’s preliminary 2023 Current Measures scenario. The CER is an independent federal agency that regulates international and interprovincial aspects of the oil, gas and electric utility industries. The U.S. Energy Information Administration's outlook on key parameters is also taken into account in the development of energy and emissions trends.

A3.2. Economic Growth

The Canadian economy grew by 1.5 percent per year from 2006 through 2021, a period that includes the 2009 global recession and the COVID-19 pandemic. Real GDP growth is expected to average 1.9 percent per year from 2022 to 2035.

Growth in the labour force and changes in labour productivity influence Canada’s real GDP. Labour productivity is expected to increase by an average of 0.5 percent annually between 2022 and 2035, similar to the 0.6 percent average annual growth during the period between 2006 and 2021. The increase in productivity is attributed to an expected rise in capital formation and contributes to the growth in real disposable personal income, which is expected to increase by an average of 0.7 percent between 2022 and 2035.

A3.3. Population Dynamics and Demographics

The population size and its characteristics (e.g., age, sex, education, household formation, among others) have important impacts on energy demand. Canada's overall population is projected to grow on average at an annual rate of 1.4% between 2022 and 2025, slowing to 1.1% per year between 2026 and 2030 and 1.0% between 2031 and 2035.

Major demographic factors that can have measurable impacts on energy consumption are summarized below:

• Household formation: This is the main determinant of energy use in the residential sector
• The number of households is expected to increase on average by 1.5% per year between 2022 and 2025 and by an average of 1.2% per year between 2026 and 2030 and 1.1% between 2031 and 2035
• Labour force: Its annual average growth rate was 1.0% per year between 2006 and 2021 and is projected to be 1.3% per year between 2022 and 2025; 1.2% between 2026 and 2030; and then 1.1% between 2031 and 2035

A3.4. World Crude Oil and North American Natural Gas Prices

A major factor in projected GHG emissions is the assumption about future world oil and natural gas prices since this is a major factor that drives the level of crude oil and natural gas production. Canada is a price taker in crude oil markets as its share of world oil production and consumption are not large enough (5% and 2%, respectively) to significantly influence international oil prices. North American crude oil prices are determined by international market forces and are most directly related to the West Texas Intermediate (WTI) crude oil price at Cushing, which is the

underlying physical commodity market for light crude oil contracts for the New York Mercantile Exchange. The increase in North American oil supply and the resulting transportation bottleneck at Cushing have created a divergence between the WTI price of crude oil and the Brent price of crude oil. As such, the North American oil market is currently being priced differently from the rest of the world.

The emissions outlook’s WM scenario is anchored by the world oil price assumptions developed by the CER. According to the CER, the world crude oil price for WTI is projected to rise from about US$38 per barrel of oil (bbl) in 2020 to about US$67/bbl in 2035. Higher and lower price scenarios are used for the sensitivity analysis in Annex 5 of this report.

Figure 5A-19 shows prices for light crude oil (WTI) and heavy crude oil (WCS). Historically the price of heavy oil (Alberta Heavy) has followed the light crude oil price (WTI) at a discount of 25% to 35%. However, in 2008 and 2009 the differentials between the prices of light and heavy crude oils (“bitumen/light-medium differential”) narrowed significantly owing to a global shortage of heavier crude oil supply. This differential peaked in 2018, which led to Alberta’s Provincial government curtailing oil production to reduce the pricing discount of heavy crude oil. The substantial decrease in light and heavy crude oil prices in 2020 was a result of the COVID-19 pandemic and the Saudi-Russia oil price war which severely impacted energy markets. Finally, the price spike in 2022 is a result of international sanctions against Russia and the subsequent lost supply of fossil fuel exports to the global market.

The CER expects the bitumen/light-medium differential to remain constant between US$11 and US$12 throughout the projection period. Take-away capacity in Western Canada is expected to increase from historical levels due to the completion of Enbridge’s Line 3 Replacement in 2021, and the expected completion of the Trans Mountain Expansion project in the end of 2023.

As shown in Figure 5A-20, the Henry Hub price for natural gas decreases significantly from 2005 to 2020, to US$1.83 per million British thermal units (MMBtu). Natural gas prices consistently decrease over the historical period due to increased supply of natural gas, driven by decreasing costs of production, especially from unconventional extraction methods. The conflict in Ukraine and resulting international sanctions against Russian supply of fossil fuels cause the price for natural gas to peak in 2022 at US$6.44/MMBtu. Eventually, supply and demand begin to re-balance, and prices decrease reaching $3.36 per MMBtu by 2035.

A3.5. Energy Supply

A3.5.1. Oil and Gas

CER projections illustrate that growth in both conventional natural gas and conventional oil production will be outstripped by unconventional extraction methods, as a result of declining supply of conventional resources and recent improvements to unconventional extraction methods and technology. As such, it is expected that from 2020 to 2030 oil sands in situ production will increase by about 32% and oil sands mining production will increase by 10% in the WM scenario (see Table 5A-44).

There are two main products from oil sands production: synthetic crude oil (or upgraded bitumen) and non-upgraded bitumen, which is sold as heavy oil. Table 5A-45 illustrates historical and projected oil sands disposition. Synthetic crude oil production is projected to slowly increase from about 1.16 million barrels per day (bbl p/d) in 2020 to about 1.31 million bbl p/d by 2030 in the WM scenario. Non-upgraded bitumen will increase from 1.69 million bbl p/d in 2020 to 2.16 million bbl p/d by 2030 in the WM scenario. and then to 2.28 million bbl p/d by 2035. This non-upgraded bitumen is either sold as heavy oil to Canadian refineries or transported to U.S. refineries for upgrading to refined petroleum products.

Projections in the WM scenario show gross natural gas production will increase from 6.97 trillion cubic feet (Tcf) in 2020 to 8.69 Tcf in 2030. Growth in natural gas production is expected from primarily non-conventional sources such as shale gas and coal-bed methane that come to market and offset the continued decline in conventional gas production. Increased Henry Hub natural gas prices from 2022 to 2024 drives investment and development in the natural gas sector in the early portion of the projection period. Natural gas production growth continues through the projection period, in part from a growing Liquefied Natural Gas (LNG) sector in Canada and the United States. This results in incremental drilling and production of natural gas to serve as feedstock for an expanding LNG sector.

A3.5.2. Electricity

Electricity is generated to meet demand from many other sectors of the economy; for example, space heating in the Buildings Sector or charging electric vehicles in the Transportation Sector.

This demand for electricity changes for each sector depending on relative fuel and electricity prices, technology choices, energy efficiency changes, policy impacts, and economic driver growth. The supply of electricity grows to meet the evolving demand. The source of electricity supply depends on the historical state of each province and territory's supply mix as well as scheduled refurbishments and retirements, planned and modelled additions to capacity, growing industrial generation and interprovincial and international flows. Government actions further constrain supply choices in the projections, such as the expected retirement of coal units due to the amendments to the federal coal-fired electricity regulations, and renewable portfolio standards in provinces such as Nova Scotia and New Brunswick.

Electricity required is projected to grow 30% from 2005 to 2030 and a further 14% by 2035 in the WM scenario, as economic growth and electrification outpace energy efficiency improvements. However, utility generation is only projected to grow 26% from 2005 to 2030 and a further 14% by 2035. The difference can be explained by the growth in industrial generation, which outpaces that of utility generation with 55% growth from 2005 to 2030, with an additional 5% by 2035. Excess industrial electricity generation is often sold to the utility grid to help meet end-use demand. Over the period, exports of electricity to the US tend to increase, while imports stay relatively flat.

Electricity generation in Canada is dominated by hydro. In 2020 in the WM scenario, it represents 61% of utility generation and 42% of industrial generation. The remaining utility generation is comprised of nuclear (16%), fossil fuels (15%) and some other renewables (8%), whereas the remaining industrial generation is comprised of fossil fuels (45%) and other renewables (12%). In the projections, the fastest source of growth is from other renewables such as wind and solar. Hydropower continues to grow, but at a slower rate, while nuclear generation decreases due in large part to the refurbishments and closures of nuclear plants in Ontario. Regarding fossil fuels, coal generation is phased out by 2030 while natural gas generation grows to help the transition away from coal and to balance the growing intermittent renewables.

In the WAM scenario, the Clean Electricity Regulations lead to a significant reduction in fossil fuel use for utility electricity generation. Natural gas utility generation still increases in the short-term but is significantly lower in 2035 compared to the WM scenario (55 TWh lower). This difference is made up by higher generation from other renewables (62 TWh) and nuclear (19 TWh), which could allow higher electricity exports to the U.S. Moreover, in the WAM scenario, industrial generation from other renewables increases in the projections to produce hydrogen for industry.

A3.7. Federal, Provincial and Territorial Measures

Many federal, provincial, and municipal policies and measures currently exist in Canada that are aiming to reduce GHG emissions or energy consumption. Some of these have been fully implemented (e.g., methane regulations that have received royal assent), while others are still in the development or planning stages. Environment and Climate Change Canada applies a set of criteria for a policy to be included in the WM scenario. These criteria include:

• The policy has the necessary legislative and financial support
• The measure is expected to produce meaningful reductions (at least 100 kt CO2 eq)
• There is sufficient quantifiable information available to estimate the impact of the policy/measure
• The measure is incremental to other policies/measures already included in the model

The With Measures (WM) scenario does not consider the impact of broader strategies or future measures within existing plans where significant details are still under development.

Announced policies that have not satisfied the criteria for the WM scenario could still be included in the With Additional Measures (WAM) scenario, if expected reductions are meaningful and there is sufficient information available to model it. ECCC engages with provinces and territories in extensive consultations to ensure their initiatives are accounted for in the analysis and modelling of emissions projections.

Table 5A-49 identifies the major federal, provincial, and territorial measures that are included in the WM and WAM scenarios. This includes measures that have been implemented or announced in detail as of September 2019. Where program funding is set to end, the projections assume that the impacts of these programs, other than those embodied in consumer behaviour, cease when the approved funding terminates.

^a A number of provinces are currently working with the Government of Canada on Equivalency agreements in lieu of the amended coal-fired electricity regulations.

^b Indicates policies that were added and/or modified for the 2022 WM case.

^c Expected net purchases of credits by Quebec under the WCI are not included.

Canadian provinces and territories have committed to taking action on climate change through various programs and regulations. In the WM scenario, provincial and territorial targets are not modelled. Instead, individual policies that are brought forward as methods to attain the provincial targets may be included in the modelling if they meet the criteria discussed above. Table 5A-50 lists the emissions reductions targets announced by each province or territory.

Table 5A-52 provides a list of detailed assumptions for some of the key measures underlying the WAM scenario. This list is not intended to be comprehensive of all the measures included in the scenario.

Item iii - The EC-Pro model that projected that “carbon pollution pricing will contribute as much as one-third of Canada’s emission reductions”

This information is available in Annex 1 – ECPRO model documentation.

Conservative Party of Canada Motion Adopted on March 21, 2024, and ECCC’s Response (Tab #12)

Mr. Dan Mazier:

Mr. Chair, I'd like to move the motion that I gave notice of on Friday.

Conservatives are demanding that the Liberal government release their carbon tax analysis. It's unfair to force Canadians to pay a carbon tax without revealing direct results.

Thank you.

Environment and Climate Change Canada’s Response to ENVI Motion of April 9, 2024

On Tuesday, April 9, 2024, the Committee adopted the following motion:

That the committee order the production of the model and data from ECCC that demonstrates that the “carbon pollution pricing will contribute as much as one-third of Canada's emissions reductions” including all 1), parameters, 2) assumptions, 3) variables, 4) economic modelling, and 5) emission reduction modelling; and that these documents be provided to the committee within two weeks of the adoption of this motion.

Methodology to Model the Effects of Carbon Pricing

The statement that “carbon pollution pricing will contribute as much as one-third of Canada's emissions reductions” is supported by a complex statistical process involving several steps:

• Step 1: Preparation of a scenario that includes legislated federal, provincial, and territorial emission reduction policies.
• Step 2: Preparation of a scenario that excludes carbon pricing.
• Step 3: Estimation of the contribution of carbon pricing to emissions reductions.

Step 1: Preparation of a scenario that includes legislated federal, provincial, and territorial policies

To quantify emissions in the absence of carbon pricing between now and 2030, the initial starting point is the reference case with current measures, reported in the 8^th National Communication Report and 5^th Biennial report (BR5), submitted to the United Nations Framework Convention on Climate Change (UNFCCC) on December 31, 2022.

The statistical technique used to represent carbon pricing in the reference case is as follows:

• In the calibration of the model, the carbon price prevailing in the relevant years is explicitly added. This means that the Output-Based Pricing System (OBPS) stringency and fuel levy coverage, as well as the provincial carbon pricing regimes are also explicitly introduced into the model’s equations. By doing this, the model establishes a statistical relationship between the prevailing carbon pricing and fuel use and related emissions by sector by province by year.

Table 1 provides the greenhouse gas (GHG) emissions projections – excluding Land-use, Land-use Change and Forestry (LULUCF) – in a scenario that reflects currently legislated measures. Under this reference scenario, Canadian GHG emissions are projected to decrease from 674 Mt in 2020 to 641 Mt in 2030^{Note de bas de page 1} .

Step 2: Preparation of a scenario that excludes carbon pricing

The statistical technique to isolate the carbon pricing contribution is to run a “counterfactual” scenario where the carbon price in the OBPS and the fuel charge is set to zero.

Under this second scenario, Canadian GHG emissions are projected to increase from 691 Mt in 2020 to 720 Mt in 2030. It should be noted that in this scenario, all carbon pricing policies are excluded, including those in Alberta, British Columbia and Quebec, which do not fall under the federal backstop.

Step 3: Estimation of Carbon Pricing contribution to emissions reductions.

The final step is to estimate the contribution of carbon pricing to emissions reductions. This can be measured by subtracting the “counterfactual” scenario without carbon pricing from the reference scenario with carbon pricing. As illustrated in Table 3, in 2030, carbon pricing is estimated to result in 78 Mt of emissions reductions.

Carbon pricing will contribute as much as one-third of Canada's emissions reductions

According to BR5, the projected reduction in GHG emissions, excluding LULUCF, between 2005 and 2030 is 219 Mt for the “additional measures” scenario. The reduction in GHG emissions including LULUCF is 250 Mt. Dividing 78 Mt (reductions attributed to carbon pricing) by 219 to 250 Mt gives a range of about 31% to 36%. This is the basis for the assertion that carbon pollution pricing will contribute about one-third of Canada's emissions reductions.

Background on ECCC’s Response to March 21 Motion

On March 21, 2024, the Committee adopted the following motion:

The committee order the production of “Environment and Climate Change Canada’s provincial-territorial computable general equilibrium model – EC-Pro” including (i) the “statistical technique to isolate the carbon pricing contribution”, (ii) a list of all “Ref” parameters including the ‘Ref22” and “Ref22A” parameters used in EC-Pro, (iii) the EC-Pro model that projected that “carbon pollution pricing will contribute as much as one-third of Canada’s emission reductions” including all (i) parameters, (ii) economic modelling, and (iii) assumptions; and that these documents be provided to the committee within one week of the adoption of the motion.

In response to the motion, ECCC provided to the Committee documents that included the model used by the department, which estimated the expected emissions reductions attributable to carbon pollution pricing. These documents attempted to provide a straightforward response to the motion, given the complex nature of the subject matter. As the EC-Pro model is updated on a continual basis to reflect the latest scientific consensus, the model documentation was in draft form due to its evergreen status.

The documents consisted of two sections:

1. An overview of the statistical techniques and steps ECCC used to isolate the impact of carbon pricing and to arrive at the statement that “carbon pollution pricing will contribute to as much as one-third of Canada’s emission reductions.”
2. All the requested modelling assumptions and parameters used in EC-Pro, as well as an annex document intended to best represent the model.

Regarding the EC-Pro Model

The EC-Pro model is a complex provincial-territorial computable general equilibrium model (CGE). Since 2008, it has supported numerous ECCC policy initiatives and has been the main model used for carbon pricing analysis. The model consists of the programming code, software operating language, and a unique data set that includes information protected under the Statistics Canada Act. It contains over 4,000 equations, roughly 280,000 variables, and generates hundreds of thousands of data points for each year.

CGE models are used by several Canadian federal departments, including Global Affairs Canada to analyze the impact of trade policies, and Finance Canada and the Bank of Canada to assess economic and monetary policies.

CGE models are also used by Canadian consulting firms, such as Navius Consulting, which recently completed an analysis for the Canadian Climate Institute that confirms that carbon pricing is the largest share of incremental emissions reductions from climate policies in 2025-2030 (see Annex 1).

April 11, 2024 motion

Branden Leslie moved, — Given that:

1. On Thursday, November 9, 2023, Derek Hermanutz, Director General, Economic Analysis Directorate, for Environment and Climate Change Canada, stated at committee: “I think we’re probably in a world where we could say with some rough analysis that up to one-third, potentially, of the emission reductions that we’re projecting to 2030 would come from carbon pricing”
2. On Monday, April 8, 2024, Environment and Climate Change Canada provided the committee with an 18-page document titled ‘Environment Canada’s Provincial CGE (ECPRO) Model’, in response to a document production order
3. On Tuesday, April 9, 2024, the committee ordered ‘the production of the model and data from Environment and Climate Change Canada that demonstrate that “carbon pollution pricing will contribute as much as one-third of Canada’s emission reductions including all (i) parameters, (ii) assumptions, and (iii) variables, (iv) economic modelling, (v) and emissions reduction modelling”

Pursuant to Standing Order 108(1)(a) the committee requests Environment Minister Steven Guilbeault and officials from Environment and Climate Change Canada to testify on the Liberal government’s carbon pricing emission model(s), analyses, and economic modelling for no less than two hours by Friday, May 24, 2024.

Not available

Which Canadian climate policies will have the biggest impact by 2030?

Inquiry of ministry

Question no: Q-2459
By: Mrs. Block (Carlton Trail-Eagle Creek)
Date: March 19, 2024

Reply by the Minister of Environment and Climate Change

Print name of signatory: The Honourable Steven Guilbeault

Question

With regard to costs related to the government's output-based pricing system (OBPS) for industrial facilities: (a) what have been the costs to implement and administer the OBPS broken down by year since 2018; (b) what have been the costs related to OBPS compliance verification; (c) how many employees or full-time equivalents are currently assigned to positions related to the OBPS; and (d) how many employees or full-time equivalents are assigned to OBPS compliance verification?    

Reply        

The federal OBPS is designed to put a price on carbon pollution from industry while mitigating risks of carbon leakage and adverse competitiveness impacts. The design of the federal Output-Based Pricing System was informed by Alberta’s Output-Based Pricing System. The federal Output-Based Pricing System Regulations (OBPS Regulations), which establish the federal OBPS, were published in the Canada Gazette Part II on July 10, 2019. Information on the administration of the federal OBPS is published in the Greenhouse Gas Pollution Pricing Act Annual Report.

Under the Pan-Canadian Approach to Pricing Carbon Pollution, provinces and territories have the flexibility to implement their own carbon pricing system. The federal OBPS Regulations apply in provinces and territories that request the federal system or that do not put in place a carbon pricing system that meets national minimum stringency standards, which are set out in the federal benchmark. It is designed as a backstop - to be national in scope and applicability, but in effect in those jurisdictions that request or that do not implement a carbon pollution pricing system for industry that meets the federal benchmark requirements.

The federal OBPS first applied in 2019 in Manitoba, Ontario, New Brunswick, Prince Edward Island, Nunavut, Yukon, and partially in Saskatchewan. The federal government transitioned to the provincial pricing system for industry in New Brunswick (as of January 1, 2021), the provincial pricing system for industry in Ontario (as January 1, 2022), and the provincial pricing system for industry in Saskatchewan (as of January 1, 2023).

The federal OBPS is a market-based instrument that enables emissions trading. It sets emissions-intensity standards, known as output-based standards, for a wide range of industrial activities on an emissions per-unit of output basis. To ensure the OBPS Regulations are able to apply in any jurisdiction in Canada, output-based standards are developed for industries across Canada and currently includes over 70 output-based standards (OBS) that apply to more than 44 industrial and manufacturing activities.

Each facility covered by the OBPS Regulations (covered facility) calculates an annual emissions limit based on its level of production and the relevant output-based standard(s). Facilities that emit less than their annual limit earn surplus credits that they can sell, transfer, or hold for future use. Facilities with emissions above their annual limit must provide compensation by a prescribed deadline for each tonne of GHG emissions above their limit, by using one or a combination of the following options:

• paying the carbon pollution price to the government via an excess emissions charge
• remitting compliance units that may either be surplus credits, federal offset credits or recognized units (offsets from recognized provincial offset programs and protocols)

The OBPS is mandatory for facilities in backstop jurisdictions that are primarily engaged in the industrial activities listed in Schedule 1 to the OBPS Regulations and that emit 50 kilotonnes (kt) or more of CO2e per year. Persons responsible for facilities located in a backstop jurisdiction that do not meet the criteria outlined in the OBPS Regulations may apply to have the facility designated as a covered facility under the OBPS Regulations (that is “opt-in”).

Persons responsible for covered facilities are required to submit an annual report for each compliance period. Annual reports must be verified by an independent third-party verifier and accompanied by a verification report. If a person responsible for a covered facility becomes aware of an error or omission within five years after submitting an annual report, they must notify the Minister. In some cases, they must submit a corrected report, accompanied by  a verification report. The Minister also has the discretionary authority to request a corrected report with or without a verification report within five years after the submission of an annual report if he is of the opinion that there is an error or omission.

a) What have been the costs to implement and administer the OBPS broken down by year since 2018?

Key activities carried out to implement and administer the OBPS Regulations include:

• Implementation of the secure systems for registration, reporting and credit trading under the OBPS
• Regulatory administration, including managing and responding to several hundred enquiries annually, processing registration applications for mandatory and voluntary facilities, issuing surplus credits, processing excess emissions charge payments, and other administrative processes under the regulations
• Regulatory compliance and verification, including technical reviews of annual facility and verification reports. To date, ECCC has received over 700 annual and verification reports
• Enforcement activities including administrative (off site inspection) and on-site inspections. (Note that the integrated nature of enforcement actions undertaken by enforcement officers, such as verifying compliance with multiple instruments during an inspection, and the varying costs required of these actions mean that it is not possible to determine an exact number of full-time equivalents assigned to verifying compliance of the OBPSR)

The resources outlined below include expenditures related to salary for staff primarily dedicated to the implementation and administration of the OBPS Regulations, including the activities listed above, and related operations, maintenance and capital expenditures.                                                                                       

b) What have been the costs related to OBPS compliance verification?

As outlined in the response to 1a), key to the implementation of the OBPS Regulations is regulatory compliance and verification, including technical reviews of annual facility and verification reports. To date, ECCC has received over 700 annual and verification reports.

The resources outlined below include costs related to salary for staff dedicated to compliance verification activities for the federal OBPS Regulations and related operations, maintenance and capital expenditures.

c) How many employees or full-time equivalents are currently assigned to positions related to the OBPS?

Twenty-six employees are primarily dedicated to the administration and implementation of the OBPS Regulations.

d) How many employees or full-time equivalents are assigned to OBPS compliance verification?

Ten employees are primarily dedicated to compliance and verification activities for the OBPS Regulations.

UN conference on climate change: COP28

Q1. What were Canada’s goals for COP28 and were they achieved?

• COP28 marked a critical moment in global climate discussions. Countries assessed collective progress made since the adoption of the Paris Agreement to inform the actions needed to keep global warming within 1.5C
• Canada used COP28 to advocate for ambitious global climate action on mitigation, adaptation, and finance and to advance biodiversity and pollution reduction goals
• The results were positive and strong. Canada and nearly 200 other countries reached a historic agreement on the Global Stocktake decision. This provides a clear path, agreed to by all countries, to achieve the Paris Agreement’s long-term goals

Follow-up

• Many elements of the Global Stocktake decision speak directly to Canada’s priorities and interests. There was, for the first time, a commitment by all countries to transition away from fossil fuels in energy systems. It detailed a series of global efforts to accelerate the energy transition, such as tripling renewable energy capacity and doubling the average annual rate of energy efficiency improvements by 2030
• The Global Stocktake decision also encourages all countries to come forward with ambitious nationally determined contributions to reducing carbon emissions that are aligned with limiting global warming to 1.5 °C.  These contributions are essential to mitigate the worst consequences of climate change for Canadians and people around the globe
• Canada also used the conference to showcase Canadian climate leadership and innovation from actors across the country, with events at the Canada Pavilion organized by provinces, civil society, and Indigenous organizations

Q2. How big is the delegation? How much has the Government spent on COP28? How can you justify the cost of Canada’s participation?

• Over the past several years, UNFCCC COPs have evolved to become large multi-faceted events, bringing together state and non-state participants to drive momentum and catalyze climate action
• The Government of Canada is committed to taking a whole-of-government, whole-of-society approach to climate action. The Canadian delegation reflects the need to participate in expanding negotiations and provide programming to ensure inclusive representation of relevant provincial and territorial governments, civil society, Indigenous and private sector partners, and stakeholders
• Accreditation as part of Canada’s delegation was necessary for participants to access meeting and event sites. At COP28, 633 in-person participants were accredited and attended as part of the Canadian delegation. This included:
  • 114 representatives from the federal government
  • 7 representatives of the House of Commons, Senate, and their support
  • 77 from provincial governments
  • 12 from municipal governments and groups
  • 53 from Indigenous organizations
  • 43 from civil society organizations
  • 28 from academia
  • 17 from youth groups
  • 9 from labour organizations and unions
  • 8 from international organizations
  • 254 from the private sector
  • And 5 additional participants participated virtually
• With respect to travel, the federal government covered is covering the costs of for 114 federal employees (including 44 from ECCC), two Ministers and seven exempt staff, four Indigenous Representatives, six youth delegates, six civil society representatives, six Parliamentarians, one Net-Zero Advisory Body Member, five non-public servant Canada pavilion support staff, and 22 Canada pavilion participants belonging to underrepresented groups
• Nine additional National Indigenous Organizations representatives receive funding for their participation at COP28 pursuant to their funding agreement with the Government of Canada on clean growth and climate change. Delegates other than those outlined above were responsible for their own travel expenses
• The Government of Canada has incurred $1,353,307.092,954,188.52 in costs to date for the Canadian delegation and a Canada pavilion at the 28th Conference of the Parties (COP28) in Dubai. The costs incurred do not reflect the final costs. There are still invoices and claims as well as recoveries between departments that have yet to be processed
• National pavilions are high-visibility spaces that provide countries and organizations a unique opportunity to showcase their climate efforts, host events, and offer a central networking hub for key partners and stakeholders
• The national pavilion at COP28 showcased Canada’s whole-of-society approach and the commitments and efforts of all partners and stakeholders including Indigenous Peoples, all levels of government, civil society organizations, youth, labour, and underrepresented groups. Over the course of COP28, Canada hosted 74 events at the pavilion and approximately 6,000 visitors

Q.3 How is the government offsetting the carbon footprint resulting from the Canadian delegation's travel to and from the conference?

• Air travel-related greenhouse gas (GHG) data is available on a departmental basis and is published online.
• Air travel GHG data is generated through the centralized travel booking service and includes departmental public servant travel, which represents most of the travel. This does not include Ministerial travel as it is not booked through the centralized system. This does not include disaggregated data by passenger
• Environment and Climate Change Canada purchases carbon offset credits in bulk, not by travel to a specific conference or event, to help mitigate the greenhouse gas emissions associated with Ministerial air travel
• Departments and agencies that generate greenhouse gas (GHG) emissions in excess of 1 kilotonne per year from air travel are required to contribute annually to the Greening Government Fund (GGF) and have been charged a TBS-set fee based on the average total annual air-travel emissions of that organization over the previous three years

Supplemental ENVI Q&As related to COP28 expenses

1. What are ECCC Delegation numbers for COP27 and COP28?

Total ECCC delegates for both COP28 and COP27 were 44 officials (this excludes the Minister and his staff).

2. What are the pavilion details of visitors and activities for COP27 and COP28?

Canada’s pavilions at COP27 and COP28 served as a space for networking, where officials, partners, stakeholders, and delegates from around the world could interact and learn more about Canadian climate initiatives and where departments, subnational governments, Indigenous Peoples, and stakeholders hosted over 70 events profiling climate change initiatives, highlighting diverse and inclusive perspectives.

The COP27 and COP28 Canada Pavilions were similar in terms of visitors and activities. The Canada Pavilion at COP27 hosted 86 events and approximately 6,000 visitors, including close to 2500 people who specifically attended the events.

Based on lessons learned from COP27, the Canada pavilion at COP28 provided additional time between events, hosting 74 events overall. The pavilion drew in approximately 6,000 visitors, including close to 2300 who specifically attended events.

3. How many delegates from other government departments attended COP27 and COP28?

COP27 had a total of 50 delegates attend from OGDs. COP28 had a total of 70 delegates attend from OGDs. These numbers include COP attendees, negotiators, and pavilion participants.

4. How many Other stakeholders and jurisdictions attended COP28? (Does the 633 mentioned include all of them?) How many at COP 27?

COP 28 included 633 in-person participants (Pavilion support, ENGOs, youth, labour, Parliamentarians, NIORs, PTs and pavilion participants). 5 virtual participants were counted separately as they did not incur costs, which brings the total delegation to 638.

COP 27 included 419 in-person participants, also encompassing Pavilion support, ENGOs, youth, labour, Parliamentarians, NIORs, PTs and pavilion participants.

Inquiry of ministry

Question no: Q-2481
By: Mr. Mazier (Dauphin-Swan River-Neepawa)
Date: March 20, 2024

Reply by the Minister of Environment and Climate Change

Print name of signatory: The Honourable Steven Guilbeault

Question

With regard to the government's participation in the UN Climate Change Conference, the 28th Conference of the Parties (COP28) in Dubai: (a) what are the total expenditures incurred by the government to date related to the conference, broken down by type of expense; (b) what was the total number of delegates that the Government of Canada paid for, including the (i) official title and department or organization of each individual, (ii) total expenditures incurred for each entity in (b)(i), broken down by type of expense; (c) for the delegations accommodations in Dubai, (i) what hotels were used, (ii) how much was spent at each hotel, (iii) how many rooms were rented at each hotel and for how many nights, (iv) what were the room rates paid at each hotel and the number of rooms rented at each rate, (v) who stayed at each of the rooms in (c)(iv) broken down by room rate; (d) what were the details of the Minister of Environment and Climate Change’s accommodation expenditures, including the (i) daily rate, (ii) accommodation venue; (e) what are the details of the total hospitality expenditures broken down by (i) date, (ii) amount, (iii) location, (iv) name of any commercial establishment or vendor involved in the hospitality activity, (v) number of attendees, (vi) description of event, (vii) description of goods and services; (f) what are the details of all ground transportation expenditures, including, for each, the (i) date, (ii) amount, (iii) vendor, (iv) origin, (v) destination, (vi) make and model of each vehicle used, (vii) type of vehicle (gas, electric, hybrid), (viii) whether a chauffeur or driver was included, (ix) names and titles of passengers or individuals who incurred the expense; and (g) what are the details of all expenditures on gifts related to the conference, including, for each, the (i) value, (ii) description, (iii) vendor from whom it was purchased, (iv) who was the recipient?

Reply

a) What are the total expenditures incurred by the government to date related to the conference, broken down by type of expense?

*The figures do not reflect final costs. There are still invoices and claims that have yet to be processed.

b) What was the total number of delegates that the Government of Canada paid for?

182

(i) The official title and department or organization of each individual

The list of Canadian delegates to the 28th Conference of the Parties (COP28) to the United Nations Framework Convention on Climate Change, including their titles, can be found at the following web page: UN conference on climate change: COP28 in United Arab Emirates.  

(ii) Total expenditures incurred for each entity in (b)(i)

¹Negative amounts presented under ''Other travel expenses'' are the costs covered by the travellers and not reimbursed by the department.

²In cases where cost is $0, accommodations have been paid centrally by ECCC.

*Total costs are not final as some individuals have not yet submitted their travel claims. In addition, a manual log was created by the Travel Center of Expertise, based on the travel claims processed, to have expenses by type. This manual log has not been fully reconcilied yet.

c) For the delegations accommodations in Dubai

d) What were the details of the Minister of Environment and Climate Change’s accommodation expenditures?

e) What are the details of the total hospitality expenditure?

f) What are the details of all ground transportation expenditures?

The information requested is not systematically tracked in a centralized database. ECCC concluded that producing and validating a comprehensive response to this question would require a manual collection of information that is not possible in the time allotted and could lead to the disclosure of incomplete and misleading information

g) What are the details of all expenditures on gifts related to the conference?

Standing Committee on Environment and Sustainable Development

January 2024

Francis Scarpaleggia (Chair)

Dan Mazier – Vice-Chair

Monique Pauzé – Vice-Chair

Adam Van Koverden – Parliamentary Secretary to the Minister of Environment and Climate Change

Lloyd Longfield

Leah Taylor Roy

Sophie Chatel

Shafqat Ali

Gérard Deltell

Michael Kram

Branden Leslie

Laurel Collins

Response from StatCan (approved by Chief Statistician)

Statistics Canada's commitment to keeping the confidentiality of the information obtained from Canadians is enshrined in the Statistics Act (the Act) sections 17 and 18. Information collected under the Act and produced in a manner where it is possible to relate the information obtained to any identifiable individual person, business or organization may only be disclosed as permitted by that Act. Information protected by section 17 is exempted from disclosure under the federal Access to Information Act and is considered privileged under section 18 of the Act, which prohibits the use of that information as evidence in any proceedings.

Environment and Climate Change Canada (ECCC) has entered into an Agreement with Statistics Canada for the sharing and disclosure of information under the Act. As is always the case, ECCC is only allowed to disclose already published data with other parties as obligated by the confidentiality provisions of the Act, as stated in the Agreement to not disclose the information. Any special requests beyond the already published data need to be sent directly to Statistics Canada who will look into any request from Parliament.