Pan-Canadian Framework on Clean Growth and Climate Change second annual report: section 3

In October 2016, the Prime Minister announced that the Pan-Canadian Approach to Pricing Carbon Pollution (the federal “benchmark”), would be flexible and would recognize that provinces and territories have implemented or are developing their own carbon pollution pricing systems. The federal benchmark outlined the criteria all systems must meet. The Government of Canada also committed to implementing a federal carbon pollution pricing system in provinces and territories that request it or do not have a carbon pollution pricing system that meets the federal benchmark.^{Footnote 3}  The benchmark is to ensure that carbon pollution pricing applies to a common and broad set of emission sources in all jurisdictions in Canada, either through provincial/territorial systems adapted to their specific circumstances or through application of the federal carbon pollution pricing system.

Federal carbon pollution pricing system

Pursuant to the Greenhouse Gas Pollution Pricing Act, which received Royal Assent on June 21, 2018, the federal carbon pollution pricing system has two components: a regulatory charge on fuel (fuel charge) and a regulatory trading system for large industry—the Output-Based Pricing System (OBPS). Provinces and territories were asked to clarify their carbon pricing plans by September 1, 2018, and the stringency of each system was assessed against the federal benchmark. Based on this assessment, on October 23, 2018 the Government of Canada confirmed that:

• The federal OBPS for large industry will apply, starting in January 2019, in Ontario, Manitoba, New Brunswick, Prince Edward Island, and partially in Saskatchewan;
• The federal fuel charge will apply, starting in April 2019, in Saskatchewan, Ontario, Manitoba, and New Brunswick; and
• The federal fuel charge and OBPS will start applying in Yukon and Nunavut on July 1, This timing is one of several solutions to address the unique circumstances of the territories; others include full relief on aviation fuel used in the territories and diesel-fired electricity generation in remote communities.

All direct proceeds from pricing carbon pollution under the federal system will be returned to the jurisdiction in which they were collected. Further details are available at Pricing pollution: how it will work.

Provincial and territorial carbon pollution pricing systems

While there are differences with respect to the implementation of a carbon pollution price, every jurisdiction in Canada has indicated that it remains committed to battling the effects of climate change and achieving real reductions in GHG-emissions.

In 2018, jurisdictions with existing carbon pollution pricing systems continued to refine their respective approaches. For example, British Columbia increased its carbon tax from $30 per tonne to $35 per tonne. The tax will continue to increase by $5 per tonne per year until it reaches $50 per tonne. Québec continued to implement its cap-and-trade system with California, including announcing rules to allow companies to participate in the cap-and- trade system on a voluntary basis starting in 2019, and setting emissions caps for 2021 to 2030. On January 1, 2018, Alberta increased its carbon levy on heating and transportation fuels to $30 per tonne and also implemented its updated approach to carbon pricing on large industrial emitters through the Carbon Competitiveness Incentive Regulation and the associated Emission Offset System.

Other provinces and territories developed new carbon pollution pricing systems or opted for the federal system. The Government of Nova Scotia passed its cap-and-trade legislation, published associated regulations and announced details of their program in October 2018. The Government of Newfoundland and Labrador announced it would implement its own carbon tax on combustible fossil fuels and a separate performance standards system for large industry, and introduced legislation into its House of Assembly to enable this. The Northwest Territories Government also announced its intention to introduce a carbon tax starting at $20 per tonne beginning on July 1, 2019, rising to $50 per tonne in 2022. The Government of Saskatchewan passed enabling legislation and established regulations for its Output Based Performance System to regulate emissions intensity from larger industrial emitters in December 2018.

Other jurisdictions have confirmed their intent to have the federal system apply, in full or in part. For example, Prince Edward Island requested the federal OBPS for large industry, in conjunction with the province’s planned carbon charge on fossil fuels. As noted, Nunavut and Yukon also opted for the federal system, which will start applying on July 1, 2019, to ensure alignment across the territories. Other solutions to address the unique challenges facing the territories include full relief on aviation fuel used in the territories and on diesel-fired electricity generation in remote communities.

On July 3, 2018, the Government of Ontario revoked its cap-and-trade regulation and prohibited all trading in allowances. On July 25, 2018, Ontario introduced The Cap & Trade Cancellation Act, 2018, to provide a framework for the wind down of the cap-and-trade program, including the Compensation framework. It was adopted on October 31, 2018. The legislation requires that the government prepare and publish a climate change plan and to set targets for reducing the amount of greenhouse gas emissions in the province. On November 29, 2018, Ontario released “Preserving and Protecting our Environment for Future Generations: A Made-in-Ontario Environment Plan,” which encompasses the province’s new climate change plan. The plan adopts Canada’s Paris Agreement emissions reduction target of 30% below 2005 emissions levels by 2030 for the province. Ontario’s new plan will establish emission performance standards and a compliance regime to achieve greenhouse gas emissions reductions from large emitters. The program may include compliance flexibility mechanisms such as offset credits and/or payment of an amount to achieve compliance.

Further details on specific actions by individual jurisdictions are included in the Annex.

Other federal, provincial, and territorial carbon pollution pricing-related initiatives

Federal, provincial, and territorial governments will complete an assessment of approaches and best practices to address competitiveness and carbon leakage risks for emissions-intensive trade-exposed (EITE) sectors in the context of pricing carbon pollution. This is a PCF commitment and early deliverable to help inform the review of carbon pricing across Canada in 2022 and the interim report in 2020, and the assessment is expected to be completed in the coming weeks.

Also, as part of ongoing collaborative work through the Canadian Council of Ministers of the Environment (CCME), federal, provincial, and territorial governments committed to work together to examine options for a pan-Canadian GHG offsets framework. In 2018, CCME continued this work to support governments in the development and implementation of their offset programs by examining specific elements of offset program design and encouraging opportunities for shared infrastructure, with a view to enabling greater alignment and transferability of offsets across Canada. CCME developed guidance and recommendations for consideration by jurisdictions in developing offset programs, or refining their existing programs.