Output-Based Pricing System

Information on Canada’s carbon pollution pricing system for industry.


Overview

Under the Greenhouse Gas Pollution Pricing Act (GGPPA), the federal carbon pollution pricing system has two parts:

  • a regulatory charge on fuel (federal fuel charge)
  • a regulatory trading system for industry – the federal Output-Based Pricing System (OBPS)

The federal OBPS is designed to ensure there is a price incentive for industrial emitters to reduce their greenhouse gas (GHG) emissions and spur innovation while maintaining competitiveness and protecting against carbon leakage.

The federal OBPS applies to facilities that:

  • are located in a backstop jurisdiction (a province or territory in which the federal carbon pollution pricing system applies), as indicated in Part 2 of Schedule 1 to the Greenhouse Gas Pollution Pricing Act
  • have reported 50 kt of CO2e or more in 2014 or a subsequent year to the Greenhouse Gas Reporting Program (GHGRP) and
  • carry out a covered activity that is listed under Schedule 1 of the OBPS regulations

Additional facilities may apply to voluntarily participate in the federal OBPS.

Regulations

The OBPS regulations  released were on June 28, 2019. The Department also published a Notice of Intent on December 20, 2018, that allows the OBPS regulations to take effect on January 1, 2019, except in Yukon and Nunavut where they take effect on July 1, 2019, prior to the final publication of the regulations.

Output-Based Pricing System Regulations and Regulatory Impact Analysis Statement

Registration

A person responsible for a covered facility must apply for registration of that facility in the OBPS. A facility that is in a backstop jurisdiction and meets the criteria set out in section 8 of the OBPS regulations is a covered facility. Applications should be made within 30 days of meeting those criteria. Learn about federal OBPS registration requirements or apply to register.

Covered facilities in jurisdictions where the federal fuel charge will also apply can seek “registered emitter” status with the Canada Revenue Agency (CRA). Fuel delivered to a registered emitter will not be subject to the fuel charge if the registered emitter provides an exemption certificate to its supplier and declares that the fuel will be for use in its covered facility.

Voluntary participation

There are two parts to the Policy Regarding Voluntary Participation in the Output-Based Pricing System. Under the first part, any facility whose emissions are 10 kilotonnes or more and is carrying out an activities with an output-based standard listed under Schedule 1 to the OBPS regulations may apply to opt-in. Under the second part, facilities in sectors not listed under Schedule 1 to the OBPS and at significant risk of carbon leakage and competitiveness impacts from carbon pollution pricing whose emissions are greater than 10 kilotonnes may also apply to opt in.

Policy Regarding Voluntary Participation in the Output-Based Pricing System

Compensation options

Facilities with annual GHG emissions that exceed their emissions limit will need to provide compensation, which can include one or more of the following options:

  • paying the excess emissions charge, set at the same rate as the fuel charge
  • remitting OBPS surplus credits
  • remitting eligible provincial / territorial offset credits (Recognized Units)
  • remitting federal GHG Offset credits issued by the Minister, when enabled by regulations

Eligible Provincial/Territorial Offset Credits

More information and the List of Recognized Programs and Protocols coming soon.

Federal GHG Offset System

A Federal GHG Offset System to encourage cost-effective domestic GHG emission reductions from activities that are not covered by carbon pollution pricing is under development. In June 2019, a discussion paper  was released to seek input on key system design elements. Comments can be submitted until August 30, 2019 at ec.tarificationducarbonecarbonpricing.ec@canada.ca.

Carbon pollution pricing: options for a Federal Greenhouse Gas Offset System

Return of OBPS proceeds

Proceeds from the OBPS in backstop jurisdictions will be returned to the jurisdiction of origin. The federal government published a paper to seek  input to inform the approach to returning OBPS proceeds. Comments can be submitted until August 30, 2019 at ec.tarificationducarbonecarbonpricing.ec@canada.ca.

Use of proceeds from the federal Output-Based Pricing System

Fuel charge

The fuel charge component of the federal carbon pollution pricing system came into effect in Ontario, New Brunswick, Saskatchewan, and Manitoba in April 2019; starting in July 2019 in Nunavut, and Yukon; and the federal government announced its intent to apply the fuel charge in Alberta, effective January 1, 2020. The fuel charge component of the federal system will generally apply to fuel producers and distributors.

More information on the fuel charge application and fuel charge rates can be found in the Department of Finance’s news release: Announcing Climate Action Incentive Payments and Launch of Fuel Charge Consultations.

Information for Saskatchewan regulated emitters

On October 23, 2018, the federal government recognized that Saskatchewan was on track to only partially meet the federal benchmark stringency requirements. The federal carbon pollution pricing system will be implemented, in part, in Saskatchewan under the GGPPA with the following features:

  • the federal OBPS will apply to electricity generation and natural gas transmission lines, as of January 1, 2019
  • a charge applied to fossil fuels as set out under Part 1 of the GGPPA started applying in April 2019

If you are a regulated emitter under Saskatchewan’s Management and Reduction of Greenhouse Gases (Standards and Compliance) Regulations, you may be able to register as an emitter with the Canada Revenue Agency (CRA). This would allow you to obtain fuel on a federal charge-free basis for use at your facility, by following these steps:

  1. register your facility (as per s.5  or s.6 of The Management and Reduction of Greenhouse Gases (Standards and Compliance) Regulations) with the Saskatchewan Ministry of Environment
  2. after you have received written confirmation of registration from the Saskatchewan Ministry of Environment, send a copy of your confirmation of registration via email to ec.stfr-obps.ec@canada.ca with the subject line: “Saskatchewan OBPS — Confirmation Request”
  3. the federal Minister of Environment will confirm that your facility is registered in the Saskatchewan system and issue you a statement containing a statement number
  4. using that statement number, apply to be registered as an emitter with the CRA
  5. once granted registered emitter status, download and complete an exemption certificate to present to your fuel supplier
    • this will allow deliveries of fuel to be made to you on a federal fuel charge-out basis if the fuel is for use at a covered facility of the person, subject to certain conditions
  6. familiarize yourself with the obligations of a registered emitter under Part 1 of the Greenhouse Gas Pollution Pricing Act, including the obligations to report monthly to the CRA and to pay the fuel charge on any fuel diverted from your facility

Please note: It is important you register with the CRA to allow you to use an exemption certificate and obtain fuel on a federal charge-free basis for use at your facility.

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