Output-Based Pricing System

Information on Canada’s carbon pollution pricing system for large 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 large industry – the federal Output-Based Pricing System (OBPS)

The federal OBPS is designed to ensure there is a price incentive for large 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

Lower emitting facilities may apply to be covered by the federal OBPS. Further information for potential voluntary participants will be provided, including eligibility criteria and the application process.

Regulations and regulatory instruments

Two regulatory instruments on the federal OBPS were published in Canada Gazette, Part II in fall 2018:

  • Registration Notice sets out the criteria determining which facilities are required to register in the federal OBPS (covered facilities)
  • Information Order and the Order Amending the Information Order sets out the quantification, reporting and verification requirements for covered facilities. These includes requirements related to:
    • sampling, analysis and measurement in order to quantify the GHG emissions emitted from that facility
    • quantification of production amounts
    • making and keeping of records
    • producing verified annual reports

The requirements of the Information Order and the Order Amending the Information Order take effect starting January 1, 2019 in provinces where the federal OBPS applies and July 1, 2019 in Nunavut and Yukon. 

The federal government published the draft OBPS regulations and proposed cost-benefit analysis framework for the purpose of receiving comments from the public and interested stakeholders before finalizing the regulations. The draft regulations provide the proposed output-based standards (OBS), rules for compliance and compensation, criteria respecting covered facilities and amended quantification, reporting and verification requirements. Comments can be submitted at ec.tarificationducarbonecarbonpricing.ec@canada.ca until February 15, 2019.  

To ensure that the complete set of rules and requirements outlined in the final OBPS regulations, published in spring 2019, apply starting January 2019, the federal government published a Notice of Intent explaining that they will apply retroactively to January 1, 2019.

Registration

An owner or operator of a facility that meets the criteria under the Registration Notice (covered facilities) must apply to register the facility in the federal OBPS. The federal OBPS registration system opens November 1, 2018.

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) before the fuel charge comes into force. 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. The federal fuel charge will come into force in April, 2019 in backstop provinces and in July, 2019 in Nunavut and Yukon.

Voluntary participation

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

The federal OBPS is mandatory for facilities that:

  • are located in a jurisdiction where the federal OBPS applies Footnote 1 
  • have reported 50 kt of CO2e or more in 2014 or a subsequent year to the Greenhouse Gas Reporting Program (GHGRP) and
  • are in specified sectors that carry out a covered activity

The Notice Establishing Criteria Respecting Facilities and Persons and Publishing Measures published October 23, 2018, provides the criteria defining which facilities are required to register and participate in the OBPS. Find information on registration in the federal OBPS for mandatory participants.

Other facilities may also apply to voluntarily participate in the federal Output-based Pricing System.

Voluntary participation in the federal OBPS

There are two parts to our proposed approach to opting in to the Output-Based Pricing System (OBPS). First, we propose that any facility whose emissions are 10 kilotonnes or more in a sector with an OBPS standard can apply to opt in. And second, we propose to develop new OBPS standards for trade-exposed sectors where there are facilities whose emissions fall between 10 and 50 kilotonnes.

More specifically our proposal is:

  1. Policy Regarding Voluntary Participation in the Output-Based Pricing System
    • In general, facilities that are in a province or territory where the federal OBPS applies, carrying out a covered activity as listed in the Registration Notice; and have reported 10 kt CO2e or more in 2017 or a subsequent year to the Greenhouse Gas Reporting Program (GHGRP), would be considered for voluntary participation.
    • New, retrofitted or expanded facilities can also apply based on projected annual emissions of 10 kt CO2e or more.
  2. Proposed amendment to the Policy Regarding Voluntary Participation in the Output-Based Pricing System: posted for public comment until February 15, 2019
    • Recognizing that there are other facilities that may face competitiveness and carbon leakage risks as a result of carbon pollution pricing, this document outlines a proposed approach to allow facilities that are not captured under the above Policy on Voluntary Participation to also apply to voluntarily participate in the federal OBPS.

Development of the federal Output-Based Pricing System

Fuel charge

Starting in April 2019, the fuel charge component of the federal carbon pollution pricing system will come into effect in Ontario, New Brunswick, Saskatchewan, and Manitoba; and starting in July 2019 in Nunavut, and Yukon and 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.

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