Proposed amendment to the Policy Regarding Voluntary Participation in the Output-Based Pricing System

Overview

The Policy Regarding Voluntary Participation in the Output-Based Pricing System was published on December 20, 2018. It outlines considerations the Minister would take into account when designating a facility as a covered facility under section 172 of the Greenhouse Gas Pollution Pricing Act (GGPPA).  It also outlines the procedures that the person responsible for such a facility is to follow when requesting such a designation.

The overall aim of the Policy Regarding Voluntary Participation in the Output-Based Pricing System is to minimize competitiveness and carbon leakage risks from the exposure of a sector to the federal fuel charge (under Part 1 of the GGPPA), while retaining a price signal on carbon pollution that creates an incentive to reduce greenhouse gas emissions.

The current version of the Policy Regarding Voluntary Participation in the Output-Based Pricing System applies to facilities that carry out an activity for which an output-based standard (OBS) has been established under the Regulatory Proposal for the Output-based Pricing System regulations under the Greenhouse Gas Pollution Pricing Act (a covered activity).  

This document outlines a proposed amendment to the above Policy to allow additional facilities to apply to be included in the Output-Based Pricing System (and thereby to apply for an exemption from the carbon fuel charge under Part 1 of the GGPPA). 

Comments on this proposal should be submitted by February 15, 2019 to:   
ec.tarificationducarbonecarbonpricing.ec@canada.ca.

Proposed amended definitions

For the purposes of this policy, facility has the same meaning as under Notice Establishing Criteria Respecting Facilities and Persons and Publishing Measures^{Footnote 1}  (the Notice).  

A major retrofit has occurred if the facility has made an investment equal to or greater than 25% of the original capital required for the facility, adjusted for inflation, and the facility no longer carries out a previous covered or eligible activity and instead carries out a new covered or eligible activity.

An expansion has occurred when a facility has increased its production of a covered or eligible activity by 25% or more.

Considerations and procedures for designation

Voluntary participation does not apply to facilities that meet the criteria in the Notice issued under section 194 of the GGPPA.

Existing facilities

1. The facility is located in a province or area set out in Part 2 of Schedule 1 to the GGPPA;
2. A report was made, in accordance with a Notice with respect to reporting of greenhouse gases (GHGs) published under section 46 of the Canadian Environmental Protection Act, 1999, in respect of that facility indicating that that facility emitted a quantity of greenhouse gases equal to 10 kt of CO₂e or more, as one or more facilities as defined in such a notice, during the 2017 calendar years or after;
3. The facility is in a sector listed in Appendix A, or successfully applies for its sector to be added to Appendix A by demonstrating that the sector faces significant risk of adverse competitiveness impacts and carbon leakage from carbon pollution pricing;
4. Either;
   1. The facility only carries out one or more eligible activities, or,
   2. The facility carries out an eligible activity as its primary activity and may carry out one or more covered activities as well; and
5. A complete application for registration in the Output-Based Pricing System is submitted in respect of the facility in the form and manner determined by the Minister. The application must include the information set out in Appendix B. The application must be made by a person responsible for that facility. For the purpose of section 172 of the Act, the organization or individual that is the owner or operator is the person responsible for that facility.

New, retrofitted or expanded facility

1. The facility is located in a province or area set out in Part 2 of Schedule 1 to the GGPPA;
2. The facility was not required to report greenhouse gas emissions under a previous Notice with respect to reporting of greenhouse gases (GHGs) published under section 46 of the Canadian Environmental Protection Act, 1999, and:
   1. Was first commissioned in the past three years but no earlier than 2017 ,
   2. Has undergone a major retrofit in the past three years,  or 
   3. Has undergone an expansion in the past three years;

The facility submits as part of its application for registration in the Output-based Pricing System estimates, bearing a valid engineering stamp in accordance with the law of a province or territory that governs the practice of professional engineering, that demonstrate the facility is projected to emit 10 kt CO₂e or more per year within 3 years from the date of commissioning. Such estimates should be consistent with currently recognized industry practices for the quantification of emissions;

3. The facility is in a sector listed in Appendix A, or successfully applies for its sector to be added to Appendix A by demonstrating that the sector faces significant risk of adverse competitiveness impacts and carbon leakage from carbon pollution pricing;
4. Either;
   1. The facility only carries out one or more eligible activities, or
   2. The facility carries out an eligible activity as its primary activity and may carry out one or more covered activities as well; and
5. A complete application for registration in the Output-Based Pricing System is submitted in respect of the facility in the form and manner determined by the Minister. The application must include the information set out in Appendix B. The application must be made by a person responsible for that facility. For the purpose of section 172 of the Act, the organization or individual that is the owner or operator of the facility is the person responsible for the facility.

Appendix A: Sectors at risk of carbon leakage from carbon pollution pricing

This section will include a table of sectors identified by NAICS code. The table will include sectors that have facilities that are located in backstop jurisdictions and that:

• have greenhouse gas (GHG) emissions of 10 kt CO₂e or more per year,
• carry out as their primary activity, an activity for which an OBS has not yet been specified under the Regulatory Proposal for the Output-based Pricing System regulations under the Greenhouse Gas Pollution Pricing Act; and
• where the application of carbon pollution pricing may create a significant competitiveness and carbon leakage risk.

Environment and Climate Change Canada will initially add sectors to the table that are in a medium or higher EITE risk category^{Footnote 2} .

In addition, facilities and sectors may apply to add other sectors to the table in the following circumstances:

1. The applicant demonstrates that by applying credible data, the sector or subsector is in a medium EITE risk category or higher;
2. The applicant demonstrates that when other metrics or factors are considered the sector is at significant risk of carbon leakage due to carbon pollution pricing. These other factors may include:
   • Competitors are included under the OBPS,
   • Carbon costs are large relative to sector profits or revenue,
   • Market share,
   • Inability of the sector to pass on carbon costs,
   • High estimated indirect carbon costs for the sector.

Environment and Climate Change Canada may update the list in the table from time to time.

Appendix B – Supplementary information to support applications from EITE sectors

The responsible person for a facility to which the amendment to the Policy Regarding Voluntary Participation in the Output-Based Pricing System applies must provide the following information as part of their application.

1. Reference years:

The reference years for a facility are:

1. 2017 and 2018 for a facility for which the responsible person requests the designation as a covered facility in 2019.
2. The three most recent full years of commercial operation for a facility for which the responsible person requests the designation as a covered facility in 2020 or later.
3. If data is unavailable under a) or b) the information to be provided under section 3 can be provided based on engineering estimates, bearing a valid engineering stamp in accordance with the law of a province or territory that governs the practice of professional engineering.

The facility must indicate the reference years that will be used, or in the case of engineering estimates provide details on the methods used to perform the calculations.

2. Eligible activity

The eligible activities for a facility will be determined as follows:

1. For a facility that produces only one product that is not the result of carrying out a covered activity, the eligible activity is the production of this product.
2. For all other facilities, the products to be included in the eligible activities must represent the majority of production at the facility, measured either in terms of its contribution to revenue from the facility or facility emissions. Wherever possible, the production of multiple products should be aggregated. This should be done in cases where the products identified can be measured using the same units and the proportion of the production of these products does not vary significantly from one year to the next.

The facility must report all eligible activities at the facility, and provide information to support the determination of the eligible activities.

3. Information on emissions, production and transfers of industrial heat

The following information on emissions, production and transfers of industrial heat.

1. The total GHG emissions for the facility;
2. The total GHG emissions associated with all covered activities undertaken at the facility;
3. The total GHG emissions associated with the generation of fossil fuel electricity at the facility;
4. The total GHG emissions associated with each eligible activity undertaken at the facility;
5. The total purchases of thermal energy that are purchased from covered facilities. The ratio of heat from the combustion of fossil fuels of the seller, where available;
6. The total sales of thermal energy to all covered facilities whose main activity is a covered or eligible activity. The ratio of heat from the combustion of fossil fuels for the facility; and
7. The production associated with each eligible activity.

This information must be provided for each of the reference years identified under section 1. The person responsible for the facility should use the same method to quantify the information for each of the reference years and detail this method in the application.

4. Quantification of emissions, production and transfers of industrial heat

The information under section 3a) for the reference years should be provided based on the information submitted to the Greenhouse Gas Reporting Program where available. Specifically, for a facility for which a report was made, in accordance with a Notice with respect to reporting of greenhouse gases (GHGs) published under section 46 of the Canadian Environmental Protection Act, 1999, in respect of that facility as one or more facilities as defined in such a notice, during the reference years, the emissions for that facility as reported under the notice for each of the reference years.

The information under b), c), d), e), f) and g) should be quantified in accordance with industry best practices. The Greenhouse Gas Emissions Information Production Order^{Footnote 3}  provides acceptable methods for quantifying this information.

The information under 3 g) should include the quantity of each type of product produced by carrying out the eligible activity for each of the reference years in mass, volume or number of units, according to the units of measure currently used by the industrial sector in question.

5. Verification

The information detailed in this section should be verified by an accredited third-party verifier. The verifier should be accredited as a verification body at the organizational level to the ISO Standard 14065:2013. Information in section 3 should be verified to a limited level of assurance. Acceptable standards for verification and materiality thresholds can be found in the Greenhouse Gas Emissions Information Production Order.