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Carbon Pricing

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ECCC Publishes Discussion Paper and Launches Consultation on Effective Carbon Markets

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Environment and Climate Change Canada (ECCC) recently published a discussion paper on “Driving effective carbon markets in Canada” (the Discussion Paper). The Discussion Paper sets out proposed changes to the federal benchmark criteria ahead of the federal government’s review next year. ECCC also launched consultations on the Discussion Paper, seeking comments and responses to questions included in the Discussion Paper from stakeholders.  This bulletin briefly summarizes the key topic areas, current requirements, the federal government’s proposal and considerations, and next steps set out in the Discussion Paper. Common scope of coverage Current requirement. The current benchmark requires that carbon pricing systems maintain a common scope, covering, at a minimum, an equivalent percent of combustion emissions as the federal backstop. It also requires market-based systems to cover industrial process emissions, and to limit eligibility for OBPSs, performance rebates, or the free allocation of allowances to sectors that are at risk of carbon leakage and competitiveness impacts of carbon pricing. Proposals and considerations. ECCC notes that the removal of the fuel charge (see our earlier bulletin here) requires rethinking how scope of coverage should work. The federal government is considering the following three options to modify the benchmark to specify the common scope criteria explicitly to ensure consistent minimum coverage across systems: Option 1: A threshold-based approach that would cover all facilities in specific sectors emitting above a certain level annually. Thresholds under consideration are 10kt per year (Option 1A) and 25kt per year (Option 1B). Option 1A would cover a large number of facilities and industrial activities, which would support market function and liquidity, but could create intra-sectoral competitiveness risks in some sectors. Option 1B would reduce these risks by covering fewer industrial activities where there is a significant split between emissions above and below the threshold, but may negatively impact market function…

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Alberta Announces Significant Updates to TIER Regulation

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The Government of Alberta yesterday announced that it will introduce significant amendments to the Technology Innovation and Emissions Reduction (TIER) regulation this fall. The proposed changes will (1) add on-site emission reductions investments as a compliance pathway and (2) provide flexibility for small emitters to opt out of the TIER system in 2025. Premier Danielle Smith and Minister of Environment and Protected Areas Rebecca Schulz announced the changes in an afternoon news conference. This bulletin briefly summarizes the expected amendments and the government’s next steps. Regulatory amendments. The proposed updates to the TIER system include:  Compliance through direct investment in on-site emission reductions. Recognizing on-site emissions reduction investments as a new pathway for facilities to comply with the TIER system, in addition to the current suite of available compliance options. The government anticipates that a new standard will be developed to support the new compliance pathway, which is expected to be structured around project investments over an eight-year period (five years forward, three years back) and could include investments in projects such as the Pathways CCS project. A facility would be allowed to use this compliance pathway to fulfill up to 90% of its TIER compliance obligation. Under the current TIER regulation, a facility can meet its compliance obligation by (a) reducing on-site emissions, including by applying capture recognition tonnes (CRTs) to lower the facility’s total regulated emissions (TRE); (b) submitting emission offset credits (EOs); (c) submitting emissions performance credits (EPCs); and/or (d) purchasing fund credits by paying into the TIER Fund at the prescribed TIER Fund Price (currently frozen at $95 per tonne CO2e).  Opt-out for small facilities. Allowing smaller facilities that currently participate in the TIER system to leave or opt out. TIER applies to large facilities that emit more than 100,000 tonnes of CO2e per year, while smaller facilities have been able to opt-in to the TIER system under…

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Carney Government Eliminates Consumer Carbon Price

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The Government of Canada on Saturday published an extra edition of Canada Gazette, Part II to eliminate the “consumer-facing” carbon price (i.e., the federal fuel charge), effective April 1, 2025. The change was originally announced by new Prime Minister Mark Carney on Friday as his first official act. The new regulations amend the Greenhouse Gas Pollution Pricing Act (GGPPA) and related regulations. This bulletin briefly summarizes the amendments and highlights key aspects of the associated Regulatory Impact Analysis Statements (RIASs). The amendments most consequentially set the rate of charge applicable after March 31, 2025 set out in Table 5 of Schedule 2 to the GGPPA to “zero” dollars for all 22 types of fuel. The rates previously set out in that table represented a carbon price of $80 per tonne in 2024-25. The Governor in Council (i.e., the Governor General acting on the advice of Cabinet) has the authority to set the fuel charge rates to zero under section 166(4) of the GGPPA. The government has also made related amendments to the Fuel Charge Regulations (particularly around removal of registration requirements after March 31, 2025) and coordinating amendments to the Output-Based Pricing System (OBPS) Regulations.  The RIASs note that: The government estimates that the elimination of the fuel charge will lead to a loss of 12.57 Mt cumulative GHG emissions reductions from 2025 to 2030 (p. 12). The monetized cost of foregone emissions reductions over the 2025-2030 period of the elimination of the fuel charge is estimated to be about $3.83B (in 2024 dollars, discounted at 2% to 2025-26), using social cost of carbon figures for 2025 to 2030 (p. 13). The elimination of the fuel charge increases Canada’s GDP by 0.5% in 2030 (p. 14). The total welfare gains, not accounting for the social cost of carbon, for households would be equivalent to a 0.3% increase in household consumption in…

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Ontario to Introduce Legislation Requiring a Referendum on New Carbon Pricing

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Ontario Premier Doug Ford yesterday announced that the government intends to introduce legislation next week that would require a referendum before any new provincial carbon pricing system could be implemented in the province. The measure is expected to be part of new legislation, the “Get It Done Act” (the Act), which is set to be tabled in the upcoming legislative session starting February 20, 2024. A carbon pricing referendum would only apply to proposed provincial measures and not the federal backstop carbon pricing system under the Greenhouse Gas Pollution Pricing Act (GGPPA) that went into effect in Ontario after the provincial government cancelled Ontario’s cap-and-trade system. Premier Ford noted that the aim of the Act is to give voters a direct say over any new provincial carbon tax, cap-and-trade system, or other carbon pricing program, and emphasized the importance of keeping costs low for residents and businesses. The Act is expected to include a host of measures that build on the government’s commitments to streamline approvals for major infrastructure projects and housing, lower costs for people and businesses, and support economic growth. Ontario’s Finance Minister Peter Bethlenfalvy (the Minister) stated that the government made a promise to fight the federal fuel charge (see our bulletin on the Supreme Court of Canada’s decision upholding the constitutionality of the GGPPA here) and that it would continue to lead by example by “giving Ontarians certainty that carbon pricing on the backs of taxpayers is not the way forward.” The Minister suggested that “[a]ny new provincial carbon tax is unacceptable for Ontario residents who are seeing their hard-earned dollars stretched further than ever.”  The provincial government also called on the federal government to expand the temporary pause on the application of the federal fuel charge for home heating or to eliminate the federal carbon fuel charge entirely.   For further information or to discuss the contents…

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Canada Releases 2030 Emissions Reduction Plan

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Environment and Climate Change Canada (ECCC) today released the 2030 Emissions Reduction Plan (the Plan) under the Canadian Net-Zero Emissions Accountability Act (the Act; read our earlier bulletin on the Act here). The Plan sets out current actions, additional funding of $9.1B, and several new initiatives to meet Canada’s emissions reduction target of 40-45% below 2005 levels by 2030, as provided last year in an update to Canada’s Nationally Determined Contribution (NDC) under the Paris Agreement (read our earlier bulletin on Canada’s updated NDC targets here).   The Plan also sets a new interim objective of reducing GHGs by 20% below 2005 levels by 2026, noting that this interim objective is not an official target akin to Canada’s 2030 NDC, but that progress towards achieving the objective will be a cornerstone of progress reports associated with the Plan in 2023, 2025, and 2027.   This bulletin highlights key parts of the Plan and summarizes the newly announced funding and initiatives, across the following categories: Carbon pricing Clean fuels Clean growth funding Methane Buildings Electricity Heavy industry Oil and gas Transportation Agriculture Waste Nature-based solutions Clean technology and climate innovation Sustainable finance Jobs, skills, and communities Prime Minister Justin Trudeau launched the Plan in an address at the GLOBE Forum in Vancouver earlier today.  Carbon pricing. The Plan notes the measures undertaken to address economy-wide emissions including the federal fuel charge and the Output-Based Pricing System for industrial emitters under the Greenhouse Gas Pollution Pricing Act. Escalating the federal benchmark price to $170 by 2030 is meant to further support the 2030 targets of the federal government along with continued consultations on a possible border carbon adjustment (read our earlier bulletin here). Very significantly, the Plan puts forward the concept of investment approaches, like carbon contracts for differences, which enshrine future price levels in contracts between the federal government and low-carbon…

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