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Bulletin

A Stopgap for the Backstop: Registering for the Output-Based Pricing System Under the Federal Carbon Pricing Scheme

Fasken
Reading Time 3 minute read
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Environmental Bulletin

If you are the owner or operator of a large industrial emitter in a backstop jurisdiction (i.e. Saskatchewan, Manitoba, Ontario, New Brunswick, PEI, Yukon, or Nunavut) the federal government has released new information to assist you in determining whether you are required to register your facility under its output-based pricing system ("OBPS") and how to do so.

As we outlined in our last bulletin on the Federal Carbon Tax Backstop, the federal government will impose a price on greenhouse gas ("GHG") emissions in the Provinces and Territories that have not yet imposed their own (the so-called "backstop jurisdictions"). That price is $20 per tonne of CO2e beginning in 2019 and escalating by $10 annually to a total of $50 per tonne of CO2e by 2022. There are two components to the scheme under the Greenhouse Gas Pollution Pricing Act, SC 2018, c-12, s 186 (the "Act"): (i) a carbon levy applied to fossil fuels (i.e. a fuel charge), to be administered by the Canadian Revenue Agency; and (ii) an OBPS for large industrial emitters in trade-exposed industries, to be administered by Environment and Climate Change Canada ("ECCC"). The carbon levy is effectively a commodity tax paid by end users; the OBPS is a modified cap-and-trade scheme designed to send a price signal to large emitters that incents the reduction of GHGs while minimizing competitiveness risk for trade-exposed industries.

Until such time as OBPS Regulations can be made by the Governor in Council in the spring of 2019, the Minister of the Environment has released the Notice Establishing Criteria Respecting Facilities and Persons and Publishing Measures (the "Registration Notice"), which will facilitate the implementation of the OBPS on January 1, 2019.

The Registration Notice establishes the following criteria for facilities that will be obligated to participate in the OBPS to permit early registration of OBPS participants under section 171 of the Act:

  • located in backstop jurisdictions
  • carrying out any of the "covered activities" identified in the Registration Notice and
  • having reported annual emissions of 50,000 tonnes of CO2e or more in  Canada's Greenhouse Gas Reporting Program during any calendar year from 2014 to 2017
  • there is also an option to opt in to the OBPS if your annual emissions are less than 50,000 tCO2e but greater than 10,000 tCO2e

Once the Minister is satisfied that the facility meets the established criteria, the person responsible for the facility will receive a "covered facility certificate" and an exemption from the carbon levy (i.e. the fuel charge) in order to avoid double taxation. The owner or operator of the facility will instead face a compliance obligation on the portion of the facility's GHG emissions exceeding the prescribed limit.

Registration for the OBPS is now open and ECCC has also released a guidance document setting out the steps for submitting a registration application.

Contemporaneous with the Registration Notice, the federal government released the Greenhouse Gas Emissions Information Production Order, which will come into effect January 1, 2019. It establishes the GHG emissions and production information that must be quantified, reported and verified by "regulated facilities" (i.e. those required to register in the OBPS in accordance with the Registration Notice). Specific sampling, analysis and measurement requirements for each covered industry are provided, and the requirement to produce an annual report verified by an accredited verification body is established.

Meanwhile, the reference cases challenging the constitutionality of the Act filed, respectively, in the Courts of Appeal of Saskatchewan and Ontario have yet to be determined.

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