Canada’s Federal Carbon Pricing System

Posted: December 10, 2018
Tagged As: Cap and Trade, Climate Change, Energy, GHG Emissions, Legislation & Regulation

Background
With the Ontario PC Party elected this past summer, one of the first orders of business was to cancel the cap and trade program and carbon tax that was introduced back in 2017. On July 3, 2018, Ontario Regulation 386/18 was passed revoking the Cap and Trade Program. Due to the cancellation of the cap and trade program, the Ontario Energy Board (OEB) released a Direction instructing Ontario gas distribution companies (i.e. Enbridge, Union Gas) to remove related cap and trade charges from customer bills effective October 1, 2018, the equivalent of approximately $0.033/m3.
 
However, on October 23, 2018, the federal government announced that it will impose a carbon tax in Provinces and Territories with no adequate emissions pricing plans of their own in 2019.  The federal carbon pollution pricing system has two parts:
 
  • A regulatory charge on fossil fuel (fuel charge)
  • A trading system for large industry - the Output-Based Pricing System (OBPS)
 
A federal fuel charge of $20/tonne of carbon emissions will come into effect on April 1, 2019. The OBPS for industrial emitters will come into effect on January 1, 2019. The fuel charge will assign a value to each tonne of GHG emissions, measured in carbon dioxide equivalent (tCO2e), beginning at $20/tCO2e in 2019 and increasing by $10 annually to $50/tCO2e in 2022.
 
Fuel Charge
The federal carbon tax will apply to fuel producers and distributors who will pass on the costs to consumers. See below table for sample Federal Fuel Charge Rates for 2019-2022:
 
Federal Fuel Charge Rates
Type Unit
($ per)
April 2019
($20/tonne)
April 2020
($30/tonne)
April 2021
($40/tonne)
April 2022
($50/tonne)
Marketable natural gas m3 0.0391 0.0587 0.0783 0.0979
Gasoline litre 0.0442 0.0663 0.0884 0.1105
Heavy fuel oil litre 0.0637 0.0956 0.1275 0.1593
Light fuel oil litre 0.0537 0.0805 0.1073 0.1341
Propane litre 0.0310 0.0464 0.0619 0.0774
 
 
The federal government proposes to return majority of direct proceeds from the regulatory fuel charge directly to individuals and families in the province of origin, in the form of Climate Action Incentive payments. The government is also providing additional, targeted relief to residents of rural and remote communities, as well as certain groups or sectors, such as farmers, fishers and greenhouse operators.
Climate Action Incentive payment amounts will be increased annually to reflect increases in the price on carbon pollution under the federal carbon pollution pricing system.
 
The remainder of fuel-charge proceeds will be reserved for targeted funding programs to provide support to schools, hospitals, small and medium-sized businesses, colleges and universities, municipalities, not-for-profits and Indigenous communities. Further details on these new funding programs will be delivered in early 2019.
 
Output-Based Pricing System (OBPS)
  • Mandatory Participation - An industrial facility with total annual emissions above 50,000 tCO2e and undertaking a primary activity that has an output-based standard specified will be required to register as a mandatory participant.
  • Voluntary Participation - Facilities with total annual emissions above 10,000 tCO2e may be able to opt-in voluntarily over time.  Additional details, including eligibility criteria and the application process, are expected to be released soon. 
 
Under the OBPS, registered facilities will have a facility-specific annual emission limit which is based on the relevant output-based standard for the product it produces and its level of production. A facility registered under the OBPS and with the Canada Revenue Agency will be able to purchase fuel free of the carbon charge, and only be responsible for paying the carbon charge on the portion of its emissions that exceed the annual emission limit.
 
The proceeds from the OBPS will be reinvested in the province or territory of origin to support carbon pollution reduction. Further details will be outlined in early 2019.
 
Impact to LAS Members
Similar to the provincial carbon tax that was introduced back in 2017, LAS members can expect this additional charge to appear on their end use natural gas bills starting April 1, 2019. It is expected that the charge will appear as a separate line item on the end use bill, unlike the original carbon tax that was built into the regulated utility distribution charges.
 
While details are still limited at this time as to how the federal government plans to reimburse businesses, municipalities, schools, hospitals, etc. either through direct rebates or incentive programs, it is strongly recommended that LAS members budget for the increase in natural gas costs effective April 1, 2019 until further details are released, as the charge has a significant impact on total natural gas costs. The charge will start at $0.0391/m3 effective April 1st and increase annually as outlined in the above table.

DISCLAIMER:
There will be a delay in the carbon tax hitting customer bills for April 1. Please note, though, that the utility will still be looking to recover these costs at a later date; customers should still account for this charge.
 
For any questions regarding the Federal Carbon Pricing System and the impact to LAS members, please contact Eleonore Schneider, LAS Program Manager (eschneider@amo.on.ca), 416-971-9856 x320.



 
 

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