Ontario, New Brunswick Exit Federal Carbon System

Summary#

The Order Amending Part 2 of Schedule 1 to the Greenhouse Gas Pollution Pricing Act (SOR/2021-195) removes New Brunswick and Ontario from the list of jurisdictions covered by the federal industrial carbon pricing system (the federal output-based pricing system). As a result, the federal system stopped applying in New Brunswick as of January 1, 2021 and stopped applying in Ontario as of January 1, 2022, letting the provinces’ own systems take effect for those years.

What it does#

• Deletes the names of New Brunswick and Ontario from Part 2 of the Greenhouse Gas Pollution Pricing Act, so the federal output-based pricing system (the Output-Based Pricing System Regulations) no longer covers those provinces from the dates below.
• Makes the change retroactive for New Brunswick to January 1, 2021 and effective for Ontario on January 1, 2022.
• Limits how surplus federal credits from facilities in those provinces can be used after the transition. Surplus credits can be used only for the compliance periods when the province was still listed in Part 2 of the Act, and the Minister can suspend credits from a province that is no longer in the federal system.
• Lists important compliance deadlines that are still relevant for using credits from those years:
  • regular-rate compensation deadline December 15, 2021 and increased-rate deadline February 15, 2022 (relevant to some 2020 obligations),
  • regular-rate compensation deadline December 15, 2022 and increased-rate deadline February 15, 2023 (relevant to some 2021 obligations).

Who's affected#

• Industrial facilities in New Brunswick and Ontario that were covered by the federal output-based pricing system. These facilities move from the federal OBPS to the provincial systems for the stated years.
• Holders of federal surplus credits generated in those provinces. The rules on when and how those credits can be used change.
• The provincial governments and regulators running the provincial industrial carbon systems — in practice, the provincial OBPS in New Brunswick and the industrial performance standards (EPS) in Ontario.
• The general public and businesses indirectly, because changes affect greenhouse gas emissions and the costs industry faces. It is possible some smaller facilities that voluntarily participated in the federal system are also affected.

Why it matters#

• The change avoids having both a federal and a provincial industrial carbon pricing system apply at the same time in the same place. That reduces duplication for facilities and lets the provinces’ own rules govern industry in those years.
• Modelling in the government’s analysis estimates lower industry costs under the provincial systems and potential welfare gains of about $130 million over 2021–2022.
• But the provincial systems are modeled as less strict than the federal system for that period, so they are also estimated to result in foregone greenhouse gas reductions of about 1.8 million tonnes (Mt) of CO2e over 2021–2022. The social cost of those foregone emissions is estimated to be between $92 million and $391 million, producing a possible net outcome ranging from a $38 million net benefit to a $261 million net cost (estimates cover only 2021–2022).
• Practical implications for affected facilities include new provincial reporting and compliance rules, possible limits on the value or use of banked federal surplus credits (prices could have been capped at about $30 per tonne or $40 per tonne in some cases), and the need to follow the provincial systems’ rules going forward.
• The federal government notes these provincial systems will be reassessed against an updated federal benchmark in mid‑2022 for the 2023–2030 period. That means provinces may need to strengthen their rules later to stay aligned with federal expectations.