Output-Based Pricing Standards Tightened

Summary#

These are the final regulations titled Regulations Amending the Output-Based Pricing System Regulations and the Environmental Violations Administrative Monetary Penalties Regulations, published in the Canada Gazette on November 22, 2023. They make the federal Output-Based Pricing System (OBPS) stricter over time, add and update sector rules and reporting requirements, and change how some measurement and verification rules work — with parts applying from January 1, 2023 and more changes coming into force on January 1, 2024.

What it does#

• Adds an annual “tightening” that makes most output-based standards stricter each year:
  • 2% per year for most sectors.
  • 1% per year for certain sectors judged to be at “very high” risk of competitiveness loss or carbon leakage (for example: cement, lime, petrochemicals, iron and steel, and some aluminum and organic basic chemical activities).
  • No annual tightening for electricity generation using fossil fuels.
• Creates and updates output-based standards:
  • Adds 12 new industrial activities to the standards list (examples: surface mining of oil sands and extraction of bitumen, ethylene glycol, evaporated salt, several aluminum-related activities, wood products, and pneumatic tires).
  • Revises some existing standards (for example, splitting urea into separate standards for urea liquor and granular urea).
• Changes how emissions and production are measured and reported:
  • Moves detailed quantification rules out of the regulations and into a technical document called Quantification Methods for the Output-Based Pricing System Regulations (so methods can be updated more easily).
  • New basic requirements for measuring devices, including maintaining accuracy within ±5%, and rules for continuous emissions monitoring systems.
  • Allows alternative measurement methods if a permit shows the alternative is as rigorous and includes up to 2 years to move to the standard method.
• Adjusts verification, correction, and record rules:
  • Verification bodies must follow updated ISO standards and visit a facility if it hasn’t had a site visit in 2 years.
  • Corrected annual reports are now required only when an error would have been a “material discrepancy”; the deadline to submit a corrected report is extended from 90 days to 120 days after the Minister’s notice.
  • Materiality thresholds for verification were clarified (for example, smaller emitters have a 5% threshold for GHG errors; very large emitters have 2%).
• Fits administrative enforcement to the new rules:
  • The Environmental Violations Administrative Monetary Penalties Regulations were updated so officers can issue penalties for new violations created by these amendments.
• Timing:
  • Some changes are deemed to apply retroactively to the 2023 compliance period (effective January 1, 2023).
  • Many new measurement, reporting and the new standards apply from January 1, 2024.
  • The regulations were registered on November 9, 2023 and published November 22, 2023.

Who's affected#

• Large industrial facilities covered by the federal Output-Based Pricing System Regulations — typically plants that emit enough greenhouse gas to be “covered facilities,” either because they are in backstop jurisdictions or because they opt in.
• Specific sectors that will see different tightening rates:
  • Sectors with 1% tightening (deemed “very high” risk): cement, lime, petrochemicals, iron and steel, and certain aluminum and basic chemical activities.
  • All other covered sectors face 2% tightening.
• Facilities in the backstop jurisdictions where the federal OBPS applies in 2023: Manitoba, Prince Edward Island, Yukon, and Nunavut (these places already follow the federal OBPS in 2023).
• Companies that make products newly listed under the rules (examples above) — they will get a numeric standard to use in calculations.
• Verification bodies, measurement-device suppliers, and consultants who support reporting and verification.
• Remote electricity generators that supply off-grid communities: the regulations exempt many of these facilities from being mandatory covered facilities (unless the Minister designates them).

If it’s unclear whether a particular facility or activity is covered under the changes, the Minister has authority to recognize “additional industrial activities,” so some cases may be decided later.

Why it matters#

• It makes the industrial part of Canada’s carbon pricing system steadily stricter each year. That raises the pressure on large emitters to cut emissions, invest in cleaner technology, or buy compliance units (credits) to make up shortfalls.
• The government’s analysis expects the combined changes (including a rising carbon charge that reaches $170 per tonne by 2030) to reduce Canadian greenhouse gases by about 3.3 million tonnes (Mt) of CO2e over 2023–2032, with estimated societal benefits of about $910 million and a modeled net benefit of $640 million. The same analysis also estimates economy-wide welfare costs to households of roughly $270 million over ten years (these are modelled estimates with uncertainty).
• For real people this can mean:
  • Industry: higher long‑term compliance costs but a clearer, predictable tightening path that can influence investment in low‑carbon technology.
  • Workers and communities near affected facilities: possible economic shifts if facilities change operations or investment; the impacts will vary by region and sector.
  • Public: potential air‑quality cobenefits from lower emissions and continued government returns of some proceeds to jurisdictions for clean technology and programs.
• The rules are intended to keep Canada’s industrial carbon-pricing system aligned with the federal benchmark so that the market price for emissions (credits) remains meaningful as the federal carbon charge rises toward $170 per tonne by 2030.