Thank you, Mr. Chair.
Like my colleague Mr. Mercille, I am going to give a summary overview of Part 2 of the act, which sets out the output-based pricing mechanism for greenhouse gas pollution caused by large industrial installations. For your information, Part 2 is in sections 169 to 261 of the act.
The objective of Part 2 is to reduce to a minimum the risk of carbon leaks from industries that engage in trade, while imposing a price signal that encourages those industries to reduce the level of greenhouse gases their facilities emit.
Part 2 is mostly enabling legislation, since it establishes some of the main powers and obligations of the output-based pricing mechanism, but most of the details of the system will be provided in the regulations. May I direct your attention to section 192, which sets out those regulatory powers in detail? In other words, regulations detailing the mechanism will have to be made in order for them to be operational in one of the administrations listed in schedule 1 of the act.
The government has already begun consultations on the proposed regulatory framework for the implementation of the output-based system, which may be the subject of regulations, if this bill is given royal assent.
The output-based pricing system will only apply to facilities that meet the following criteria.
First, the facilities must be located in a province or territory to which the federal system applies; secondly, their emissions must be over a given threshold, that will be set in the regulations. Finally, they must perform certain activities, which will also be listed in the regulations. The regulated facilities are referred to in the act as ''covered facilities''. The term is defined in section 169 of the act.
As mentioned previously, the output-based pricing system will complement the fuel charge. In other words, the fuels used in facilities covered by the output-based pricing system will not be subject to the fuel charge contained in Part 1.
Regulated facilities will have to register with the system, submit reports on their GHG emissions, and assess their emissions output against a GHG limit. The annual limit for covered facilities will be based on an emissions intensity standard for the industrial activity of the facility. The standards will be defined by regulations.
For the purpose of publishing emissions intensity standards in the fall of 2018, the department has begun to engage with stakeholders. For instance, a standard could be set to allow the emission of the equivalent of a tonne of CO2 per unit of production for a given regulated activity. In that example, facilities that practice the regulated activity would have an annual limit equal to a tonne of CO2 equivalent, multiplied by the number of units produced by the facilities in the course of that year. That design feature will encourage the facilities to be as efficient as possible in their production, in other words, to reduce their emissions per production unit. The goal is to encourage energy efficiency and the use of cleaner fuels.
Section 174 requires that regulated facilities provide compensation for the part of their emissions that exceeds the annual limit. However, if facilities emit less than their annual limit, under section 175 they will receive surplus credits, which they may apply in future or sell to other regulated facilities. In this way the system creates an incentive for continuous improvement.
The facilities that must remit compensation for excess emissions may do so in one of the following three ways.
First, the facilities may submit the surplus credits they have earned or acquired from other facilities. Second, the facilities may submit compliance units from approved projects that prevent or eliminate GHG emissions. Third, the facilities may also pay an excess emissions charge, which is set out in schedule 3 of the bill.
As previously mentioned, the charge is set at $10 per tonne of carbon dioxide equivalent in 2018, and will increase by $10 a year until it reaches $50 a tonne in 2022.
In addition to credits referred to as compliance units, which will be delivered under Part 2 of the act, it is possible that credits from other jurisdictions, such as compliance units issued under a provincial system, may be accepted as compensation.
The facilities will have to open accounts in a tracking system to allow for the purchase, sale and use of credits. The Part 2 tracking system will also register the payment of charges for excess emissions.
As for the distribution of revenue collected under Part 2, essentially, as my colleague Mr. Mercille described it, all of the revenue collected from the output-based pricing system will be returned to the province or territory it came from. Under the law the revenue may be distributed to the government of a province or territory, or to persons designated by regulation.
A large part of this bill, which has 200 pages, refers to provisions related to the enforcement or application of the law. Those provisions are designed to ensure the integrity and proper operation of the pricing system. They are largely inspired by the application and enforcement provisions that are found in other federal environmental acts such as the Canadian Environmental Protection Act.
Part 3 of the act allows the federal government to apply, if need be, a provincial pricing mechanism in keeping with the federal standard to federal Crown lands, as well as to federal works and enterprises, what is known as the ''federal house''. These powers mean that the federal house is subject to the same provincial pricing system as the other federally regulated entities on that territory.
Finally, Part 4 of the act requires that the Minister of the Environment and Climate Change table a report every year on the application of the act before both houses of Parliament.
Thank you.
We are ready to answer your questions.