Mr. Speaker, in response to (a), pricing carbon pollution is widely recognized as the most efficient way to reduce greenhouse gas, GHG, emissions while driving innovation to provide consumers and businesses with low-carbon options. Canada’s approach to pricing carbon pollution provides flexibility for provinces and territories to implement a carbon pricing system that makes sense for their circumstances, provided that the system meets minimum stringency criteria to ensure that it is stringent, fair and efficient as defined in the federal benchmark.
The federal carbon pollution pricing system, the backstop, has two elements: a regulatory charge on fossil fuels and an output-based pricing system, OBPS, for industrial facilities. The federal OBPS is designed to minimize competitiveness and carbon leakage risks in emissions-intensive and trade-exposed industries.
The federal backstop applies in jurisdictions that request it or that do not have a carbon pricing system that aligns with the federal benchmark.
The fuel charge currently applies in Ontario, Manitoba, Yukon, Alberta, Saskatchewan, and Nunavut. The OBPS currently applies in Manitoba, Prince Edward Island, Yukon, Nunavut, and partially in Saskatchewan.
Under the federal approach, the OBPS is designed to put a price on the carbon pollution of large industrial facilities, while limiting the impacts of carbon pricing on their ability to compete in the Canadian market and abroad. Carbon costs can affect businesses that conduct activities that are emissions-intensive and highly internationally traded if they compete with similar businesses in countries that do not have carbon pricing in place. This approach minimizes the risk that businesses will move from Canada to jurisdictions that do not price carbon.
Instead of paying the fuel charge, an industrial facility in the OBPS faces a compliance obligation on the portion of emissions that exceed an annual limit. Covered facilities are required to provide compensation for GHG emissions that exceed an emissions limit and are issued surplus credits if their emissions are lower than the applicable emissions limit. Facilities can sell surplus credits or bank them for use in future years. The methods for providing compensation are one of the following or a combination of both: a) making an excess emissions charge payment electronically to the receiver general for Canada; and b) remitting compliance units, namely surplus credits, federal offset credits, or recognized units.
As of February 22, 2022, the Government of Canada had collected $396.2 million in excess emissions charge payments under the OBPS.
In response to (b), the Government of Canada has committed to return proceeds collected from the OBPS to jurisdictions of origin. Jurisdictions that have voluntarily adopted the OBPS, currently Prince Edward Island, Yukon and Nunavut, can opt for a direct transfer of proceeds collected. Proceeds collected in other backstop jurisdictions, current or past, including Ontario, New Brunswick, Manitoba and Saskatchewan, will be returned through the two program streams of the OBPS proceeds fund.
The decarbonization incentive program, DIP, is a merit-based program that incentivizes the long-term decarbonization of Canada’s industrial sectors by supporting clean technology projects to reduce GHG emissions. Proceeds collected from most OBPS facilities will be returned via DIP to backstop jurisdictions.
The future electricity fund, FEF, stream is designed to support clean electricity projects and/or programs. Proceeds collected from OBPS-covered electricity-generating facilities, i.e., utilities, are expected to be returned through funding agreements with governments of backstop jurisdictions. An open call for project proposals is not anticipated under FEF.
Environment and Climate Change Canada, ECCC, launched the OBPS proceeds fund on February 14, 2022, to return proceeds collected for the 2019 compliance period, approximately $161 million, and those collected in future years, amounts to be confirmed. The DIP stream of the OBPS proceeds fund is currently accepting project proposals that would reduce emissions across Canada’s industrial sectors. ECCC has also engaged with the governments of backstop jurisdictions to initiate negotiations of the bilateral funding agreements under FEF. Given the recent launch of the OBPS proceeds fund, ECCC has not yet returned any proceeds collected from the OBPS