Madam Speaker, I will take a moment to explain these two components in further detail.
Part 1 of the act sets out the details on the fuel charge, which would generally be payable by a fuel distributor or a fuel producer who can be expected to pass on that cost to the end-user of the fuel in the form of an increased purchase price, thereby creating a price signal throughout the Canadian economy. The rates of the fuel charge are set out in schedule 2 of the act. This part will be administered by the Canada Revenue Agency.
Part 2 establishes the performance-based system for industrial facilities with high emissions that are also trade exposed. This system is designed to provide a price signal and incent reductions while minimizing competitiveness in carbon leakage risks. Instead of paying the fuel charge in part 1 on fuels that they purchase, industrial facilities will face a compliance cost on only a portion of their emissions, the amount by which they exceed a regulated limit.
The annual emissions limit for a facility that carries out a regulated activity will be based on an emissions intensity standard for that activity. Standards will generally be in the form of emissions per unit of production. Regulations will set different standards for different activities.
As an example of how this will work, a standard could be set at one tonne of CO2 emissions per unit of production for a particular regulated activity. A facility that carries out the regulated activity would have an annual limit that is equal to one tonne of carbon emissions multiplied by the number of units that the facility produces in that year. This will create an incentive for facilities to produce as efficiently as possible, in other words, to reduce their emissions per unit of production. This will drive energy efficiency and switching to cleaner fuels.
If a facility emits less than the limit, it will receive surplus credits that it can bank for future use or sell to other regulated firms. The system thus creates an incentive for continuous improvement.
Facilities that emit above their limit will need to provide compensation for the portion of their emissions above their annual limit using one of three methods. First, facilities can submit surplus credits that they earned in previous years or acquired from another facility. Second, facilities can submit offset credits from projects that prevent emissions or that remove greenhouse gases from the atmosphere. Third, facilities can pay a charge equivalent to the price of the federal standard carbon price. This price is set at $10 per tonne of carbon dioxide equivalent in 2018 and will rise by $10 annually until it reaches $50 per tonne in 2022.
Facilities will be required to open accounts in a tracking system to buy, sell, and use credits. The tracking system in part 2 will also register payments of the excess emissions charge. The actual performance standards for each sector will be prescribed in regulations. Officials from the Department of Environment and Climate Change are in the process of engaging with industry and other interested stakeholders on the development of these standards.
Wherever the federal carbon pricing system applies, the Government of Canada will return all direct revenue made from the carbon price to the jurisdiction of origin.
Part 1 and part 2 each contain administrative sections, such as provisions on registration, compliance reporting, confidentiality of information, and record-keeping for the proper functioning of the federal system. To ensure timely payment of the carbon price and compliance with the other requirements of the federal system, part 1 and part 2 each contain enforcement provisions, including penalties, offences, and debt collection provisions tailored to the specific component in each part.
The act requires the Minister of Environment and Climate Change to report annually to Parliament on the administration of the act. This is in addition to the commitment in the pan-Canadian framework for annual reports on the overall implementation of the framework and a joint federal-provincial-territorial review of the overall approach to pricing carbon in Canada by early 2022 to confirm the path forward, with an interim review in 2020.
Pricing carbon pollution is one of the key actions that will put Canada on a course to meet our 2030 emissions reduction target, but it is not the only action. Canada's clean growth and climate action plan includes many other measures across the economy that complement carbon pricing to cut emissions. These include phasing out coal-fired power; improving the energy efficiency of buildings, vehicles, and industries; and cutting methane emissions from the oil and gas sector.
The government is also making significant investments to enable Canadian businesses and workers to participate in the trillion-dollar opportunities offered by the world's transition to a clean growth economy. In June 2017, the $1.4 billion low-carbon economy leadership fund was launched to support provincial and territorial projects for buildings, industry, forestry, and agriculture.
In December 2017, the first set of projects was announced and many are now under way. On March 14, 2018, the low-carbon economy challenge was launched. The challenge will provide up to $500 million for projects that generate clean growth and reduce greenhouse gas emissions. Provinces, territories, businesses, municipalities, not-for-profit organizations, and indigenous communities can apply. The government is also investing billions of dollars in green infrastructure and public transit. The Canada Infrastructure Bank and Export Development Canada are using innovative financing mechanisms, like green bonds, to support climate investments and help new technologies become mainstream.
