Effective January 1, 2023, the federal carbon price, or tax implemented under the Greenhouse Gas Pollution Pricing Act (GGPPA), will increase from CA$50 to CA$65 per tonne of greenhouse gas (GHG) emissions, with annual increases thereafter taking the tax to CA$170 per tonne by 2030. Unlike the carbon tax applied to individuals and businesses, which is assessed on 100% of their emissions, the tax is only applied to part of the emissions of large industrial emitters, tied to their industrial output or production.

In an effort to standardize the coverage of industrial GHG emissions across pricing programs in Canada, under the 2023-2030 federal benchmark, provincial and territorial carbon pricing programs can displace the federal tax if they can achieve a result equivalent to the federal benchmark. Provinces and territories with their own carbon pollution pricing systems must amend their systems in order to align with the 2023-2030 federal benchmark, which requires annual reductions in emissions intensity relative to production or output. If programs do not meet the federal benchmark, the federal pricing or tax will apply to such provincial industries.

Alberta

The Government of Alberta has just announced amendments to the Technology Innovation and Emissions Regulation (TIER). These changes are significant and include, but are not limited to:

Emissions Scope: Flaring emissions are now included within the regulated emissions for aggregate oil and gas facilities. The pricing of flaring emissions is expected to significantly increase the volume of emissions covered under the upstream oil and gas sector.

Opt-In Threshold: The opt-in threshold for emissions, emissions-intensive and trade-exposed industry will now be 2,000 tonnes of carbon dioxide equivalent (CO_2e) per year, a significant decrease from the previous threshold of 10,000 tonnes of CO_2e per year. This important change will allow many smaller emitters to opt into TIER and provide the opportunity to offset their emissions while also increasing demand for offset development.

Offset and Performance Credit Use Limit: Credit usage limit will be 60% in 2023, and will be raised by 10% until reaching 90% in 2026 moving forward. This is a significant opportunity which will further incentivize the energy transition in Alberta, and also continues to incentive mitigating activities by the oil and gas industry

CCUS Credits: Sequestration credits and capture recognition tonnes are established as new instruments. Capture recognition tonnes by large emitters and opt-in facilities allow those emitters or deduct carbon that they themselves sequester from their total regulated emissions at carbon capture sites.

Alberta also announced that the TIER fund price will increase from CA$65 in 2023 in CA$15 increments up to CA$170 by 2030, in order to match the federal carbon pricing level.

Saskatchewan

The federally imposed carbon tax on industrial emitters under Part 2 of the GGPPA has, up until now, applied in Saskatchewan, as the industrial emissions pricing system previously in place for the province did not meet the federal standards. At the end of November this year, the Government of Saskatchewan announced that the Saskatchewan Output-Based Performance Standards Program (OPBS) was now approved to meet the requirements for the 2023 to 2030 federal carbon pricing benchmark. A major change in Saskatchewan to meet the federal standards included the coverage of the natural gas transmission pipeline and electricity generation sectors within the OBPS program.

Other changes include:

Emissions Scope: Similar to the changes in Alberta, the program will now cover flaring and on-site transportation emissions from the upstream oil and gas sector.

Offset and Performance Credits: To manage the supply of offset credits while protecting the competitiveness of regulated emitters, Saskatchewan decided to remove offset credits as a compliance option under the OBPS program. While these credits have been removed, Saskatchewan has stated that it will work with offset project developers to identify growing international carbon market opportunities. Under the previous system, performance credits were awarded to regulated facilities that reduced emissions by at least 10, 15, or 20 per cent below their permitted emissions in a given year. Now, one credit will be awarded for each tonne of emissions below the permitted emissions of a regulated facility in a compliance year.

CCUS Credits: To incentivize CCUS as a means of significantly reducing emissions in the province, regulated emitters that capture and permanently sequester CO2 will be awarded with CCUS credits. These credits can be used by regulated emitters to fulfil compliance obligations incurred at a regulated facility owned or operated by that regulated emitter. CCUS credits cannot be purchased by another regulated emitter to fulfil compliance, in order to manage supply.

Like in Alberta’s TIER fund, the Saskatchewan Technology Fund rate of payment schedule will now follow the federal carbon pricing schedule, increasing at CA$15 intervals until CA$170 in 2030.

Ontario

Also this week, Ontario finalized amendments to its Emissions Performance Standards (EPS) program, in order to align with the updated federal benchmark for 2023-2023. The EPS program regulates GHG emissions from large industrial facilities by setting emissions limits that are the basis for the compliance obligations of those facilities.

The changes to the EPS Program, which was implemented in Ontario in January 2022, will include:

• Increasing the emissions scope of the EPS Regulations to add numerous industrial activities within the manufacturing sector;
• Change registration and cessation;
• Allow facilities that expect to emit 10,000 tonnes of CO_2e or more within the three years following a retrofit or expansion to apply to register under the EPS Program;
• Provide a process for Ontario businesses to cease being covered under the Program under certain circumstances;
• Replace energy-based standards with alternate performance-based standards and develop new or adjust existing performance standards in certain circumstances;
• Increase the annual emissions reduction requirements to meet the updated Federal Benchmark; and
• Update stringency factors, among other things.

Importantly, the province will immediately strengthen the natural-gas fired electricity performance standard from 370 tonnes to 310 tonnes of tonnes of CO_2e per gigawatt hours, while continuing to exclude it from the application of a stringency factor.

Unlike the Alberta and federal OBPS systems, Ontario’s EPS Program does not allow covered large stationary sources to use carbon offsets towards their EPS compliance. Regarding CCUS, Ontario’s program now recognizes carbon dioxide emissions that are captured at a covered facility and stored permanently in a storage project during a compliance period, as GHG emissions reductions at the covered facility that can be used in reducing covered facilities’ EPS obligations.

As with Alberta and Saskatchewan, the Ontario EPS program will now align with the minimum federal carbon price, reaching CA$170 by 2030.

Conclusion

These changes will have wide-reaching effects on facilities with emissions-intensive regulations within Canada, while encouraging emission reduction technologies and projects. Likewise, regulated facilities must continue to track the ongoing changes to the carbon pricing schemes at a provincial and federal level in order to plan to meet compliance obligations to the extent that these obligations become progressively stricter in the future. The potential impacts on the rapidly expanding carbon markets in Canada cannot be understated, and we are looking forward to watching these markets develop further. Additionally, the recognition of CCUS credits within the provincial schemes may result in more rapid development and implementation of CCUS projects in Alberta, Saskatchewan and possibly Ontario, following its decision to remove the current prohibition of permanent geological storage of carbon, pursuant to its Oil, Gas and Salt Resources Act.

For more information on this topic, please reach out to the authors Bernie Roth, Hazel Saffery, and Kate Wiltse.