News

Federal Carbon Pricing Backstop Imposition
Nov 01, 2018

What Saskatchewan Businesses Need to Know.

Introduction

On October 23rd 2018, Prime Minister Justin Trudeau announced further details  around the federal carbon pricing backstop plan. During his speech, Prime Minister  Trudeau stated the federal backstop plan will be applied, either in whole or in part,  to those provinces whose own climate change policies do not conform to federal  standards. Elements of the federal backstop plan will be imposed on Ontario, New  Brunswick, Manitoba, and Saskatchewan. 


The Greenhouse Gas Pollution Pricing Act, which was adopted on June 21, 2018, is  the enabling legislation for the federal carbon pricing backstop plan. The Government  of Canada will direct all carbon pricing-related proceeds back to households in the  form of a rebate called the Climate Action Incentive. Businesses, cities, Indigenous  communities, and public institutions will also receive funding to encourage energy  efficiency and other carbon emissions reducing measures.

 
What is the Federal Carbon Pricing Backstop Plan?

The federal carbon pricing backstop plan is comprised of two main components. The  first is a broad-based carbon levy on fossil-fuel combustion. It will be paid early  on in the supply chain by fuel producers and distributors with the expectation that  those additional costs will be passed along to consumers in the form of higher fuel  prices. The fuel charge regime is expected to come into effect in April 2019. Since  the province does not currently have a fuel charge regime of any kind, this particular  component of the federal backstop will be imposed in whole.    


For most people in Saskatchewan, this will result in an additional cost of almost 4.5  cents per litre of gasoline and an additional cost of almost 4 cents per cubic metre of  natural gas for home heating for 2019. Fuel charge rates will increase over time. A  complete list of rates for a variety of combustible fuels can be found here. Because  GST cannot be exempted from the carbon price, federal GST will be levied on top of  the fuel charge as well. It is important to note that fishers and farmers will be fully  exempted from fuel charges related to eligible fishing and on-farm activities. A full  exemption from carbon pricing will be granted to diesel-fired electricity generation  in remote and northern communities as well.       

The second component of the federal backstop plan is an output-based pricing system (OBPS) that establishes carbon-intensity (amount of carbon emissions emitted per  unit of production) standards for large industrial emitters. Because the Government  of Saskatchewan already has an existing output-based performance standard (OBPS)  outlined in its climate change strategy, this component of the federal backstop plan  will be applied to the emission sources not covered by the provincial OBPS. The  federal OBPS is scheduled to come into effect January 2019.  

 
Federal vs Provincial OBPS: Similarities and Differences 

Whereas the provincial OBPS exempts electricity generation and natural gas transmission  pipelines, the federal OBPS will apply to both electricity generation and natural gas  transmission pipelines effective January 2019. The provincial OBPS applies to large  industrial facilities that emit 25,000 tonnes or more of carbon dioxide equivalent  (CO2e) emissions per year, exempting electricity generation and natural gas. 
The federal OBPS on the other hand, applies to large industrial emitters that emit  50,000 tonnes or more of C02e per year, with electricity generation and natural  gas transmission pipelines being subject to the federal OBPS. The provincial OBPS  will cover about 58% of Saskatchewan’s total annual reported emissions. A list of  the sector-specific performance targets under the proposed provincial OBPS can be  found here. 
While the provincial and federal OBPS systems differ in terms of their annual C02e  emission thresholds and whether or not emissions resulting from electricity generation  and natural gas transmission pipelines are covered, both the provincial and federal  OBPS share in common the following:  

  • Annual sector-specific performance targets (although individual sector-specific performance targets may vary among the provincial and federal OBPS systems) 
  • Regulated emitters are provided with multiple compliance options (i.e. reduce emissions intensity to meet the performance standard; outperform the performance standard and earn/sell a credit; purchase offsets from non-regulated activities if unable to meet performance standard; pay into technology fund at an established rate) 
  • Industrial facilities emitting 10,000 tonnes or more of C02e must annually report their emissions to both the Saskatchewan Ministry of Environment and Environment Climate Change Canada’s (ECCC) single-window Greenhouse Gas Reporting Program (GHGRP). 

While all regulated emitters must report their emissions, not all emitters (10,000  - 24,999 tonnes of C02e annually) that are required to report will fall under the  provincial or federal OBPS. Annual emissions must be audited and verified by a  qualified third-party. Please see a bulletin released by the Saskatchewan Chamber  of Commerce from March 2018 for more information here.    

How Will the Proceeds of the Federal Backstop Plan be Recycled?

All revenue generated as a result of carbon pricing will be directed back into the  jurisdiction of origin by the Government of Canada. Most of the revenue generated  will be returned to Saskatchewan households in the form of a tax-free rebate called the Climate Action Incentive. Saskatchewan households will receive payments after  filing their tax returns through the Canada Revenue Agency.  


Household rebate payments will increase annually to reflect increases in the dollar  per tonne price on carbon emissions from 2019 – 2022. An additional supplement of  10% of the payment amount will be provided to Saskatchewan households located in  small or rural communities (outside of Regina and Saskatoon) in recognition of their  increased energy needs and reduced access to low-carbon transportation options. 


The Government of Canada estimates that carbon pricing will cost the average  household in Saskatchewan $403 in 2019, but that same household will receive a  rebate payment of approximately $600. According to the Government of Canada,  most households are expected to be financially better off as a result of the rebate.  The remaining 10% of all carbon-pricing related proceeds will be directed to provide  support for particularly affected sectors, like small and medium-sized nterprises  (SMEs), schools, hospitals, Indigenous communities, post-secondary institutions,  non-profit organizations, etc. 

 
Timelines and Next Steps 

Provinces and territories had until the September 1, 2018 deadline to outline their  climate change plans. While the Government of Saskatchewan did communicate  their Made-in-Saskatchewan climate change strategy to the Federal Minister of  Environment and Climate Change, the Province refused to formally submit the plan  for federal review. The Government of Saskatchewan maintains the Government of  Canada does not have the constitutional authority to impose such a tax and is still  pursuing litigation. 

Regulatory instruments related to the federal backstop plan will be published in the  Canada Gazette, Part II on October 31, 2018. Detailed, sector-specific emissions  quantification, verification, and reporting requirements are forthcoming. Regulated  facilities that meet the published criteria will need to register with Environment and  Climate Change Canada. Registration will open on November 1, 2018. More details  on Environment and Climate Change Canada’s website will be available on October  31, 2018. Additional draft regulations on the federal OBPS will be circulated for public  comment later this fall.    

For more information, please contact:
Joshua Kurkjian, M.A. 
Director of Research and Policy Development  
Saskatchewan Chamber of Commerce  
Phone: 306-781-3125 
Email: jkurkjian@saskchamber.com 
www.saskchamber.com 

Source: Saskahctewan Chamber of Commerce

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