Canada: A New Era Of Carbon Pricing In Canada And Another East-West Divide

Last Updated: March 16 2017
Article by Evan W. Dixon and Brittany Scott

Implementation of the Pan-Canadian Framework

2017 marks a new era for the Canadian oil and gas industry with the Liberal Party at the Federal level and the New Democratic Party in Alberta seeking to establish clean energy policies designed to limit greenhouse gas (GHG) emissions and facilitate a transition to a "clean energy" future. On December 9, 2016 the Federal Government, along with most of the premiers, signed a new pan-Canadian framework (Pan-Canadian Framework). The Pan-Canadian Framework is intended to address climate change nationally by implementing a 2030 target of a 30% reduction of GHG emissions below 2005 levels, as promised at the 2015 U.N.-sponsored climate change summit.

The Pan-Canadian Framework was based on a report by the Working Group on Carbon Pricing Mechanisms (Working Group). The Working Group was tasked with providing a report with options on the role of carbon pricing mechanisms in meeting Canada's emissions reduction targets, including different design options taking into consideration existing and planned provincial and territorial systems. The Pan-Canadian Framework adopted the following guiding principles from that report:

  1. carbon pricing should be a central component of the Pan-Canadian Framework;
  2. the approach should be flexible and recognize carbon pricing policies already implemented or in development by provinces and territories;
  3. carbon pricing should be applied to a broad set of emission sources across the economy;
  4. carbon pricing policies should be introduced in a timely manner to minimize investment into assets that could become stranded and maximize cumulative emission reductions;
  5. carbon price increases should occur in a predictable and gradual way to limit economic impacts;
  6. reporting on carbon pricing policies should be consistent, regular, transparent and verifiable;
  7. carbon pricing policies should minimize impacts on competition and carbon leakage, particularly for trade-exposed sectors; and
  8. carbon pricing policies should include revenue recycling to avoid a disproportionate burden on vulnerable groups and Indigenous peoples.
  9. The Pan-Canadian Framework is opposed by Saskatchewan Premier Brad Wall, who dismisses carbon pricing outright. Premier Wall has indicated he cannot commit his province to a system that imposes a tax on carbon emissions, given the important role carbon-based industries play in Saskatchewan and the current challenges facing the oil and gas industry. Manitoba Premier Brian Pallister also refused to sign on, indicating Manitoba would be taking a "wait and see" approach and withholding support until a better deal on federal health care transfers was settled. To date, neither Saskatchewan nor Manitoba has signed onto the Pan-Canadian Framework.
  10. Provincial Carbon Pricing Regimes
  11. As part of advancing the Pan-Canadian Framework, the Federal Government had previously announced on October 3, 2016 that all jurisdictions across Canada must establish a carbon pricing system by 2018. Provinces have the choice to implement either an explicit price-based system or an emissions trading system. For those provinces that choose not to implement their own system or their system does not meet the federal benchmark, the Federal Government has indicated it will impose an explicit price-based carbon pricing system in that jurisdiction. What the federal system will entail is currently unknown. At a minimum, it seems likely that the federal system will be consistent with the principles accepted from the Working Group. In part, this effort is designed to ameliorate concerns that carbon-intensive industries that compete inter-provincially would be advantaged in those jurisdictions without a carbon price, possibly leading to the leakage of certain industry (and associated emissions) to jurisdictions without a carbon price. For provinces subject to the federal system, the federal government has indicated it will return revenues to the jurisdiction of origin and has stated that the overall approach will be reviewed by early 2022 to confirm the path forward, including continued increases in stringency. The review will account for progress and for the actions of other countries in response to carbon pricing, as well as recognition of permits or credits imported from other jurisdictions.
  12. Current Status of Carbon Pricing Across Canada
  13. The Government of Canada's clear message is that it believes an economy-wide carbon pricing mechanism is the most efficient way to reduce GHG emissions. The government also believes that pricing pollution will drive innovative solutions to provide low-carbon choices for consumers and businesses, clean growth and the creation of jobs for the middle class to support the transition to a low-carbon economy. Currently, provinces that have implemented a price on carbon have chosen one of two ways largely divided between eastern and western Canada, with the west choosing a carbon tax model and the east generally implementing a cap-and-trade system. The Maritime Provinces are currently divided between carbon pricing and cap-and-trade — Nova Scotia is implementing a cap-and-trade whereas Prince Edward Island will have a carbon tax regime. The territories, generally have not committed to either regime except that the Yukon has indicated that it intends to be governed under the federal government carbon pricing regime. The Federal Government has indicated that it will work with the territories to address their specific challenges.

Cap-and-Trade System

A cap-and-trade system is a market-based approach where an annual limit or cap is set on the amount of GHG emissions allowed to be released into the atmosphere. Cap-and-trade system participants are allocated a declining amount of GHG emissions each year (the "cap"), meaning they must either cut their emissions, purchase allowances or buy offset credits (to a maximum of 8% of exceeding emissions) to make up for the difference. By creating demand and supply for emissions allowances, a cap-and-trade system establishes a market price for GHG emissions. In order to achieve absolute reductions in GHG emissions, the limit or cap is gradually lowered over time. According to the Federal Government, provincial cap-and-trade systems must have a:

  1. 2030 emissions reduction target equal to or greater than Canada's 30% reduction target;
  2. declining and more stringent annual caps to at least 2022 that correspond, at a minimum, to the projected emissions reductions resulting from the carbon price that year in price-based systems.

The eastern provinces, Ontario and Québec, chose linked cap-and-trade systems. Québec's system has been operational since 2012 and Ontario's came into force as of January 1, 2017. Both jurisdictions have imposed GHG emissions reductions targets.1 Ontario's and Québec's cap-and-trade systems are linked to California, under the Western Climate Initiative, which allows them to purchase offset credits outside of their respective jurisdictions. The initial floor price on carbon in Ontario is expected to be set for auctions at between $17.50 and $18 per tonne, though demand could push the price higher. The current floor in Québec is set at $13.56 for the February 22, 2017 auction. Nova Scotia has also stated it will be implementing a cap-and-trade system but will not link it to Ontario or Québec. The full details of Nova Scotia's system are unknown as of February 6, 2017.

Explicit Pricing System

A carbon tax or levy puts a price on each tonne of GHG emissions generated from a broad set of sources. The idea is that over time, the carbon price will elicit a market response from all sectors of the economy, thus resulting in reduced emissions. The design and implementation of carbon taxes varies widely and will depend on the jurisdiction's energy mix, composition of its economy, existing tax burdens, existence of complementary environmental policies and political considerations. For jurisdictions with a price-based system, the carbon price floor is a minimum of $10/tonne in 2018 and must rise by $10/year to $50/tonne in 2022.

The largest western energy producing provinces, Alberta in 2017 and British Columbia in 2008, implemented a carbon price to manage GHG emissions. For 2017, the British Columbia carbon tax is $30/tonne of GHG emissions whereas in Alberta the carbon levy is $20/tonne, increasing to $30 in 2018. Both Alberta and British Columbia's carbon price are revenue-neutral whereby revenues generated are returned to taxpayers by various means. Saskatchewan remains the sole Canadian province with a relevant oil and gas sector that may be subject to the federal policy unless it chooses to implement its own "made in Saskatchewan approach." Prince Edward Island announced its commitment to a carbon tax regime effective January 1, 2018 that will be "fiscally neutral" — the full details of its carbon tax are unknown at the moment.

More Clarification Required

Each nation, including Canada, arguably has a responsibility to address climate change. The Government of Canada's policies are based on the premise that by acting now and acting together, it can assist the Provinces in transitioning to a lower carbon future and assist all Canadians in making this transition. The full impact of these measures will not be known for some time. While perhaps a laudable effort on the part of the Federal Government to take on leadership on climate change issues, the regime still lacks clarity in several key areas. There are a number of critical issues still to be addressed to ensure the alignment and equivalency of provincial and federal policies, especially as it affects provincial competiveness within and outside Canada. Perhaps the greatest question remains is how these policies will fare given the interconnected nature of the North American economy and what appears to be an a divergence on carbon policy under President Trump. Only time will tell and we will all understandably watch for future developments in Canada as these policies are put into place and might be affected given the new political landscape south of the border.

Footnotes

1 In Ontario, the GHG emissions reductions target in 2020 is 154.7 Mt, 15% below 1990 levels, and for 2030 is 114.7 Mt, 37% below 1990 levels. In Québec, the GHG emissions reductions target in 2020 is 71.8 Mt, 20% below 1990 levels, and for 2030 is 56.1 Mt, 37.5% below 1990 levels.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.