Canada: Canada Publishes Technical Paper, Reveals Federal Carbon Pricing Plan

On May 18, 2017, Environment and Climate Change Canada released the Technical Paper on the Federal Carbon Pricing Backstop (Technical Paper), which provides an overview of the prospective federal carbon emissions pricing system and insights on how the federal carbon price will take shape.

Canadian stakeholders, businesses and the public have been invited to provide comments on the Technical Paper until June 30, 2017. It is expected that the introduction of new federal legislation and regulations will follow this consultative process.

The Technical Paper follows the publication of the Pan-Canadian Framework on Clean Growth and Climate Change (Pan-Canadian Framework) in December 2016. A central element of the Pan-Canadian Framework and the federal government's approach to addressing climate change is the commitment to pricing carbon emissions across the country by 2018, with increasing stringency over time, while providing provinces and territories flexibility to implement their own carbon pricing systems. Since the publication of the Pan-Canadian Framework, carbon market watchers eagerly awaited details of how the federal carbon price would be implemented and how it would apply to provinces who have already adopted measures to tackle greenhouse gas (GHG) emissions in their territories, in particular in light of the variety of approaches taken by the provinces (for example, a tax in British Columbia, a cap-and-trade system in Ontario and Quebec and emissions-intensity standards, an emissions cap and a carbon levy in Alberta).



The federal carbon pricing system will only be implemented as a backstop in the provinces that do not have a carbon pricing system that aligns with the federal benchmark by 2018. In provinces that have adopted carbon pricing system instruments, but such instruments are not stringent enough to meet the federal benchmark, the backstop will be used to supplement the measures in place. This could include expanding the sources of emissions covered by provincial carbon emissions pricing or increasing the stringency of the provincial carbon price.

According to the Pan-Canadian Framework, the federal carbon price will not apply in jurisdictions where GHG emissions reduction measures meet the following requirements:

  • Price: In jurisdictions with a price-based system (i.e., a tax or levy), the carbon price should start at a minimum of C$10 per tonne in 2018 and moving up by C$10 per year to C$50 per tonne in 2022
  • Cap-and-trade: In jurisdictions that have implemented a cap-and-trade system, the local regulatory framework should include: a 2030 emissions-reduction target equal to or greater than Canada's 30 per cent reduction target from 2005 levels; and declining (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

Overview of Federal Carbon Pricing System

The federal carbon pricing system will be composed of two elements: a carbon levy will apply to fossil fuels as of 2018, and an output-based pricing system for industrial facilities will come into effect after January 1, 2019.

Carbon Levy: Fossil Fuels

  • Levy on fuels: Fossil fuels (either in a liquid, gas or solid form) used in backstop jurisdictions will be subject to a carbon levy. Annual rates (from 2018 to 2022) are set forth for each type of fossil fuel subject to the carbon levy, in a way that ensures that they are equivalent to the federal benchmark price and increase substantially each year (i.e., C$10 per tonne in 2018 and moving up by C$10 per year to C$50 per tonne in 2022).
  • Scope of application: The levy will generally be applied to fuels used in backstop jurisdictions, regardless of whether the fuel was produced in or brought into the province, and will generally be applied early in the supply chain and be payable by the producer or distributor. The intent is for the end-user to purchase levy-paid fuel in most cases.
  • Exemptions: Certain exemptions from the carbon levy system will be implemented. In particular, fuels used at industrial facilities subject to the output-based pricing system (see below) will not be subject to the carbon levy. Gasoline and diesel fuel used by registered farmers for specific activities will also be exempted.
  • Registration and reporting: Distributors, importers and users of fuel will generally be required to register and file monthly returns with the Canada Revenue Agency calculating the total amount of the levy payable for each backstop jurisdiction and remit the applicable amount to the Receiver General for Canada. Fuel distributors and importers will generally need to provide information on quantities of fuels produced, brought or imported into each backstop jurisdiction, as well as quantities of fuels used and delivered within each backstop jurisdiction and delivered outside a backstop jurisdiction.

Output-based Pricing System: Industrial Facilities

  • Threshold: Industrial facilities emitting 50,000 or more tonnes of carbon dioxide equivalent per year will be covered. It will not apply to facilities in sectors such as buildings (including municipal buildings, hospitals, universities, schools and commercial buildings), waste and wastewater, regardless of the quantity of emissions. Industrial facilities that emit less than the 50,000 tonne threshold will have the option to "opt in" to the output-based pricing system (so as to not pay the carbon levy).
  • Sources of emissions covered: The output-based system will apply to emissions from fuel combustion, solvent use and emissions of synthetically produced GHG from industrial processes and product use.
  • Emission limit: For facilities covered by the system, an annual emissions limit will be set, which will be based on the total output from a facility and the emission-intensity standards set out by the government for a type of activity or product. The emissions-intensity standards will be set as a level that represents "best-in-class performance" (top quartile or better).
  • Exceedance of emission limits: Facilities that exceed their annual emission limits will have three options, to be used individually or in combination, in order to comply with their obligations under the output-based pricing system: (i) payment to the federal government of an amount based on the federal price benchmark; (ii) use of carbon offset credits; and (iii) use of surplus credits banked or bought from another participant.
  • Compliance units: The output-based pricing system will include the allocation of surplus credits, which may be banked for future use (subject to certain rules) or traded to other participants. It will also be possible for eligible offset credits to be generated through voluntary activities and the federal government will develop rules to determine which offset credits will be acceptable for compliance.

The Technical Paper also provides an overview of the specific monitoring, book maintenance and enforcement provisions that will be required to fully implement the federal backstop. We also note that direct revenues levied by the federal government will be returned to the jurisdiction of origin. Particular mechanisms to that effect have not been included in the Technical Paper.


The Technical Paper is sure to attract interest from the provinces, whether they have adopted carbon-reduction measures or not. Saskatchewan is currently the only jurisdiction that does not plan to adopt carbon pricing policies and the federal backstop could therefore apply to its full extent. Provinces, such as Quebec, Ontario, Alberta and British Columbia, which have adopted various carbon pricing approaches, could also be impacted by supplemental (or "top-up") federal backstop measures. Finally, certain provinces could challenge the constitutional validity of the federal carbon pricing system and at least one province has publicly stated that it would consider doing so.

Provinces that have adopted a cap-and-trade system, such as Ontario and Quebec will be interested in ensuring that reductions made in other jurisdictions that are part of harmonized systems (such as Quebec and California, and soon Ontario) will be considered when determining whether a cap-and-trade system is equivalent to the federal benchmark price. There is also sure to be interest in how the federal offset rules will compare to those that are currently in place in certain provinces, how federal offsets will interplay with provincial offsets in light of variations in provincial offset rules (and whether provincial offsets will be able to be used to meet the requirements of the federal output-based pricing system) and whether there will be other opportunities for additional offset projects.

Quebec, for its part, has a GHG reduction target by 2030 of 37.5 per cent below 1990 levels. The regulation implementing the cap-and-trade system currently provides decreasing annual caps on GHG emissions up to 2020 and the system will need to be extended, and annual caps will need to be set, until at least 2022 in order to comply with the Technical Paper's equivalency requirements.

In addition, Quebec and Ontario will also be required to demonstrate that their annual caps correspond to the projected emissions reductions resulting from the carbon price in any given year in price-based systems that meet the federal benchmark price. The shadow of the federal backstop will therefore need to be accounted for by provincial governments when setting the annual caps (and the post-2020 cap in the case of Quebec). As an aside, we note that the last joint Quebec-California auction was held on May 11, 2017, and that the average price of an allowance for the current period (corresponding to one metric ton of GHG carbon dioxide equivalent) was C$19.74, and the minimum price was C$18.51. During this auction, all of the allowances for the current period offered for sale were purchased. Similarly, all of the 2017 allowances offered for sale at the March 2017 Ontario auction were sold, at a settlement price of C$18.08.

Under current provincial carbon measures, British Columbia and Alberta have carbon levies that will be set at C$30 in 2018 and maintained at C$30 thereafter. Unless these levies are increased in 2021 to meet the federal benchmark price, the federal backstop would begin to apply in these provinces under the federal government's current proposal.

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

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

Events from this Firm
15 Nov 2018, Other, Toronto, Canada

Proactive anticorruption compliance programs, risk assessments and detailed due diligence practices can make the world of difference when engaging in global business transactions.

15 Nov 2018, Webinar, Toronto, Canada

Join us for a live webcast with partners from our Employment & Labour and Litigation & Dispute Resolution groups as they discuss employment-related challenges and considerations surrounding the recent legalization of recreational cannabis in Canada.

15 Nov 2018, Webinar, Toronto, Canada

Join us for a live webcast with partners from our Employment & Labour and Litigation & Dispute Resolution groups as they discuss employment-related challenges and considerations surrounding the recent legalization of recreational cannabis in Canada.

Similar Articles
Relevancy Powered by MondaqAI
McCarthy Tétrault LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
McCarthy Tétrault LLP
Related Articles
Related Video
Up-coming Events Search
Font Size:
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
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions