Regulations Amending Part 1 of Schedule 1 and Schedule 2 to the Greenhouse Gas Pollution Pricing Act and the Fuel Charge Regulations: SOR/2020-261

Canada Gazette, Part II, Volume 154, Number 26

Registration

SOR/2020-261 December 4, 2020

GREENHOUSE GAS POLLUTION PRICING ACT

P.C. 2020-979 December 4, 2020

Her Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to sections 166 and 168 of the Greenhouse Gas Pollution Pricing Act footnote a, taking into account, as the primary factor, the stringency of the provincial pricing mechanisms for greenhouse gas emissions, makes the annexed Regulations Amending Part 1 of Schedule 1 and Schedule 2 to the Greenhouse Gas Pollution Pricing Act and the Fuel Charge Regulations.

Regulations Amending Part 1 of Schedule 1 and Schedule 2 to the Greenhouse Gas Pollution Pricing Act and the Fuel Charge Regulations

Part 1 of Schedule 1 and Schedule 2 to the Greenhouse Gas Pollution Pricing Act

1 Item 2 in Table 1 of Part 1 of Schedule 1 to the Greenhouse Gas Pollution Pricing Act footnote 1 is repealed.

2 Paragraphs 1(b), 2(b), 3(b), 4(b), 5(b), 6(b), 7(b), 8(b), 9(b), 10(b), 11(b), 12(b), 13(b), 14(b), 15(b), 16(b), 17(b), 18(b), 19(b), 20(b), 21(b) and 22(b) in Table 2 of Schedule 2 to the Act are repealed.

3 Paragraphs 1(b), 2(b), 3(b), 4(b), 5(b), 6(b), 7(b), 8(b), 9(b), 10(b), 11(b), 12(b), 13(b), 14(b), 15(b), 16(b), 17(b), 18(b), 19(b), 20(b), 21(b) and 22(b) in Table 3 of Schedule 2 to the Act are repealed.

4 Paragraphs 1(b), 2(b), 3(b), 4(b), 5(b), 6(b), 7(b), 8(b), 9(b), 10(b), 11(b), 12(b), 13(b), 14(b), 15(b), 16(b), 17(b), 18(b), 19(b), 20(b), 21(b) and 22(b) in Table 4 of Schedule 2 to the Act are repealed.

Fuel Charge Regulations

5 Paragraph 6‍(b) of the Fuel Charge Regulations footnote 2 is repealed.

Coming into Force

6 These Regulations are deemed to have come into force on April 1, 2020.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Issues

The Greenhouse Gas Pollution Pricing Act (GGPPA) footnote 3 provides the legal framework and enabling authorities for the federal carbon pollution pricing backstop system (the federal backstop system) to ensure that the pricing of greenhouse gas (GHG) emissions applies broadly in Canada. The federal backstop system has two components: a regulatory charge on fossil fuels (the fuel charge) and an output-based pricing system (OBPS) for large industry. Further, the GGPPA provides the Governor in Council with the authority to determine in which provinces, territories and areas the GGPPA applies, by amending Schedule 1 to the GGPPA through regulations and, with respect to the fuel charge, by amending Schedule 2 to the GGPPA through regulations. Amendments to Schedule 1 take into account recommendations resulting from the assessment of the stringency of provincial and territorial pollution pricing systems and alignment with the benchmark elements of the Pan-Canadian Approach to Pricing Carbon Pollution (the Benchmark), including the additional published guidance on the Benchmark. footnote 4, footnote 5 The federal backstop system applies, in whole or in part, in those provinces, territories and areas listed in Schedule 1 to the GGPPA. As of January 1, 2020, Part 1 of Schedule 1 lists Ontario, New Brunswick, Manitoba, Saskatchewan, Alberta, Yukon and Nunavut.

On December 11, 2019, the Government of Canada announced that a provincial tax on carbon emitting products proposed by the Government of New Brunswick, to come into effect April 1, 2020, meets the federal stringency requirements for the sources that it covers. footnote 6 The New Brunswick Legislative Assembly subsequently enacted the provincial tax on carbon emitting products, which came into force on April 1, 2020, as proposed. To give effect to the Government of Canada's announcement, New Brunswick will be removed from Part 1 of Schedule 1 and Schedule 2 to the GGPPA so that the fuel charge component of the federal backstop system ceases to apply in that province as of April 1, 2020.

Background

At the United Nations Framework Convention on Climate Change Conference in December 2015, the international community, including Canada, concluded the Paris Agreement, which intends to reduce GHG emissions to limit the rise in global average temperature to less than two degrees Celsius (2 °C) and to pursue efforts to limit it to 1.5 °C above pre-industrial levels. It is widely recognized that economy-wide pollution pricing is the most efficient way to reduce GHG emissions. Pricing carbon pollution drives innovative solutions to provide low-carbon choices for consumers and businesses. As part of its commitments made under the Paris Agreement, Canada pledged to reduce national GHG emissions by 30% below 2005 levels by 2030.

In October 2016, the Government of Canada published the Pan-Canadian Approach to Pricing Carbon Pollution, which outlines the principles on which the pricing of carbon pollution in Canada will be based. footnote 7 This publication also states that a federal backstop system will apply in all Canadian jurisdictions that do not have a carbon pollution pricing system in place that aligns with the Benchmark by 2018. The Benchmark is intended to ensure that pollution pricing applies to a broad set of emission sources across Canada, with increasing stringency over time. The Benchmark was published in Part II of the Canada Gazette on October 31, 2018, as an annex at the end of the Regulatory Impact Analysis Statement for the Order Amending Part 2 of Schedule 1 to the Greenhouse Gas Pollution Pricing Act footnote 8 and on April 3, 2019, as an annex at the end of the Regulatory Impact Analysis Statement for the Regulations Amending Part 1 of Schedule 1 and Schedule 2 to the Greenhouse Gas Pollution Pricing Act. footnote 9

Part 1 of the GGPPA, administered by the Canada Revenue Agency, establishes a regulatory charge on fossil fuels that is generally paid by fuel producers or distributors and generally applies to fossil fuels produced, delivered or used in a backstop jurisdiction, brought into a backstop jurisdiction from another place in Canada, or imported into Canada at a location in a backstop jurisdiction. Part 1 of the GGPPA provides the legal framework and enabling authorities for the fuel charge with the aim of ensuring that the pricing of GHG emissions applies broadly in Canada. The fuel charge applies at the rates set out in Schedule 2 to the GGPPA and those rates vary by fuel type based on global warming potential factors and emissions factors associated with the combustion of each fuel type. As of April 1, 2020, the rates represent a carbon price of $30 per tonne, and will increase annually by $10 on April 1 of each year, rising to $50 per tonne in 2022.

Part 2 of the GGPPA, administered by the Department of the Environment, provides authority to establish an OBPS. The aim of the OBPS is to minimize competitiveness risks for emissions-intensive and trade-exposed facilities in backstop jurisdictions, while retaining a price signal on pollution and thus an incentive to reduce GHG emissions. Facilities participating in the OBPS are generally able to purchase charge-free fuel and instead face a compliance obligation on the portion of their GHG emissions that exceed prescribed limits. Participants have the option to comply with the OBPS regulations by either remitting eligible compliance units or paying the excess emissions charge, or through a combination of these options.

Schedule 1 to the GGPPA is divided into two parts. Part 1 of the GGPPA (the fuel charge) applies in the backstop jurisdictions listed in Part 1 of Schedule 1 to the GGPPA. Similarly, facilities that meet specified criteria and are located in any of the backstop jurisdictions listed in Part 2 of Schedule 1 to the GGPPA are subject to Part 2 of the GGPPA (the OBPS).

On December 11, 2019, the Government of Canada announced that a provincial tax on carbon emitting products proposed by the Government of New Brunswick, to come into effect April 1, 2020, meets the federal stringency requirements for the sources that it covers. The New Brunswick Legislative Assembly subsequently enacted the provincial tax on carbon emitting products, which came into force on April 1, 2020, as proposed. To give effect to the Government of Canada's announcement, New Brunswick will be removed from Part 1 of Schedule 1 and Schedule 2 to the GGPPA so that the fuel charge component of the federal backstop system ceases to apply in that province as of April 1, 2020.

Objective

The objective of the Regulations Amending Part 1 of Schedule 1 and Schedule 2 to the Greenhouse Gas Pollution Pricing Act and the Fuel Charge Regulations (the Regulations) is to cease the application of the fuel charge in New Brunswick effective April 1, 2020, by removing the references to the province from Part 1 of Schedule 1 and Schedule 2 of the GGPPA.

Description

In accordance with the GGPPA, the Regulations remove the reference to New Brunswick from Part 1 of Schedule 1 to the GGPPA.

The Regulations also amend Schedule 2 of the GGPPA, which sets out the rates of the fuel charge that apply in each jurisdiction. The Regulations amend Schedule 2 by removing all references to New Brunswick and by removing the corresponding fuel charge rates. Finally, and as a consequential amendment, the Regulations remove a reference to New Brunswick in the Fuel Charge Regulations.

The Regulations are deemed to have come into force on April 1, 2020.

Regulatory development

Consultation

In March 2016, Canada's first ministers committed to putting Canada on a credible path to meet or exceed its commitments made under the Paris Agreement. The first ministers agreed that such a commitment would require transitioning to a low-carbon economy by adopting a broad range of domestic measures, including pollution pricing, adapted to the specific circumstances of each province and territory.

On December 9, 2016, the Pan-Canadian Framework on Clean Growth and Climate Change (the Pan-Canadian Framework) was finalized at a climate-focused first ministers meeting in Ottawa. A central component of the Pan-Canadian Framework is the pricing of carbon pollution, which is expected to lead to substantial GHG emission reductions, contributing to meeting Canada's international commitments and the transition to a low-carbon economy.

In May 2017, the Government of Canada released a technical paper on the federal backstop system describing the two main components of the system:

In December 2017, the Government of Canada requested that provinces and territories provide information by September 1, 2018, describing how they intend to meet the Benchmark.

In January 2018, the federal government released draft legislative proposals relating to the proposed federal backstop system for public comment. On March 27, 2018, the Government of Canada tabled the GGPPA in the House of Commons, as part of the Budget Implementation Act, 2018, No. 1 (Bill C-74). On June 21, 2018, Bill C-74, including the GGPPA, received royal assent. footnote 11

Also in January 2018, the Government of Canada released a draft regulatory framework for the OBPS outlining the design of the system. footnote 12 In May 2018, the Department of the Environment published a document related to the regulatory framework that provides additional details on compliance units and their use in the OBPS. footnote 13 In setting output-based standards, the Department of the Environment is taking into account the emissions intensity and trade exposure of each sector, as well as other factors that may lead a sector to be at competitiveness risk due to the pricing of pollution.

On October 23, 2018, after the review of each provincial and territorial system, the federal government announced its intention to implement the federal backstop system, in whole or in part, in 2019, in any province or territory that has requested it or that does not have a pollution pricing system in place that aligns with the Benchmark. The assessment process considered how the elements of the given provincial or territorial pollution pricing system contribute as a whole to meeting the Benchmark.

At the time of the initial assessment, New Brunswick did not have a carbon pollution pricing system that met the Benchmark. As a result, the province was added to Part 1 and Part 2 of Schedule 1 and to Schedule 2 to the GGPPA such that the federal fuel charge applied in the province as of April 1, 2019, and the federal OBPS applied in the province as of January 1, 2019. The federal government is committed to ensuring that the provinces and territories have the flexibility to design their own policies and programs, while ensuring that carbon pollution pricing applies to a broad set of GHG emission sources across Canada with increasing stringency over time.

In December 2019, the Government of New Brunswick proposed to implement a provincial tax on carbon emitting products in the province. The Government of Canada announced on December 11, 2019, that the provincial tax on carbon emitting products proposed by the Government of New Brunswick meets the federal stringency requirements for the sources that it covers. The New Brunswick Legislative Assembly has subsequently enacted legislation enabling the provincial tax on carbon emitting products, which received royal assent on March 17, 2020. Also, a draft version of the Regulations was released publicly by the Department of Finance on March 20, 2020.

Modern treaty obligations and Indigenous engagement and consultation

In respect of the Regulations, no impacts have been identified in respect of the Government's obligations in relation to Indigenous rights protected by section 35 of the Constitution Act, 1982, modern treaties or international human rights obligations.

Instrument choice

Under the GGPPA, the Governor in Council is provided with the authority to determine in which provinces, territories and areas the GGPPA applies, by amending Schedule 1 to the GGPPA through regulations and, with respect to the fuel charge, by amending Schedule 2 to the GGPPA through regulations. Therefore, the Regulations, removing New Brunswick from Part 1 of Schedule 1 and Schedule 2 to the GGPPA, are the appropriate instrument choice.

Regulatory analysis

Benefits and costs

Removing New Brunswick from Part 1 of Schedule 1 and Schedule 2 to the GGPPA does not increase or decrease the legislative or regulatory requirements of the GGPPA, as any requirements relating to the fuel charge under Part 1 of the GGPPA are derived from the GGPPA itself. Accordingly, the Regulations do not increase or decrease the level of costs imposed on Canadians, businesses, governments or other stakeholders.

Small business lens

As the fuel charge requirements under Part 1 of the GGPPA generally apply to fuel producers and fuel distributors upstream in the distribution chain (which are generally medium or large-sized businesses), small businesses are not expected to be affected by removing New Brunswick from Part 1 of Schedule 1 and Schedule 2 to the GGPPA.

One-for-one rule

The Regulations cease the application of Part 1 of the GGPPA in New Brunswick, and any requirements relating to the fuel charge under Part 1 of the GGPPA are derived from the GGPPA itself. Accordingly, the Regulations do not increase or decrease the level of administrative burden imposed on business; therefore, the one-for-one rule does not apply.

Regulatory cooperation and alignment

The Regulations are not related to a work plan or commitment under a formal regulatory cooperation forum.

Strategic environmental assessment

The Regulations cease the application of the federal fuel charge in New Brunswick, as the Government of New Brunswick is implementing a provincial tax on carbon emitting products that meets the federal stringency requirements for the sources that it covers. As part of the Pan-Canadian Framework on Clean Growth and Climate Change, the federal government is committed to ensuring that the provinces and territories have the flexibility to design their own policies and programs, while ensuring that carbon pollution pricing applies to a broad set of GHG emission sources across Canada with increasing stringency over time.

In combination with other measures outlined in the Pan-Canadian Framework on Clean Growth and Climate Change, carbon pollution pricing systems provide incentives to reduce energy use through conservation and efficiency measures. Carbon pollution pricing systems also serve to drive fuel switching and technology advances, and thus ultimately lead to reductions in GHG emissions and air pollution. These outcomes will directly and indirectly contribute to all the 2019–2022 Federal Sustainable Development Strategy goals, but specifically the goals of effective action on climate change, clean growth, and clean energy.

Gender-based analysis plus

The Regulations cease the application of the federal fuel charge in New Brunswick, as the Government of New Brunswick implemented a provincial tax on carbon emitting products, effective April 1, 2020, that meets the federal stringency requirements for the sources that it covers. Carbon pollution pricing is an essential component of the Pan-Canadian Framework on Clean Growth and Climate Change. The gender-based analysis plus (GBA+) on the Pan-Canadian Framework concluded that the application of carbon pollution pricing can have disproportionate impacts on low-income and vulnerable populations. The extent to which any such impacts are neutralized or mitigated will depend on how the Government of New Brunswick uses the proceeds from its provincial tax on carbon emitting products.

Implementation, compliance and enforcement, and service standards

The Regulations will be administered and enforced by the Canada Revenue Agency and, at the border, by the Canada Border Services Agency as part of the fuel charge regime under Part 1 of the GGPPA.

Contacts

Gervais Coulombe
Sales Tax Division
Tax Policy Branch
Department of Finance Canada
90 Elgin Street
Ottawa, Ontario
K1A 0G5
Telephone: 613‑369‑3773

Ron Hagmann
Excise and GST/HST Rulings Directorate
Canada Revenue Agency
Place de Ville, Tower A, 9th Floor
320 Queen Street
Ottawa, Ontario
K1A 0L5
Telephone: 613‑670‑7360