This week, the federal government announced
more details of their
Output Based Pricing System (OBPS) which targets greenhouse gas emissions from large, industrial facilities. These policies are complex (although perhaps not as complex as their acronyms make them sound) and build on a long line of similar policies proposed and/or implemented in Canada. In this post, I take you through the history of these policies, discuss which facilities are covered, and explain why the system implemented in Alberta and now being implemented as part of the federal backstop is far better than other systems in preserving competitiveness and providing rewards for innovation.
The basic elements of the federal OBPS mirror the
Carbon Competitiveness Incentive Regulation (CCIR) implemented in Alberta which, itself, borrowed much of its design from Alberta's
Specified Gas Emitters Regulation (SGER) first implemented in 2007. You can trace the lineage even further back in time to the Chretien/Martin era Project Green policies and the version of those policies which became part of the Harper Government's Turning the Corner Plan in 2006. Each of these policies shares two common elements – a price on carbon emissions and a system of allocations through which firms receive some number of emissions credits for free. Think of your income taxes, which define a rate and offer a series of tax credits, and you're on the right track.
Who do these rules apply to? These rules only apply to large facilities (those with 50,000 tonnes or more of CO2e emissions during any of the 2014, 2015, 2016 or 2017 calendar years), although smaller facilities (still facilities with expected emissions of more than 10,000 tonnes of CO2e annually) may choose to opt-in. These rules also only apply to facilities in provinces covered by the federal backstop policy, so Ontario, New Brunswick, Manitoba, Prince Edward Island, Saskatchewan, Yukon and Nunavut.
As you can see from the figure above, the policy ends up covering a relatively small share of emissions in the provinces it affects, as the emissions shown in grey will be covered in large part by the carbon price. Most of the emissions covered come from utilities, manufacturing (which includes refining), and mining with some oil and gas facilities covered in Saskatchewan.
Much of the coverage of this system has framed the OBPS as an exemption from emissions pricing for large emitters, but that hides the importance of the two, linked programs – the carbon price and the output-based allocation of credits. The carbon price provides an incentive to reduce emissions while the output-based allocation of credits provides an incentive to increase output and reduces or even reverses the incentive to reduce emissions through reducing output here in Canada. The combined system lowers the average cost of emissions policy on large emitters while maintaining the incentive to reduce emissions and deploy new technology. This would not be true it the program simply offered an exemption for a given percentage of emissions from the tax, as the system is often framed.
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