Tag: GHG Accounting

Edmonton Declaration Calls for Global Mayors to Commit to Urgent Evidence-Based Action on Climate Change

The Edmonton Declaration serves as a call-to-action for cities of all sizes to seriously consider the role of scientific research and data in building ambitious climate action plans and prioritize science-based decision-making that reinforces the targets in the Paris Agreement.

The Declaration was a key outcome of the “Change for Climate” Global Mayors Summit that was held in the City of Edmonton on March 4, in advance of the Cities IPCC Cities and Climate Change Science Conference (March 5-7). The Summit was hosted by the City of Edmonton, Global Covenant of Mayors for Climate & Energy (GCoM) and the Federation of Canadian Municipalities (FCM). The event brought together mayors from Canada, Ecuador, United States and India, key members from the science community and the world’s major city networks – C40, ICLEI and UCLG – to discuss the critical role cities play in addressing climate change.

The intent is to bring the Edmonton Declaration to national and international gatherings of mayors, ultimately culminating at the ICLEI World Congress in Montreal (June 19-22) where global mayors will be asked to sign on.

The Declaration recognizes that cities must play a central role in adapting to and mitigating the effects of climate change to reduce GHG emissions, given that more than half the world’s population lives in urban areas today and produces more than 70% of energy-related GHG emission. However, despite recent advances, cities continue to face major challenges in measuring and managing greenhouse gas emissions and assessing climate risks and vulnerabilities. The Declaration recognizes the need for up-to-date data from cities, towns and regions on their targets, actions and impacts, especially hard data and scientific evidence. It calls for all levels of government to establish, implement and maintain GHG inventories, targets, action plans and reporting mechanisms consistent with the Paris Agreement and commitments made through Global Covenant of Mayors for Climate & Energy and provide that data to the global community. This includes formal, rigorous processes to understand and minimize the GHG emissions caused the consumption of goods, services and products within their boundaries and along the full supply chain.

 

Infrastructure Canada Launches Smart Cities Challenge for Local Communities

The federal government recently launched the Smart Cities Challenge, which is a competition open to all municipalities, local or regional governments, and Indigenous communities (First Nations, Inuit, and Métis) across Canada. The Challenge is aimed at empowering communities across the country to address local issues through new partnerships, using a smart cities approach. According to Infrastructure Canada, the Smart Cities Challenge asks local leaders to team up with pioneering businesses, academia, and civic organizations to design innovative solutions to their most pressing challenges using data and connected technologies.

Finalists will receive support to develop their smart cities proposals. Winning communities will be awarded with prize money to help implement them.

A smart cities approach encompasses the following principles:

  • Openness – When communities make their data truly accessible, usable, and barrier-free, their decision-making processes become transparent, empowering citizens and strengthening the relationship between residents and public organizations.
  • Integration – Data and connected technology empower communities to break down silos that exist within local governments and public organizations.
  • Transferability – When tools and technological approaches are open-source, transparent and standardized, they can be used by communities across the country, no matter their size or capacity.
  • Collaboration – Connected technology enables communities to bring traditional and non-traditional partners together to collaborate.

Each community will start with establishing a Challenge Statement, which is a single sentence that defines the outcome or outcomes a community aims to achieve by implementing its smart cities proposal. The Challenge Statement must be measurable, ambitious, and achievable through the proposed use of data and connected technology. Once their Challenge Statements established, applicants will develop the ideas and activities that will make up their preliminary Smart Cities Challenge proposal. More information is available in the Applicant Guide.

Applicants have until April 24, 2018 to complete and submit their applications on the Impact Canada Challenge Platform.

Key dates:

  • Application deadline: April 24, 2018
  • Announcement of finalists: Summer 2018
  • Announcement of winners: Spring 2019

Who can apply? Municipalities, local or regional governments, Indigenous communities, groups of such organizations

 Prizes:

  • One prize of up to $50 million
  • Two prizes of up to $10 million each
  • One prize of up to $5 million

Environment and Climate Change Canada releases proposed regulations for Clean Fuel Standard

In November 2016, the federal government announced plans to implement a clean fuel standard (CFS) to reduce Canada’s greenhouse gas (GHG) emissions. The objective of the proposed CFS is to achieve 30 megatonnes of annual reductions in GHG emissions by 2030, contributing to Canada’s effort to achieve its overall GHG mitigation target of 30% emission reduction below 2005 levels by 2030.

The CFS will establish lifecycle carbon intensity requirements separately for liquid, gaseous and solid fuels that are used in transportation, industry and buildings. Consultations on the development of the CFS were launched in January 2017 and a discussion paper was released in February, seeking input to help inform the development of a regulatory framework. In November 2017, ECCC released a report entitled Clean fuel standard: summary of stakeholder written comments on the discussion paper, which summarized stakeholder feedback received during the consultation period.

On December 13, 2017, ECCC published a regulatory framework on the CFS, which outlines the key elements of the design of the CFS regulation, including: scope, regulated parties, carbon intensity approach, timing, and potential compliance options such as credit trading.

The proposed CFS will use a lifecycle approach to set carbon intensity values and requirements, accounting for the amount of GHG emitted to produce a unit of energy. ECCC has indicated that the CFS may lead to changes in crop demand and land management practices that impact GHG emissions, which will be included. However, indirect GHG emissions that may result from the clean fuel standard will not be considered in the design, at least initially. The proposed CFS regulatory framework contemplates the following key design elements:

  • Partitioning – The CFS will set separate carbon intensity requirements for sub-sets of fuels, as well as rules for credit trading, in order to achieve GHG reductions from each of the transportation, building and industry sectors. In particular, the CFS will set separate carbon intensity requirements for liquid, gaseous and solid fuel streams. For gaseous fuels, consideration will be given to setting volumetric requirements for renewable content or a hybrid approach, such as volumetric requirements with GHG performance standards. Approximately 80% of liquid fuels are used for transportation. Setting a separate carbon intensity target for liquid fuels will ensure GHG reductions are achieved from transportation fuels. Consideration may be given to further groupings of fuel types within fuel streams (e.g. grouping transportation fuels together in the liquid fuel stream), along with some trading of credits between the fuel streams.
  • Scope – The CFS will apply to liquid, gaseous and solid fuels combusted for the purpose of creating energy including “self-produced and used” fuels, that is, those fuels that are used by producers or importers. The CFS will not apply to fuels when they are primarily used as feedstocks in industrial processes or when used for non-combustion purposes (for example, solvents). Certain fuels will be excluded from application of the carbon intensity requirements of the clean fuel standard, including fuels that are exported from Canada, fuels that are in transit through Canada, and coal combusted at facilities that are covered by coal-fired electricity GHG regulations. Other exclusions may be considered.
  • Regulated parties – Fuel producers and importers, or in some cases distributors, will be subject to the clean fuel standard and will need to meet specific requirements for the fuels that they produce, import or distribute.
    • In the case of liquid fuels:
      • the producers or importers of the liquid fuel (for example, gasoline, diesel, and heavy fuel oil) will be the regulated parties.
    • In the case of gaseous fuels:
      • for pipeline-quality natural gas delivered via gas distribution pipeline systems, the distributors of the natural gas will be the regulated parties.
      • for other gaseous fuels supplied to end-users other than through a gas distribution pipeline system (for example, biogas, natural gas from producers),the regulated parties remain to be determined.
    • In the case of solid fuels:
      • the producers or importers of the fuel (for example, coal and petroleum coke) will be the regulated parties.
    • Setting carbon intensity requirements – Carbon intensity values will be expressed in grams of carbon dioxide equivalents (g CO2e) per unit of energy in megajoules (MJ), and will account for GHG emissions over the lifecycle of a fuel. Carbon intensity values will not include an estimate of the impact of indirect land use change on GHG emissions. Baseline carbon intensity values and carbon intensity requirements will be set for either each fuel in a stream (liquid, gaseous, solid) or for groupings that include some or all fuels in a stream. The CFS regulations will set carbon intensity requirements expressed either as absolute values or as percent reductions from the relevant baselines. The carbon intensity requirements will become more stringent over time, with the goal of achieving at least 30 Mt CO2e of emission reductions annually commencing in 2030.
    • Calculation of lifecycle carbon intensity of fuels – For renewable fuels, other low carbon fuels and energy sources and technologies, carbon intensity will be differentiated by type and origin of the fuel to reflect the GHG emissions associated with different feedstocks and technologies. In the case of crude oil-based fuels, the regulation will not differentiate among crude oil types, or on whether the crude oil is produced in or imported into Canada. A Canadian-average default carbon-intensity for crude oil produced and imported and consumed in Canada will be used. For other fossil fuels, consideration is being given to whether or not the same approach as for crude oil-based fuels should be applied.
    • Renewable fuel content – The federal Renewable Fuels Regulations require 5% renewable content in gasoline and 2% renewable content in diesel fuel and heating distillate oil. In the short-term, these volumetric requirements will be maintained. In the longer-term, the CFS will replace the Renewable Fuels Regulations. With respect to natural gas, setting carbon intensity requirements is the intended approach, but further consideration will be given to setting volumetric requirements for renewable content or a hybrid approach, such as volumetric requirements with GHG performance standards.
    • Compliance pathways – The CFS will provide a range of compliance pathways other than reducing the carbon intensity of the fuel produced or imported for use in Canada. A key pathway for fossil fuel suppliers will be to include renewable fuel content in their product. Under the proposed CFS, it will be possible to generate compliance credits for actions that improve carbon intensity throughout the lifecycle of the fuel. One issue to be determined is whether to specify a minimum threshold for process improvements that qualify for credit creation. It will also be possible to generate credits through fuel switching and the deployment of energy sources and technologies that displace fossil fuels, such as electric vehicles. Credits will be tradeable among regulated parties within each stream of fuels (liquid, gaseous and solid). There will also be limited banking of credits. Consideration is being given to allowing some use of credits across streams of fuels.
    • Timing – ECCC plans to publish draft regulations in Canada Gazette, Part I in 2018 and final regulations in Canada Gazette, Part II in mid-2019. Carbon intensity requirements for liquid, gaseous and solid fuel streams will come into force at the same time; however, the coming into force date is still to be determined.

ECCC will be accepting written comments on the proposed CFS regulatory framework until January 19, 2018.  Following stakeholder consultations in early 2018, ECCC expects to publish proposed regulations in late, followed by publication of final regulations in mid-2019.

Apparel Sector Set to Tackle the Ecological Impacts of Fashion – A Sector Update

It has been reported that the clothing industry is the second largest polluter in the world, second only to oil. In more recent discussions at Climate Week, the apparel sector was identified by a senior fellow at the World Resources Institute as contributing approximately 5% of the world’s greenhouse gas (GHG) emissions, which is roughly equivalent to GHG emissions from the global aviation sector or to country emissions from Russia. With its long and varied supply chains of production, raw material, textile manufacture, clothing construction, shipping, retail, use and ultimately disposal of the garment, there is little doubt that fashion is a complicated business. As the apparel sector reflects on the environmental impacts of “fast fashion” and looks to shift the industry on to a more sustainable path, designers and clothing manufacturers are looking at how they can move in the right direction. At the most recent Climate Week, fashion industry professionals agreed that while there are numerous points of impact throughout the supply chain, the way in which raw materials are sourced is an issue that is close to the top of the list.

Scope of the Problem

According to the World Resources Institute (WRI), cotton is the most common natural fiber used to make clothing. It accounts for approximately 33% of all fibers found in textiles, and requires 2,700 liters of water to make one cotton shirt. In areas where water resources are under stress, cotton production can be particularly damaging. For example, in Central Asia, the Aral Sea has nearly disappeared because cotton farmers draw excessively from the Amu Darya and Syr Darya rivers. The WRI has set up the Aqueduct tool to see where cotton production and water risks intersect. Cotton farming is also responsible for 24% of the world’s use of insecticides and 11% of pesticides.

In terms of GHG, the carbon footprint of a garment will largely depend on the material. The WRI notes that while synthetic fibers like polyester have less impact on water and land than grown materials like cotton, they emit more GHG per kilogram. A polyester shirt has more than double the carbon footprint of a cotton shirt (5.5 kg vs. 2.1 kg, or 12.1 pounds vs 4.6 pounds). Polyester production for textiles released about 706 billion kg (1.5 trillion pounds) of GHG in 2015, which equals approximately the annual emissions of 185 coal-fired power plants. Leather is also a strong climate forcer, as it is responsible for a significant amount of methane emissions.

In addition to land and water use issues, as well as GHG emissions, the fashion industry has also started to address the issue of microfibers that find their way into lakes and ocean and wreak havoc on fish and ecosystems.

The Fashion Industry Takes Action

A growing number of companies are aware of the environmental risks and are looking to take action. The adage of “if you can’t measure it, you can’t improve it” is particularly relevant to the apparel sector. In order to understand the areas where they can improve, companies must first measure their environmental impacts. The Sustainable Apparel Coalition’s Higg Index has been designed as a standardized, self-assessment tool that enables companies to measure the environmental, social and labour impacts of their products and services, and to identify areas for improvement. The Sustainable Apparel Coalition is the apparel, footwear and textile industry’s foremost alliance for sustainable production. In addition, work is being done on developing Science Based Targets (SBTs) guidance for the apparel industry. The SBT initiative is a partnership between CDP, WRI, the World Wide Fund for Nature (WWF), and the United Nations Global Compact (UNGC). It is designed to support companies in setting SBTs by defining and promoting best practice, offering tools and guidance to reduce barriers to adoption, and independently assessing and approving companies’ targets. The establishment of SBTs recognizes the important role of the the apparel sector in transitioning to a low-carbon economy. The concept is that by setting SBTs that are aligned with the level of decarbonization required to keep global temperature rise well below 2° Celsius, companies will have a powerful strategy to boost their competitive advantage.

Certain companies are also working to improve their resource efficiency. In May 2017, major fashion companies (including H&M and Zara) signed the 2020  Circular Fashion System Commitment to increase their clothing recycling by 2020 and to collect and recycle used clothing at many of their stores. By 30 June 2017, 64 companies had signed the 2020 Circular Fashion System Commitment, representing a total of 143 brands and 7.5% of the global fashion market. Global Fashion Agenda has outlined four immediate action points to accelerate the transition to a circular fashion system:

  • Action point 1: Implementing design strategies for cyclability
  • Action point 2: Increasing the volume of used garments collected
  • Action point 3: Increasing the volume of used garments resold
  • Action point 4: Increasing the share of garments made from recycled textile fibres

The signatories commit to setting targets in one or more of these four categories for 2020 and to annually report on their progress. Global Fashion Agenda has opened up a final round for commitment signatories between October and December 2017.

As fashion companies work towards reducing the environmental impacts of their products, individual consumer education is also important, particularly as it relates to creating a mindset of more sustainable consumption. Some companies such as Patagonia (through its Worn Wear program, which offers a service to fix old clothes rather than only sell new ones) and Mud Jeans (which is experimenting with clothing rental) are looking at innovative business models to improve sustainability. One thing is clear, sustainability has arrived on the fashion scene.

Manitoba Introduces “Made in Manitoba” Carbon Price and Climate Change Plan

On 27 October, the Manitoba government released its proposed climate change strategy, A Made-in-Manitoba Climate and Green Plan (the Plan). The Plan, which is currently open to public input, is based on four strategic pillars – climate, jobs, water and nature – and includes 16 keystones for priority action. These keystones are associated with each pillar and include clean energy, carbon pricing, green infrastructure, agricultural and land use, water quality, forests and conservation, among others. The Plan also sets out a made-in-Manitoba approach to carbon pricing with a price of $25 per tonne beginning during 2018 – this amount will not increase over time and is half the amount mandated by the federal government (under the Pan-Canadian Framework on Clean Growth and Climate Change, the federal government established a carbon price benchmark of $10 per tonne of carbon dioxide equivalent starting in 2018, which will increase by $10 per tonne annually until it reaches $50 per tonne in 2022).

It should be noted that the Manitoba has erroneously stated that the federal government’s carbon pricing plan “lets Ottawa decide where to spend new carbon price revenue in Manitoba”. However, as committed by the federal government in its October 3, 2016 document Pan-Canadian Approach to Pricing Carbon Pollution, carbon price revenues will remain in the jurisdiction of origin and each jurisdiction can use carbon pricing revenues according to their needs (including to address impacts on vulnerable populations and sectors, and to support climate change and clean growth goals).

The provincial government posits that a Made-in-Manitoba plan with a lower carbon price is justified because historically, Manitoba has invested billions of dollars in clean, renewable hydroelectricity. The Plan credits early investments in Manitoba Hydro that have kept the province’s GHG emissions low. The Plan states specifically that the “federal backstop is wrong for Manitoba” and it “does not respect Manitoba’s green record”. Also, the provincial government argues that the Plan will produce more emission reductions than the federal carbon levy over the next five years. In particular, the Plan states that the federal $50 per tonne carbon pricing plan would actually result in 80,000 tonnes fewer emissions reduced by 2022, compared to the Made-in-Manitoba carbon pricing plan. Manitoba will be relying on sector-specific reductions to achieve what it considers to be greater results.  Specifically, the provincial government anticipates that the sector emissions reductions (based on output-based pricing for large emitters) set out in the Plan will generate over 1 million more tonnes of cumulative carbon emissions reductions over the next five years, compared to the federal carbon tax. The provincial government expects that together, these initiatives will reduce carbon emissions by 2,460 kilotonnes, more than twice as much as the federal carbon tax. A full review of Manitoba’s carbon pricing plan will take place in 2022. An independent expert advisory commission of Manitobans will also be established to help develop five-year Carbon Savings Accounts to achieve meaningful emission reductions across sectors of the economy.

The Plan confirms exemptions for agricultural emissions.  The carbon levy will also not be applied to marked fuels used by farmers for their farming operations.  Agricultural operations will also be able to contribute to carbon sequestration and offset trading systems to be established in Manitoba and other provinces. The Plan also sets out a range of new initiatives to protect wetlands and watersheds, water quality, and wild species and habitats.  In addition, the provincial government looks to support the creation of low carbon economy jobs through green infrastructure, clean technology, innovation financing, and skills and training.

While the Manitoba government’s commitment to take meaningful action on climate change is laudable and the Plan represents a step in the right direction, pitting the provincial carbon pricing plan against the federal carbon pricing backstop risks undermining efforts across the country to help Canada achieve its commitment under the Paris Agreement.

Vancouver Mayor Signs Fossil-Fuel-Free Streets Declaration with Other C40 Mayors

In many cities around the world, the most significant source of greenhouse gas (GHG) emissions and air pollutants is transportation. In order to tackle air pollution and climate change, 12 mayors from the cities of Vancouver, Seattle, London, Paris, Los Angeles, Copenhagen, Barcelona, Quito, Mexico City, Milan, Auckland & Cape Town signed the C40 Fossil-Fuel-Free Streets Declaration on 23 October 2017, which commits them to a series of actions to support a “future where walking, cycling and shared transport are how the majority of citizens move around” these cities.

C40 is a network of the world’s megacities committed to addressing climate change. The C40 Cities Climate Leadership Group connects more than 90 of the world’s greatest cities, representing over 650 million people and one quarter of the global economy. One third of GHG emissions from C40 cities come from transport and traffic is the biggest source of air pollution, globally responsible for up to one quarter of particulate matter in the air. By signing the C40 Fossil-Fuel-Free Streets Declaration, the mayors pledged to (1) procure only zero-emission buses from 2025, and (2) ensure that a major area of their city is zero emission by 2030.

To meet this commitment, the mayors will:

  • Transform their cities through people-friendly planning policies.
  • Increase the rates of walking, cycling and the use of public and shared transport that is accessible to all citizens.
  • Reduce the number of polluting vehicles on their streets and transition away from vehicles powered by fossil fuels.
  • Lead by example by procuring zero emission vehicles for our city fleets as quickly as possible.
  • Collaborate with suppliers, fleet operators and businesses to accelerate the shift to zero emissions vehicles and reduce vehicle miles in our cities.
  • Publicly report every two years on the progress the cities are making towards these goals.

Each signatory city has set out concrete actions in Green and Healthy Streets: Fossil-Fuel-Free Streets Declaration – Planned Actions to Deliver Commitments. The City of Vancouver has set out the following actions to achieve its commitments under the Declaration:

  • Building upon near-term electric bus pilots, the City will work with the regional transit authority to transition to zero-emission bus procurement.
  • The City will build upon existing bus/ taxi-only and pedestrian only zones in the city centre to create zero emissions zones.
  • Viaduct structures east of the city centre will be removed by 2019 and replaced with a complete street network to reconnect downtown with historic communities to the east and south in a new inclusive waterfront district. One of the guiding principles of this transformative project is enhanced pedestrian and cyclist movement, increasing safety and comfort for people who walk, bike, and take transit.
  • Continue investments in walking and cycling infrastructure, including Vancouver’s bike-share program, which has installed over 115 stations and 1,200 bikes since launching in 2016. Continue improving accessibility of existing cycling infrastructure to lower barriers for riders of all ages and abilities. As of 2016, Vancouver residents made half of their trips by walking, cycling, and transit. 10% of residents cycled to work and nearly a quarter walked to work.
  • There are over 250 public and private electric-vehicle charging stations throughout Vancouver. We will build a holistic charging network and catalyse private-vehicle transition to electric vehicles, by expanding home, workplace, and public electric vehicle charging infrastructure. Over the next five years, Vancouver will deploy an additional 20- 25 fast-charging stations, 40 Level 2 stations, and enable charging at home through curbside charging pilots and removing barriers to charger installation in multi-unit residential buildings.
  • Continue low and zero-emission vehicle procurement, fleet right-sizing, and route-planning/dispatching upgrades for City-owned fleet. Vancouver currently maintains one of the largest zero-emission municipal fleets in Canada, with 33 electric and 59 hybrid vehicles. We have an overall fleet GHG reduction target of 30% from 2007 levels by 2020, and a procurement target of 115 electric vehicles, 112 hybrids, 60 compressed natural gas vehicles and continued use of B20 bio-diesel.
  • Create a green enterprise industrial zone to foster co-location, circular economy, and fleet sharing amongst businesses. Work with business community to promote and support fleet transition to zero emission vehicles and smart routing to reduce distances driven. Vancouver’s Green and Digital Demonstration Program uses City infrastructure as demonstration platforms for pre-commercial clean-tech, including low-/zero-emission transportation.

The City annually commits 100% of the carbon tax it pays in its corporate operations to fund carbon mitigation and sustainability programs.

 

In First Budget, BC NDP Increase Carbon Tax but Abandons Revenue Neutrality

In July 2017, the BC New Democratic Party (NDP) was sworn into office and subsequently released its first provincial budget. The Budget 2017 Update (2017/18 – 2019/20) addressed a number of policy issues including tax measures and new spending on social initiatives. Although the NDP is still in the process of articulating its climate change policy, the budget did announce changes to the BC carbon tax. In particular, the budget provides for the following:

  • As of April 1, 2018, an annual increase in the carbon tax of $5 per tonne of carbon dioxide equivalent (CO2e) until it reaches $50 on April 1, 2021 (the federal government has set a pan-Canadian target carbon price of $50 by 2022). BC’s carbon tax is currently set at $30 per tonne of CO2
  • Effective as of September 11, 2017, Part 2 of the Carbon Tax Act has been repealed. This means that the requirement for the BC Ministry of Finance to prepare an annual Carbon Tax Report and Plan will no longer apply. Further, the Carbon Tax Act will no longer require that revenue measures be introduced to offset carbon tax revenues, meaning that the government will be allowed to spend carbon tax revenues on emission reduction measures and other green initiatives, rather than having to return carbon tax revenues to taxpayers.

With the repeal of Part 2 of the Carbon Tax Act, an important reporting and transparency mechanism has been removed. It is uncertain at this time whether the BC NDP will implement a similar reporting mechanism to ensure accountability for the use of carbon tax revenues by the provincial government. It is anticipated that the BC NDP will provide further details on its climate change policy priorities in the coming weeks.

A Closer Look at the Canadian Federal Carbon Pricing Backstop

In October 2016, the federal government announced plans for a pan-Canadian carbon price, which represents a pricing benchmark and central component of the Pan-Canadian Framework on Clean Growth and Climate Change (the Framework, released in December 2016). Under the Framework, each province and territory will be required to implement a carbon price starting at $10 per tonne of CO2e in 2018 (eventually rising to $50 per tonne by 2022), either in the form of direct pricing or a cap and trade program. The benchmark provides for a federal carbon pricing backstop system that will apply in any province or territory that does not have a carbon pricing system in place by 2018 that aligns with the benchmark. The Technical Paper sets out the proposed design principles of the federal carbon pricing backstop.

Backstop Instrument

The federal government is planning to introduce new legislation and regulations to implement the carbon pricing backstop that will be applied in jurisdictions which do not have carbon pricing systems in place that meet the requirements of the federal system. In particular, all elements of the backstop will apply in each jurisdiction that does not have a carbon pricing system in place.  It should be noted that the backstop is also meant to top up systems that do not fully meet the benchmark – for example, the backstop could expand the sources covered by provincial carbon pricing or it could increase the stringency of the jurisdiction’s carbon price.

According to the Technical Paper, the backstop will comprise two key elements:

A) a carbon levy on fossil fuels (whether in liquid, gaseous or solid form); and

B) an output-based pricing for industrial facilities with emissions above a specific threshold, as well as opt-in possibility for smaller facilities emitting below the threshold.

Scope of the Carbon Levy

Carbon levy rates will initially be set for the period from 2018 to 2022 – rates for each fuel subject to the levy will be established in such a way that they are equivalent to $10 per tonne of CO2e in 2018 and increase by 10 per tonne annually until it reaches $50 per tonne in 2022. The Technical Paper sets out the rates for liquid fuels, gaseous fuels and solid fuels over the initial 5-year period. In generally, the carbon levy will apply to fuels that are used in a backstop jurisdiction, irrespective of whether the fuels were produced in, or brought into, the backstop jurisdiction. It is anticipated that the carbon levy will be applied early in the supply chain of each fuel, and will be payable by the producer or distributor. The proposed system differentiates among four categories of persons along the supply chain:

  • Registered Fuel Distributors – will generally include producers of fuel, large wholesale distributors of fuel, and natural gas retailers.
  • Registered Fuel Importers – will generally include entities that cannot become Registered Fuel Distributors and that import fuel from outside Canada at a location in a backstop jurisdiction, or that bring fuel into a backstop jurisdiction from another jurisdiction in Canada.
  • Registered Fuel Users – will generally include persons that cannot become Registered Fuel Distributors and that are required to report on fuel used in a backstop jurisdiction and, in certain circumstances, may be required to pay the carbon levy or be entitled to claim relief from the levy where it has already been paid. The following entities will be required to become Registered Fuel Users: commercial carriers (including operators of transport trucks, rail transportation, marine transportation, and air carriers), operators of facilities whose emissions are covered under the output-based pricing system, certain businesses that burn waste that is subject to the carbon levy, and certain businesses that use fuel as a raw material, dilulent or solvent in a manufacturing process that does not produce heat or energy.
  • Non-Registered Persons – will generally include retailers (other than natural gas retailers) and end-users, including individuals and business consumers.

The carbon levy will generally be payable when a Registered Fuel Distributor uses fuel in a backstop jurisdiction or delivers fuel to a person in the backstop jurisdiction that is not a Registered Fuel Importer. However, there are certain exemptions from the carbon levy, including fuel that is used at industrial facilities that are subject to output-based pricing, or fuel used in farming activities by registered farmers.

Overview of Administrative Requirements

Registered Fuel Distributors, Registered Fuel Importers and Registered Fuel Users will be required to register with the Canada Revenue Agency (CRA) file monthly returns. Furthermore, Registered Fuel Distributors and Registered Fuel Importers will be required to provide information on fuel amounts produced, brought into and imported into every jurisdiction as well as fuel amounts used and delivered in or outside a jurisdiction. Registered persons will also need to calculate the total amount of carbon levy payable for each backstop jurisdiction and remit that amount to the Receiver General of Canada.

Requirements with Respect to Inter-Jurisdictional Commercial Transportation

It should be noted that commercial carriers (that transport passengers, freight or both) that operate in a backstop jurisdiction and in at least one other jurisdiction, will be required to register with the CRA as Registered Fuel Users. For commercial road and rail transportation, the carbon levy will apply to only the fuel that is used within a backstop jurisdiction, meaning that the levy will apply to both fuel that is used during an intra-jurisdictional journey (i.e. one that starts and ends in the same jurisdiction) and to fuel that is used during the portion of an inter-jurisdictional or international journey that occurs in a backstop jurisdiction. For fuels used in commercial marine transportation, the carbon levy will only apply to fuel used in intra-jurisdictional travel. In the aviation sector, it is anticipated that the carbon levy will only apply to fuel used in intra-jurisdictional travel; however the federal government sees the introduction of the backstop pricing mechanism as an opportunity for federal and provincial/territorial governments to develop a nationally consistent approach to aviation emission as it relates to inter-jurisdictional commercial air transportation.

Designing an Output-based Carbon Pricing System

The output-based system will apply the carbon price to the portion of a covered source’s emissions that exceed those allowed by the emissions-intensity standard for the regulated activity. In terms of scope, the system will apply the carbon price to industrial facilities with annual emissions of 50,000 tonnes or more of CO2e. However the system will apply to facilities in certain sectors including buildings (e.g. hospitals, schools, municipal buildings) as well as waste and wastewater, regardless of the amount of emissions. The proposed output-based system will provide facilities with annual emissions below 50,000 tonnes of CO2e the ability to “opt-in” to the system. If a facility emits less than its regulatory limit, it will be able to earn surplus credits that it can sell to other regulated entities.

If a facility emits more than its regulatory limit in a given year, it can choose one or a combination of the following compliance options:

– Payment based at the carbon price that will be set in the backstop legislation ($10 per tonne in 2018, increasing to $50 per tonne in 2022)

– Use of eligible carbon offset credits (the proposed system could include foreign compliance units)

– Use of surplus credits that are issued to facilities with emissions below their annual limits.

In terms of administration, each regulated facility will be required to prepare and submit an annual compliance report on its emission levels and annual emissions limit.

Looking Ahead

As noted above, the federal government is in the process of finalizing the details of the carbon pricing backstop mechanism. The carbon levy will come into effect in 2018, while it is anticipated that the output-based pricing system will not come into effect before January 1, 2019.  Until the output-based pricing system comes into force, the carbon levy will apply fully to fuels used by all industrial facilities.