In October 2017, the Manitoba government released its Made-in-Manitoba Climate and Green Plan (the Plan) and announced that it would be introducing a flat carbon tax of $25 per tonne of carbon dioxide equivalent (CO2e). One of the commitments set out by the Manitoba government in the Plan was the development an output-based pricing system (OBPS) for large industrial emitters. In July 2018, Manitoba fulfilled this commitment by releasing its Draft Regulatory Framework for a Made-in-Manitoba Output-based Pricing System (the Draft Framework) for public consultation.
The release of the Draft Framework follows the introduction of Bill 16 into the provincial legislature in March 2018. Bill 16, also known as The Climate and Green Plan Implementation Act – is expected to come into law in November 2018. Bill 16 provides the legislative authority for the Manitoba government to implement the Plan, along with the fiscal tools needed to introduce a carbon price in the province. Bill 16 also establishes the Industrial Greenhouse Gas Emissions Control and Reporting Act, which provides the government with the authority to develop an OBPS for industrial facilities competing in emissions intensive, trade exposed (EITE) sectors of the economy. Manitoba’s proposed OBPS is described in further detail below.
Overview of Manitoba’s Proposed OBPS
The Draft Framework describes the key elements to be considered in the design and implementation of the OBPS. Manitoba’s proposed OBPS is separate from the proposed federal OBPS. Manitoba’s OBPS will apply to large industrial emitters in the province, specifically those facilities with emissions of 50,000 tonnes or more of CO2e. At the moment, there are six large industrial emitters in Manitoba (representing approximately 6% of the province’s total emissions): Koch Fertilizer Canada, TransCanada Pipelines, Graymont, Canadian Kraft Papers, Husky Oil and Vale.
Manitoba plans to establish emission limits for covered facilities in the form of emissions intensity performance standards, or EIPS, which are expressed in tonnes of carbon dioxide equivalent (tCO2e). Covered facilities with emissions above their established limit will be required to pay the $25 per tCO2e emitted beyond their limit or meet their compliance obligations through another approved compliance option (e.g. emission offset credits). Covered facilities which emit less than their established emissions limit will be able to bank or sell emissions to other covered facilities up to their limit at a compliance price of $25 per tCO2e.
Manitoba’s OBPS will cover emissions from the following on-site sources: stationary combustion, on-site transportation, industrial processes and product use, waste and wastewater, flaring, and some venting and fugitive sources.
The Manitoba government is considering three options for setting EIPS:
- Facility-specific Standards – an EIPS is set at the individual facility level based on a facility’s historical GHG performance.
- Sector-level Standards – an EIPS is set at a designated percentage below the production-weighted average emissions intensity of similar facilities within the same sector.
- Best-in-class Standards – an EIPS is set at the emissions intensity of the best-performing facility within a sector, globally, nationally, regionally, or provincially.
The Draft Framework notes that there are industrial facilities in the province with multiple product/activity lines that may warrant establishing multiple emissions-intensity performance standards (one for each product/activity). The emissions limit for these facilities will be based on the sum of the limits for each product/activity. A covered facility’s compliance obligation will be based on the following formula:
Compliance Obligation (tCO2e) = Facility’s Total Emissions – Facility’s Emissions Limit
In order to facilitate continuous improvement in GHG performance, the stringency of EIPS will increase over time. It is proposed that each EIPS be subject to an annual 2% declining cap factor. The declining cap factor would apply to all emissions included in the emissions intensity standard, with the exception of industrial process emissions.
Covered industrial facilities will receive an OBPS registration certificate that enables them to purchase carbon tax-free natural gas and solid fuels and receive a full rebate on the carbon tax paid throughout the calendar year on all other fuel types. The first compliance period would begin in January 2019 and reporting would be required as of January 1, 2019. However, performance standards would not be set until June 2019 given the time constraints for implementation.
For compliance purposes, covered facilities must compensate for excess emissions by: (a) remitting an emissions performance credit at a rate of one credit for each tonne of greenhouse gas emissions in excess of the limit; (b) paying a levy at a rate of $25 for each tonne of greenhouse gas emissions in excess of the limit; or (c) a combination of both (a) and (b). The Manitoba government will issue performance credits to facilities for each tCO2e below their emissions limit. Under the OBPS, the following types of emission credits will be available:
- Performance Credits – issued to an industrial operation whose emissions in a compliance period are below the limit that applies in that period.
- Manitoba Offset Credits – under the regulations, an emissions offset credit system may be established for projects in Manitoba that reduce emissions or remove emissions from the atmosphere.
- Agreements with Other Jurisdictions – the minister may enter an agreement respecting recognition of credits issued by the other jurisdiction.
The Manitoba government plans to establish an emissions registry to track the issuance, trading, and use of emissions performance credits. Each registered facility will be required to create an account with the registry once it becomes available.
In addition, registered facilities will be required to quantify emissions using a prescribed methodology. Consideration is being given to requiring third-party review of facility reports verified by a certified third-party accredited to ISO 14065 by the Standards Council of Canada or the American National Standards Institute.
The Manitoba government is also considering an opt-in provision for industrial facilities that do not meet the 50,000 tCO2e eligibility threshold, but may experience competitiveness pressures due to the carbon tax. Facilities that meet both of the following criteria would be eligible to opt-in:
- Have annual emissions between 10,000 and 50,000 tCO2
- Compete in an EITE sector/sub-sector of the economy.
The Manitoba government will hold workshop and information sessions for stakeholders throughout fall 2018, and will issue registration certificates to covered facilities in December 2018. The OBPS would be implemented in January 2019, followed by the establishment of EIPS in June 2019. The opt-in for qualified entities would commence in January 2020.
The Manitoba government has invited interested parties to provide written comments/feedback on the proposed regulatory framework to Manitoba Sustainable Development by September 30, 2018. Comments may be submitted in writing to the following address or email:
Sustainable Development Climate Change and Energy Branch
12-155 Carlton St., Winnipeg, MB, R3C 5R9
Email: ccinfo@gov.mb.ca