Changes to the Output-Based Pricing System (OBPS) Regulations

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On November 9, 2024, the Department of the Environment issued a notice regarding proposed amendments to the Output-Based Pricing System (OBPS) Regulations under the Greenhouse Gas Pollution Pricing Act. This Act, which falls under the statutory authority of the Department of the Environment, seeks to regulate greenhouse gas (GHG) emissions by setting carbon pricing mechanisms aimed at reducing pollution. The notice informs the public the Governor in Council, on recommendation of the Department of the Environment, intends to update the OBPS Regulations, which apply to industrial emitters of GHGs in Canada. The proposed amendments refine the OBPS framework around compliance obligations and ensuring that GHG emissions are adequately managed in the oil and gas sectors.

The Output-Based Pricing System (OBPS) is a carbon pricing mechanism used in Canada to regulate greenhouse gas (GHG) emissions from industrial sectors. It is designed to set a carbon cost on large emitters while encouraging them to adopt cleaner technologies and reduce their emissions. Rather than applying a standard carbon price to each tonne of GHG emitted, the OBPS sets emissions intensity standards based on production output, meaning that facilities are only charged for emissions that exceed a certain benchmark tied to their output. Facilities that emit below their intensity limit can generate surplus credits, which they can trade or bank for future use, while those exceeding the limit must pay for excess emissions or purchase credits to meet compliance. This system aims to reduce emissions without unduly penalizing industries that are emissions-intensive and trade-exposed, helping them to remain competitive while supporting Canada’s overall climate objectives.

The amendments focus on clarifying rules regarding the issuance and management of compliance credits and units. For instance, one modification to Subparagraph 58(g)(iii) details the timing of retirement or designation of compliance units for use by a province or other program authority. This amendment aligns provincial or program-specific actions with federal compliance requirements under sections of the Greenhouse Gas Pollution Pricing Act, ensuring that compliance units are retired, remitted, or designated consistently.

In another significant amendment, Paragraph 78(2)(f) has been expanded to introduce strict measures that ensure only one credit or compliance unit is issued per one tonne of carbon dioxide equivalent (CO2e) reduction or removal. A new measure, Paragraph 78(2)(f.1), mandates that each credit or unit can only be used by a single entity, reducing risks of double-counting or re-use. Additionally, Paragraph 78(4)(e) has been revised to establish clearer guidelines on provincial or program authority involvement in designating compliance units. The updated text requires that units or credits, once issued, are only used as designated by the responsible authority and submitted to the Minister as required by law.

These updates aim to bolster Canada’s GHG emissions management strategies, ensuring that the OBPS continues to support Canada’s climate goals while addressing any existing gaps or ambiguities within the regulatory framework.

Canada (Proposed) November 9, 2024