As a signatory to the Paris Agreement, Canada has set itself ambitious climate targets to reduce greenhouse gas (GHG) emissions by 40-45% below 2005 levels by 2030 and achieve net-zero emissions by 2050.
Canada’s approach to CO2 emissions reduction involves both provincial initiatives and federal frameworks designed to reduce GHG emissions, including programs designed to reduce emissions from industry over time. Here’s an overview of Canada’s CO2 emissions reduction programs for large industrial emitters, including cap-and-trade and performance based programs. This article is the first of a 3 part series: Canadian carbon tax programs and GHG reporting programs will be covered in parts 2 and 3 respectively.
Quebec Cap-and-Trade Program
- Overview: Quebec’s cap-and-trade program is part of the Western Climate Initiative (WCI), which includes a linkage with California’s system. It was launched in 2013 and aims to reduce GHG emissions by setting a cap on total emissions and allowing for the trading of emission allowances.
- Coverage: The program covers large industrial facilities, electricity generators, and fuel distributors emitting 25,000 tonnes or more of CO2 equivalent annually.
- Allowances and Trading: Emission allowances are distributed through auctions and some free allocations. Companies can trade allowances, providing flexibility in meeting their emissions targets.
- Linkage with California: Quebec’s linkage with California creates a larger, more efficient market for trading allowances, enhancing the program’s effectiveness.
Ontario Emissions Performance Standards (EPS)
- Overview: Introduced as an alternative to the cap-and-trade system, the Ontario EPS program is a provincial regulatory approach that sets performance standards for large emitters.
- Coverage: The EPS applies to industrial facilities emitting 50,000 tonnes or more of CO2 equivalent annually, with voluntary participation for facilities emitting between 10,000 and 50,000 tonnes.
- Mechanism: Facilities are assigned emissions intensity standards based on their sectors. Facilities that exceed their standards must compensate by purchasing credits or paying into a compliance fund, while those that perform better than their standards can generate credits.
- Objective: The EPS program aims to reduce emissions while maintaining competitiveness and providing flexibility to industries.
Federal Output-Based Pricing System (OBPS)
- Overview: The OBPS is part of Canada’s federal carbon pricing framework, applicable in provinces and territories without their own carbon pricing systems.
- Coverage: It targets large industrial facilities emitting 50,000 tonnes or more of CO2 equivalent per year, with an opt-in provision for smaller emitters.
- Mechanism: Facilities are given emissions intensity standards, and they can earn credits by emitting less than their standard or must pay a carbon price or purchase credits if they exceed it.
- Purpose: The OBPS is designed to reduce emissions while minimizing economic impacts on emissions-intensive, trade-exposed industries.
British Columbia and Alberta
- British Columbia: Rather than a cap-and-trade system, British Columbia uses a carbon tax, which has been in place since 2008. It applies to the purchase and use of fossil fuels.
- Alberta: Alberta has its own carbon pricing system, which includes the Technology Innovation and Emissions Reduction (TIER) system for large emitters. TIER is similar to a cap-and-trade system in that it sets emissions intensity limits and allows for credit trading.
Summary
Canada’s approach to cap-and-trade and emissions regulation for large emitters involves a mix of provincial and federal initiatives. Quebec’s cap-and-trade program is the most established, linked with California’s system. Ontario’s EPS provides a performance-based regulatory approach as an alternative to cap-and-trade. The federal OBPS ensures that all regions have a carbon pricing mechanism, contributing to Canada’s overall strategy to meet its climate goals and reduce GHG emissions.
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