Regulatory Update: Federal carbon pricing system for large emitters to recede in Ontario, as Canada approves Province's Emissions Performance Standards

7 minute read
28 September 2020

On September 21st, 2020, Ontario Minister of the Environment, Conservation and Parks Jeff Yurek announced that Ontario's Emissions Performance Standards ("EPS") program was approved by Environment Canada as an alternative to the federal output-based pricing system ("OBPS "). This means that the federal government will stand down the OBPS under the Greenhouse Gas Pollution Pricing Act ("GGPPA") (commonly referred to as the "federal carbon price" or "federal backstop"), allowing the EPS to fill the regulatory space.

The Ontario and federal government will be working to transition from the federal backstop OBPS to the EPS so as to avoid duplication. The transition date will be determined in consultation with the Province.

Importantly, the GGPPA will not withdraw entirely from Ontario ̶ the federal Fuel Charge, which applies a per-litre charge on various fuels throughout their supply chains, will continue to apply alongside the EPS.

What is the Ontario EPS?

The EPS program applies annual sector specific emission limits on large industrial facilities that emit GHGs. Emitters will be charged for failure to meet the EPS standards and will receive tradeable credits when they exceed them. The program will ratchet up stringency over time in order to save industries an initial shock and give them time to meet their obligations. For more details about the EPS program, see our article from February 2019.

The OBPS backstop comes from Part II of the GGPPA, which allows each province to design its own industrial carbon pricing scheme that meets federal standards, but imposes the federal scheme if they fall short. In December, the federal government announced that Alberta's industrial emissions pricing system and New Brunswick's provincial fuel charge met federal stringency requirements. Now, Ontario's EPS and New Brunswick's system for industrial emitters have also been accepted as meeting federal requirements.

Federal Environment Minister Jonathan Wilkinson has commented that despite being weaker than the federal OBPS, the Ontario EPS meets the minimum requirements required by the GGPPA.

The EPS regulation, Ontario Regulation 241/19, is already in force, having come into effect on July 4, 2019. However, to avoid double regulation, only the registration and record keeping requirements of the EPS have applied thus far. The Ontario Government clarified that other EPS compliance obligations will not apply until the federal government removes Ontario from the federal OBPS. Thus, the OBPS remains in effect in Ontario until the federal government and provinces agree to a transition date.

How does this affect the Supreme Court hearing on carbon pricing?

This announcement came the day before Ontario joined Saskatchewan and Alberta to challenge the constitutional validity of the GGPPA in the Supreme Court of Canada, which heard oral arguments on September 22nd and 23rd.

The approval of the EPS does not alter Ontario's position in opposition to the GGPPA. Ontario has argued before the Supreme Court that the GGPPA is an unconstitutional intrusion into the regulatory space of the provinces. Unless the Supreme Court rules in Ontario's favour, Canada retains authority to reverse their approval of the EPS if it were ever to fall below the GGPPA's prescribed stringency. The GGPPA's Fuel Charge also remains in effect in Ontario.

Jennifer King, Michael Finley and Liane Langstaff from Gowling WLG have represented the Canadian Public Health Association ("CPHA") as an intervenor at the Supreme Court of Canada, and previously in the Saskatchewan and Ontario Reference cases. Gowling WLG continues to monitor changing greenhouse gas regulations and these important court challenges in its role as intervenor counsel. For more information, please contact any member of our team.

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