The Liberals Hold On - But Is Carbon Pricing Out Of The Woods?

Canada has spoken. A minority Liberal government will return to Parliament following a federal election that put, perhaps more than ever, the spotlight on climate change. The federal Greenhouse Gas Pollution Pricing Act ("GGPPA"), or, as it is more colloquially known, the "carbon tax", will live another term.

But, despite the apparent endorsement from voters and the continued application of the law, its future remains uncertain. Half of Canada's provinces are opposed to federal jurisdiction over greenhouse gases ("GHGs"), and have asserted their own jurisdiction over GHG emissions in two ways. First, many provinces have issued their own climate change plans, some of which bear a striking resemblance to the GGPPA itself, and some of which, if passed into legislation, allow these provinces to exert their own jurisdiction on carbon pricing. Second, four provinces have launched court challenges of the GGPPA, none of which have yet been successful but two of which have been appealed to the Supreme Court of Canada. In March 2020, the Supreme Court will hear arguments about whether the federal government has valid jurisdiction to price carbon.

The head-butting between federal and provincial governments promises a regulatory landscape for GHGs that is, at best, complicated and, at worst, perplexing. Whether or not the Supreme Court upholds federal jurisdiction over carbon pricing, GHG emitters will likely face a patchwork of federal and provincial regulation and policy for years to come.

What's in the federal carbon pricing law?

The GGPPA is divided into two parts. Part 1 levies a Fuel Charge, which applies a tax to producers, distributors and importers of fuels, including gasoline, aviation fuel, natural gas, coal, and combustible waste, among others. The charge (which starts at $10 per ton of carbon dioxide equivalent in 2018) is effectively passed down the chain of supply of the fuel and is ultimately borne by the end-use supplier (and then likely makes its way into consumer prices).1

Part 2 is an Output-Based Pricing System ("OBPS"), which applies to large industrial emitting facilities. The OBPS is similar to a cap-and-trade scheme, in that it sets an overall limit on GHG emissions in a given jurisdiction, and sets individual limits for facilities. Those that exceed their limit are charged, and those that remain below are granted tradeable credits. The main difference between the OBPS and cap-and-trade is that under a cap-and-trade system...