Notice Establishing Criteria Respecting Facilities and Persons and Publishing Measures: SOR/2018-213

Canada Gazette, Part II, Volume 152, Number 22

Registration

October 19, 2018

GREENHOUSE GAS POLLUTION PRICING ACT

Whereas subsection 194(1) of the Greenhouse Gas Pollution Pricing Act footnote a stipulates that an order made under section 189, 190 or 191 of that Act and a regulation made under section 192 or 193 of that Act may have effect earlier than the day on which it is made if it so provides and it gives effect to measures referred to in a notice published by the Minister of the Environment;

Whereas subsection 194(2) of that Act stipulates for greater certainty that a notice referred to in subsection 194(1) of that Act is a regulation as defined in subsection 2(1) of the Statutory Instruments Act footnote b if, for the purpose of ensuring the early registration under section 171 of the Greenhouse Gas Pollution Pricing Act footnote a of facilities as covered facilities, the notice sets out criteria respecting facilities and persons;

Whereas subsection 171(4) of the Greenhouse Gas Pollution Pricing Act footnote a stipulates that a facility and a person that meet the criteria set out in such a notice are, respectively, a covered facility as defined in section 169 of that Act and a person responsible for the facility;

And whereas, the Minister of the Environment is publishing these criteria as measures for the purpose of subsection 194(1) of that Act;

Therefore, the Minister of the Environment, pursuant to section 194 of the Greenhouse Gas Pollution Pricing Act footnote a, makes the annexed Notice Establishing Criteria Respecting Facilities and Persons and Publishing Measures.

Gatineau, October 17, 2018

Catherine McKenna
Minister of the Environment

Notice Establishing Criteria Respecting Facilities and Persons and Publishing Measures

Definitions

Definitions

1 (1) The following definitions apply in this Notice.

Act means the Greenhouse Gas Pollution Pricing Act. (Loi)

facility means

foundry means a facility that produces metal ingots or uses a mould to produce a metal product of a specific shape or design the intended use of which when in that form is dependent in whole or in part on its shape or design. (fonderie)

operator means a person who has the charge, management or control of a facility. (exploitant)

petroleum refinery means a facility that is used to carry out the covered industrial activity referred to in paragraph 3(b) and for which the combined annual volume of gasoline, diesel fuel and lubricant basestock produced is greater than 40% of the annual volume of liquid petroleum products produced. (raffinerie de pétrole)

Interpretation — Facility

(2) With respect to a facility

Criteria Respecting Facilities and Persons

Criteria respecting facilities

2 For the purpose of early registration under section 171 of the Act, the following criteria must be met in order for a facility to be a covered facility as defined in section 169 of the Act:

Covered industrial activities

3 The covered industrial activity for a facility is any of the following activities:

Criteria respecting persons

4 For the purpose of section 171 of the Act, being an owner or operator of a covered facility is the criterion that must be met in order for a person to be a person responsible for that facility.

Measures for the Purpose of Subsection 194(1)

Criteria respecting facilities and persons

5 For the purpose of subsection 194(1) of the Act, the criteria respecting facilities and persons set out in sections 2 and 4 are measures.

Coming into Force

October 31, 2018

6 This Notice comes into force on October 31, 2018, but if it is registered after that day, it comes into force on the day on which it is registered.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Notice and the Order.)

Issues

The Greenhouse Gas Pollution Pricing Act (GGPPA or the Act) received royal assent on June 21, 2018. footnote 1 Part 2 of the GGPPA sets out the legal framework and enabling authorities for the performance-based system for emissions-intensive and trade-exposed facilities — known as the Output-Based Pricing System (OBPS). This system will apply in the provinces, territories and areas listed in Part 2 of Schedule 1 to the Act (referred to herein as backstop jurisdictions). In backstop jurisdictions, facilities participating in the OBPS will be able to purchase charge-free fuel and will instead face a compliance obligation on the portion of their greenhouse gas (GHG) emissions that exceed prescribed limits.

The OBPS is scheduled to start on January 1, 2019. footnote 2 However, regulations establishing the OBPS (i.e. OBPS regulations), which are to be made by the Governor in Council under the GGPPA, will be finalized after this date. In order to enable the implementation of the OBPS on January 1, 2019, ahead of the OBPS regulations, the Minister of the Environment (the Minister) must establish criteria that permit early registration of OBPS participants, and must specify the information related to GHG emissions and production that must be quantified, reported, and verified by regulated facilities.

Background

At the United Nations Framework Convention on Climate Change (UNFCCC) conference in December 2015, the international community, including Canada, concluded the Paris Agreement, which is intended to reduce GHG emissions, to limit the rise in global average temperature to less than 2 °C and to pursue efforts to limit it to 1.5 °C above pre-industrial levels. It is widely recognized that economy-wide carbon pollution pricing is the most efficient way to reduce GHG emissions. Pricing carbon pollution drives innovative solutions to provide low-carbon choices for consumers and businesses. As part of its commitments made under the Paris Agreement, Canada pledged to reduce national GHG emissions by 30% below 2005 levels by 2030.

In October 2016, the Government of Canada published the Pan-Canadian Approach to Pricing Carbon Pollution, which outlines the principles on which the pricing of carbon pollution in Canada will be based. footnote 3 This publication also states that a federal carbon pollution pricing backstop system (a federal backstop system) will apply in all Canadian jurisdictions that do not have a carbon pollution pricing system in place that aligns with the benchmark elements of the Pan-Canadian Approach to Pricing Carbon Pollution (the Benchmark) by 2018. The Government of Canada followed up with the publication of guidance on the Benchmark in August 2017 and supplemental guidance in December 2017. footnote 4, footnote 5 The Benchmark is intended to ensure that carbon pollution pricing applies to a broad set of emission sources across Canada, with increasing stringency over time.

Greenhouse Gas Pollution Pricing Act

The GGPPA provides the legal framework and enabling authorities for the federal backstop system for the purpose of ensuring that the pricing of GHG emissions (i.e. carbon pollution pricing) is applied broadly in Canada. Part 1 of the GGPPA, administered by the Canada Revenue Agency, establishes the fuel charge that will generally be paid by fuel producers or distributors and generally applies to fossil fuels produced, delivered or used in a backstop jurisdiction, brought into a backstop jurisdiction from another place in Canada, or imported into Canada at a location in a backstop jurisdiction. The fuel charge applies at the rates set out in Schedule 2 to the Act and those rates vary by fuel type. The rates increase annually from 2018 to 2022.

Part 2 of the GGPPA, administered by the Department of the Environment (the Department), provides authority to establish an OBPS. The aim of the OBPS is to minimize competitiveness risks for emissions-intensive and trade-exposed facilities in backstop jurisdictions, while retaining a price signal on carbon pollution and thus an incentive to reduce GHG emissions. Facilities participating in the OBPS will be able to purchase charge-free fuel and will instead face a compliance obligation on the portion of their GHG emissions that exceed prescribed limits. Participants will have the option to comply with the OBPS regulations by either remitting eligible compliance units or paying the excess emissions charge, or through a combination of these options.

The GGPPA provides the Governor in Council with authority to determine in which provinces, territories and areas the Act applies, by amending Schedule 1 to that Act through an Order in Council. Amendments to Schedule 1 take into account recommendations resulting from the assessment of the stringency of provincial and territorial carbon pollution pricing systems and alignment with the Benchmark. The federal backstop system will apply, in whole or in part, in those backstop jurisdictions listed in Schedule 1, which is divided into two parts. Part 1 of the Act (the fuel charge) will apply in the backstop jurisdictions listed in Part 1 of Schedule 1. Similarly, facilities that meet specified criteria and are located in any of the backstop jurisdictions listed in Part 2 of Schedule 1 will be subject to Part 2 of the Act (the OBPS).

Objectives

The objective of the Notice Establishing Criteria Respecting Facilities and Persons and Publishing Measures (the Registration Notice or the Notice) is to enable the implementation of the OBPS on January 1, 2019, in advance of OBPS regulations to be made by the Governor in Council. The objective of the Greenhouse Gas Emissions Information Production Order (the Information Order or the Order) is to specify the information related to GHG emissions and production that must be quantified, reported and verified by the persons responsible for the regulated facilities under the Order.

Description

Notice Establishing Criteria Respecting Facilities and Persons and Publishing Measures

The Registration Notice establishes criteria that characterize facilities that are required to participate in the OBPS (mandatory OBPS participants). Mandatory OBPS participants are those facilities that are located in any of the backstop jurisdictions listed in Part 2 of Schedule 1 to the GGPPA, carry out a covered activity as set out for each backstop jurisdiction, and have reported annual emissions of 50 kilotonnes (kt) of carbon dioxide equivalent (CO2e) or more to Canada’s Greenhouse Gas Reporting Program (GHGRP), during any calendar year in the period from 2014 to 2017. footnote 6

For the purpose of ensuring early registration under section 171 of the GGPPA, the Registration Notice sets out the criteria to identify facilities and the persons responsible for these facilities who will be required to apply to the Minister for registration under the Act. Registration will allow a person responsible for a facility that potentially meets the criteria established by the Notice to do the following:

Greenhouse Gas Emissions Information Production Order

The Information Order describes the persons required under the Order to gather information related to the GHGs listed in Schedule 3 to the GGPPA and production (output). It states that, starting January 1, 2019, the person responsible for a facility regulated under the Order must monitor, gather, and record information, including data relating to GHG emissions, production, and steam and heat purchased and sold. footnote 7 The Order also specifies the information that must be quantified, reported and verified. Regulated facilities are required to provide this information in an annual report, which must be submitted to the Minister by June 1 of each year starting in 2020. Finally, the Order states that regulated facilities are required to keep all records, upon which the information that they submit to the Minister is based, for a period of seven years (following the creation of the records) within Canada. Such records include any documents, measurements, calculations and other data used to generate the information contained in the annual report.

“One-for-One” Rule

Administrative burden costs will increase due to the Registration Notice and Information Order, as OBPS participants will be required to comply with new administrative requirements that are more stringent than existing requirements. The facilities that are obligated to participate in the OBPS are those in backstop jurisdictions that carry out covered activities, which are identified in the Notice, and that have reported annual emissions of 50 kt of CO2e or more to the GHGRP, during any calendar year in the period from 2014 to 2017. Based on these criteria for mandatory participation, the total number of regulated facilities in backstop jurisdictions that must comply with the Notice and Order is anticipated to be approximately 133. This total is the estimated number of mandatory OBPS participants in the backstop jurisdictions listed in Part 2 of Schedule 1 to the GGPPA at the time of publication of this Regulatory Impact Analysis Statement (RIAS).

In accordance with the Registration Notice, persons responsible for facilities that meet the applicable criteria must apply for registration of their respective facility with the Minister as mandatory participants by means of the Department’s single window information management system. footnote 8 This requirement will lead to one-time, upfront administrative costs for mandatory OBPS participants in 2018. If the Minister is satisfied that an application for registration meets the applicable requirements, the facility will be registered and receive a covered facility certificate. A covered facility certificate will allow an OBPS participant to register as an emitter with the Canada Revenue Agency and obtain an exemption certificate under Part 1 of the Act (the fuel charge) to be able to purchase charge-free fuel.

Starting January 1, 2019, persons responsible for regulated facilities under the Order will be required to quantify annually their respective GHG emissions, production, and steam and heat purchased and sold, using the methodologies prescribed in the Information Order that are specific to the industrial activity carried out at the facility. As a result, there will be ongoing annual administrative costs for mandatory OBPS participants associated with the monitoring, gathering, and recording of information, including data relating to facilities’ production and GHG emission levels. The Order contains requirements concerning the reporting and verification of collected information as well, which will result in further annual administrative costs.

Concerning verification obligations, regulated facilities will have to arrange for their annual end-of-year compliance reports to be verified by a third party accredited to the International Organization for Standardization (ISO) standard 14065:2013 — Greenhouse gases — Requirements for greenhouse gas validation and verification bodies for use in accreditation or other forms of recognition, or by a third party accredited to another form of recognition by the Standards Council of Canada, the American National Standards Institute or any other accreditation organization recognized by the International Accreditation Forum. Third party verified reports must be submitted to the Minister by June 1 of the year following each calendar year for which a report is prepared.

The Registration Notice and Information Order will introduce administrative costs in addition to those costs that mandatory OBPS participants in backstop jurisdictions already incur due to existing GHGRP requirements and provincial GHG reporting requirements. For the 133 facilities that are anticipated to be required to participate in the OBPS, the additional administrative impacts per facility are estimated to be

Overall, this incremental administrative burden is estimated to be in the order of $530,000 in annualized average costs. footnote 9 The administrative impacts correspond to approximately $4,000 in annualized average costs per facility when allocated over the first 10 years of administrative cost impacts (2018–2027). footnote 10 There will also be extra costs incurred by regulated facilities to pay for the third-party verification activities associated with the annual report. These costs are out of the scope of the “One-for-One” Rule and will be considered in the analysis of compliance costs attributable to the OBPS regulations.

The Registration Notice and the Information Order are each considered an “IN” under the “One-for-One” Rule given the expected increases in administrative costs resulting from these regulatory instruments. Therefore, these cost increases would require equal and offsetting reductions in administrative costs. Since the Notice and Order introduce two new regulatory titles, there would also be a requirement under the Rule to repeal two existing regulatory titles.

Nevertheless, it is planned that registration, quantification, reporting and verification provisions would be included in the OBPS regulations to be made by the Governor in Council under the GGPPA, such that the Notice and the Order would no longer be necessary once these OBPS regulations come into force. The administrative impacts associated with the OBPS regulations, and the resulting obligations of the Department in relation to the “One-for-One” Rule, will be assessed and reported in the RIAS accompanying these regulations.

Small business lens

A mandatory OBPS participant is defined as an industrial facility in a backstop jurisdiction that carries out a covered activity, and that has reported annual emissions of 50 kt of CO2e or more to the GHGRP, during any calendar year in the period 2014 to 2017. Based on this definition, the regulated community of mandatory participants is assumed to consist exclusively of emissions-intensive and trade-exposed facilities that are either independently owned and operated by medium or large businesses, or owned and operated by domestic or multinational corporations.

The Registration Notice allows for early registration of mandatory participants prior to January 1, 2019. Some facilities that are not obligated to participate in the OBPS (non-mandatory participants) will be able to opt into the system. For example, a person responsible for a facility in a backstop jurisdiction may request to the Minister that the facility be designated as a covered facility, if the facility in question carries out a covered activity and has reported annual emissions to the GHGRP, for any year starting with 2017, of at least 10 kt of CO2e but less than 50 kt of CO2e.

It is possible that some non-mandatory participants opting into the system could be small businesses. Nevertheless, the costs incurred by non-mandatory participants due to the Notice and Order do not represent compulsory regulatory costs for small businesses, as the persons responsible for these facilities will have the discretion to choose between the fuel charge regime and participation in the OBPS.

For the reasons mentioned above, the small business lens does not apply to the Registration Notice and Information Order.

Consultation

In March 2016, Canada’s First Ministers committed to putting Canada on a credible path to meet or exceed its commitments made under the Paris Agreement. The First Ministers agreed that such a commitment would require transitioning to a low-carbon economy by adopting a broad range of domestic measures, including carbon pollution pricing, adapted to the specific circumstances of each province and territory.

On December 9, 2016, the Pan-Canadian Framework on Clean Growth and Climate Change (the Pan-Canadian Framework) was finalized at a climate-focused First Ministers meeting in Ottawa. A central component of the Pan-Canadian Framework is the pricing of carbon pollution, which is expected to lead to substantial GHG emission reductions, contributing to meet Canada’s international commitments and the transition to a low-carbon economy.

The federal government is committed to ensure that the provinces and territories have the flexibility to design their own policies and programs, while ensuring that carbon pollution pricing applies to a broad set of GHG emission sources across Canada with increasing stringency over time. Provinces and territories can implement the type of carbon pollution pricing system that makes sense for their specific circumstances (i.e. either an explicit price-based system or a cap-and-trade system).

In May 2017, the Government of Canada released a technical paper on the federal backstop system describing the two main components of the system:

In December 2017, the Government of Canada requested that provinces and territories provide information by September 1, 2018, describing how they intend to meet the Benchmark. After the review of each provincial and territorial system, the federal government will implement the federal backstop system, in whole or in part, in any province or territory that has requested it or that does not have a carbon pollution pricing system in place in 2018 that aligns with the Benchmark. The assessment process will consider the stringency of provincial and territorial carbon pollution pricing systems and evaluate how these systems align with the Benchmark.

In January 2018, the federal government released draft legislative proposals relating to the proposed federal backstop system for public comment. On March 27, 2018, the Government of Canada tabled the GGPPA in the House of Commons, as part of the Budget Implementation Act, 2018, No. 1 (Bill C-74). On June 21, 2018, Bill C-74, including the GGPPA, received royal assent. footnote 12

Also in January 2018, the Government of Canada released a regulatory framework for the OBPS outlining the design of the system. footnote 13 Further, in May 2018, the Department published a document related to the regulatory framework providing additional details on compliance units and their use in the OBPS. footnote 14 In setting output-based standards, the Department is taking into account the emissions intensity and trade exposure of each sector, as well as other factors that may lead a sector to be at competitiveness risk due to the pricing of carbon pollution.

The Department plans to include registration, quantification, reporting and verification provisions in the OBPS regulations to be made by the Governor in Council under the GGPPA. Once these provisions come into force, the Registration Notice and Information Order would no longer be necessary. Given these similarities in regulatory provisions, comments concerning the assumptions and estimates in this analysis may be made to the contacts listed at the end of this RIAS within 60 days after the date of publication of the Notice and Order in the Canada Gazette, Part II. Comments received will be taken into consideration by the Department in the analysis of the OBPS regulations.

Rationale

The OBPS provides emissions-intensive and trade-exposed facilities in backstop jurisdictions relief from the fuel charge. These facilities will instead face a compliance obligation on the portion of their GHG emissions that exceed prescribed limits. The Registration Notice and Information Order are being made by the Minister under the GGPPA to establish the criteria that permit early registration of OBPS participants and to specify the information related to GHG emissions and production that must be quantified, reported, and verified by regulated facilities. In doing so, the Notice and Order enable the implementation of the OBPS on January 1, 2019, in advance of OBPS regulations to be made by the Governor in Council. From the time the fuel charge starts to apply, and upon production of a valid exemption certificate, an OBPS participant will generally be able to purchase charge-free fuel, in accordance with the rules set out under Part 1 of the GGPPA (the fuel charge).

Regarding the Information Order, it is assumed that mandatory OBPS participants have been complying with provincial GHG reporting requirements, where they exist, and with their current GHGRP obligations by complying with notices published under section 46 of the Canadian Environmental Protection Act, 1999. As a result, the Department expects that the vast majority of mandatory participants will already have the necessary equipment and employ the essential personnel to comply with the provisions of the Order.

The Registration Notice and Information Order will lead to administrative costs for mandatory OBPS participants in backstop jurisdictions in addition to the administrative costs resulting from existing requirements to report GHG emissions. An increase in annualized administrative costs of about $530,000, or $4,000 per stakeholder, is estimated to be incurred by approximately 133 mandatory participants due to registration activities, learning about the new administrative obligations, and the quantification, reporting and verification of information related to GHG emissions and production.

In addition, the federal government will incur upfront costs to conduct compliance promotion activities and develop a secure electronic system for registration, reporting and compliance tracking purposes. The Government of Canada will also face ongoing costs for enforcement and compliance promotion activities undertaken to support the OBPS, and ongoing costs to administer the registration, reporting and compliance tracking system. These federal government costs will be assessed and reported in the RIAS accompanying the OBPS regulations.

Detailed strategic environmental assessments, completed in 2017 and 2018, concluded that the Pan-Canadian Approach to Pricing Carbon Pollution contributes to the overall objectives of the Pan-Canadian Framework. This approach to pricing carbon pollution will also support a number of goals and targets established under the Federal Sustainable Development Strategy (FSDS), specifically those concerning clean growth and effective action on climate change. footnote 15

Implementation, enforcement and service standards

The Registration Notice comes into force on October 31, 2018, but if it is registered after that day, it comes into force on the day on which it is registered. The Information Order comes into force on January 1, 2019; however, the Order comes into force for Nunavut and Yukon on July 1, 2019. Implementation and enforcement actions will be undertaken by the Department in accordance with the Department’s compliance and enforcement policies. footnote 16

In order to raise awareness and encourage the regulated community to achieve a high level of compliance as early as possible during the regulatory implementation process, the Department will undertake compliance promotion activities. The Department will email regulated facilities, industry associations and other stakeholders and publish online guidance material in conjunction with the publication of the Notice and the Order in the Canada Gazette, Part II. In addition, following the publication of the Notice and the Order, the Department will host a webinar for regulated facilities to demonstrate how to use the electronic registration and compliance tracking system.

The Government of Canada will make every effort to respond promptly to registration applications from facilities in backstop jurisdictions. The registration process is not expected to take more than 10 business days from the time that a complete application for a covered facility certificate is received by the Department. When an application meets the requirements for registration to the satisfaction of the Minister, the person responsible for the facility will receive a covered facility certificate. This person will then be able to apply to the Canada Revenue Agency in order to be registered as an emitter under Part 1 of the GGPPA (the fuel charge). Once registered as an emitter, the person responsible for the covered facility will be eligible to receive an exemption certificate from the Canada Revenue Agency under Part 1 of the Act, which will enable the facility to purchase charge-free fossil fuels. Compliance with the service standards for processing registration applications will be monitored and evaluated as part of normal regulatory performance measurement and evaluation.

The Government of Canada is committed to continue working with provinces and territories to implement carbon pollution pricing as a central component of the Pan-Canadian Framework. From 2019 onwards, there will be an annual assessment process of provincial and territorial carbon pollution pricing systems to consider their stringency and to ensure that these systems continue to meet the Benchmark. The federal government will monitor major changes to provincial and territorial systems on an ongoing basis, work with the territories to address their specific challenges, and continue to engage with Indigenous peoples with respect to pricing carbon pollution. The Pan-Canadian Approach to Pricing Carbon Pollution will be reviewed by early 2022 to confirm the overall path forward.

Contacts

Katherine Teeple
Director
Federal Carbon Pricing System Division
Carbon Pricing Bureau
Environmental Protection Branch
Department of the Environment
351 Saint-Joseph Boulevard
Gatineau, Quebec
K1A 0H3
Email: ec.tarificationducarbonecarbonpricing.ec@canada.ca

Matthew Watkinson
Director
Regulatory Analysis and Valuation Division
Economic Analysis Directorate
Strategic Policy Branch
Department of the Environment
200 Sacré-Cœur Boulevard
Gatineau, Quebec
K1A 0H3
Email: ec.darv-ravd.ec@canada.ca