This is the fourth post in the Environmental Law Centre’s new blog series exploring climate change law in Canada. This blog series will provide updates on climate change law developments and will include insights from our related law reform research. This blog series is generously funded by the Alberta Law Foundation.
In November 2015, the Alberta government announced its “Climate Leadership Plan” – a plan that lays out how Alberta envisions tackling climate change in the province. The four major cornerstones of the plan are to end coal pollution, to price carbon pollution, to cap oil sands emissions and to reduce methane emissions. This blog focuses on the pricing of carbon pollution.
Carbon pricing is the use of policy tools designed to lower carbon emissions. Carbon pricing tools include the application of a carbon tax (a fixed charge per tonne of emitted carbon) and the establishment of a cap and trade system (also called emissions trading). A cap and trade scheme does two things. First, it introduces greenhouse gas (GHG) emission limits or caps for specific industrial activities and facilities. Second, in case the industrial activity exceeds the emission limit, the scheme allows purchase of compliance units in order to achieve compliance with the emission limit.
While we are still awaiting details on the Alberta government’s proposed approach to carbon pricing, it is helpful to look at how other Canadian provinces are approaching it. This blog looks at British Columbia’s carbon pricing tools and legislation. BC’s carbon pricing approach uses a combination of both a carbon tax and a cap and trade regime. Its carbon tax was introduced in July 2008. Its cap and trade regime, while still a work in progress, has received new impetus by amended legislation and new carbon legislation.
In the beginning of 2016, British Columbia amended existing legislation and enacted new legislation aimed at reducing GHG emissions by putting a price on emissions. According to BC’s Greenhouse Gas Reduction Targets Act, GHG emissions will be reduced by 2020 by at least 33% compared to 2007 levels and by 2050 by 80% compared to 2007 levels. Interim reduction targets will be to decrease emissions by 2012 by 6% below 2007 levels and by 2016 by 18% below 2007 levels.
BC’s Carbon Tax
The carbon tax applies broadly to the purchase or use of fuels (such as gasoline, diesel, natural gas, heating oil, propane and coal) and the use of combustibles (such as peat and tires) when used to produce heat or energy. Each fuel type is taxed depending on its anticipated carbon emissions. The taxation rate for each fuel type is applied consistently throughout the province. Estimates predict that BC’s carbon tax could reduce emissions by 3 million tonnes of carbon dioxide equivalent (CO2e) annually by 2020. This is approximately equivalent to taking 800,000 cars of the roads in BC each year.
The carbon tax started on July 1, 2008 at CAD 10 per tonne and rose by CAD 5 per tonne each year to its current price of CAD 30 per tonne commencing July 1, 2012. The key element of the tax is its revenue-neutrality, which means that every dollar generated by the tax is returned to British Columbians through reductions in other taxes. For the period 2013-2014, the BC government announced it had achieved revenue neutrality.
BC’s Cap and Trade Regime
In the beginning of 2016, BC started to enact new cap and trade legislation. The process is not finalized yet and some sections of acts and regulations still have to be specified and brought into force. For an overview of BC’s climate change legislation, see here. The central piece of its cap and trade legislation is the BC Greenhouse Gas Industrial Reporting and Control Act. The cap and trade scheme covers several activities and facilities such as general stationary combustion of waste, fuel combustion, aluminum production, ammonia production, cement production, underground coal mining, coal storage, coal combustion, copper/nickel melting or refining, electricity generation, manufacturing, hydrogen production, industrial operations, petroleum refining, pulp and paper production, oil and gas activities, electricity transmission, natural gas transmission, distribution, and storage and LNG activities (see the BC Reporting Regulation).
These covered activities and facilities are called “reporting operations” and must report their emissions if they are equal to or greater than 10,000 tonnes of CO2e. Regardless of this threshold of 10,000 tonnes, electricity import operation and coal storage activities are mandatory reporting operations. If the emissions are equal to or greater than 25,000 tonnes CO2e, a verification body must verify the emissions report.
Reporting operations are subject to emission limits, also known as “caps”. At the end of March 2016, the BC legislature has so far only determined the emission limit for liquefied natural gas operation to be at 0.16 CO2e tonnes for each tonne of liquefied natural gas produced. The emission limits of the other reporting operations still have to be determined in due course.
In case the regulated operation exceeds the applicable emission limit, it may achieve compliance through the use of compliance units. One option is to purchase a unit, referred to as a “funded unit”. Currently, the BC Greenhouse Gas Emission Control Regulation sets the price for a funded unit (equals one tonne of CO2e) at CAD 25. The ‘trade’ in the term cap and trade scheme refers to the purchase of compliance units to achieve compliance with the emission limits.
The cap and trade scheme also creates a carbon registry. Operators of regulated operations that need to use compliance units in order to achieve compliance with emission limits must establish a compliance account in the registry. Also, project proponents for offset projects must establish an account in the registry. Compliance with the emission limits can be achieved through the transfer and trade of compliance units with other account holders. Compliance units can also be traded through other carbon registries outside of BC, which creates the option to participate in inter-jurisdictional carbon trading, for example, with partners of the Western Climate Initiative (WCI). The current WCI partners are California, Québec, Ontario, Manitoba and British Columbia. A common framework enables WCI partners to link their trading schemes to a common carbon market. So far, only California and Québec have linked their carbon trading markets since 2013. If BC intends to join the WCI carbon market, then more specific regulations must be enacted (for example, to address the auctions of compliance units).
Alberta has announced that it will use carbon pricing as part of its approach to tackling climate change. This may include a carbon tax, a cap and trade scheme, or a combination thereof. However, it remains to be seen how exactly Alberta will modify its existing carbon pricing regime. For that purpose it is always beneficial to learn from the experience of other jurisdictions. While its cap and trade scheme is still a work in progress, BC has committed to use its existing carbon tax and a cap and trade scheme in combination to address climate change.