Canadian Carbon Pricing Mechanisms (Updated 2020)

Every province and territory in Canada is subject to a carbon pricing mechanism. Some jurisdictions have developed their own programs, while others use one or both of the federal programs.

In total, there are 13 different carbon pricing mechanisms in Canada (plus 2 more planned). This includes 5 carbon tax programs, 6 baseline and credit systems, and 2 cap and trade systems.

This page describes the three main categories of carbon pricing mechanisms, and then gives a short summary of the programs that apply for each province and territory.

You can read from top to bottom, or start by clicking on your jurisdiction below:

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Carbon Pricing Mechanisms Overview

All carbon pricing mechanisms in Canada fall into one of three main categories:

1. Fuel Charge (Carbon Tax)

A fuel charge, often referred to as a ‘carbon tax’, is the most common carbon pricing mechanism. It works by applying an additional charge to the price of fossil fuels, based on the fuel’s carbon intensity.

For example, a lower carbon fuel (such as propane) might have a fuel charge of $0.05 per litre, while a higher carbon fuel (such as diesel) might have a fuel charge of $0.08 per litre.

Most provinces and territories that use a fuel charge also use a baseline and credit system. British Columbia and the Northwest Territories are the two exceptions – they only use fuel charges.

Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, the Northwest Territories, Nunavut, Ontario, Prince Edward Island, Saskatchewan, and the Yukon all have a fuel charges.

2. Baseline and Credit System

Baseline and credit systems, including performance standards and output-based pricing systems, are the second most common type of carbon pricing mechanism in Canada. They only apply to industrial emissions.

The specifics vary across provinces, but baseline and credit systems generally work by allocating a ‘baseline’ amount of emissions that each industrial facility is allowed to release.

If a facility emits less emissions than their baseline, they earn ‘credits’ that can used to offset emissions in future years. If a facility emits more emissions than their baseline, they must buy credits.

All provinces and territories that use a baseline and credit system also use a fuel charge.

Alberta, Manitoba, New Brunswick, Newfoundland and Labrador, Nunavut, Ontario, Saskatchewan, and the Yukon Territory all have a baseline and credit systems for industrial emissions.

3. Cap and Trade System

The least common type of carbon pricing mechanisms in Canada is the cap and trade system. Similar to baseline and credit systems, cap and trade only applies to industrial emissions.

In general, cap and trade systems work by setting a ‘cap’ on the total amount of emissions that can be released within a given jurisdiction. Emissions within this cap are then distributed freely to industrial facilities, or sold to them in an auction.

If a facility releases less emissions than their allocated or purchased amount, they earn credits that they can ‘trade’ to other facilities. Facilities that release more emissions than their allocated or purchased amount must buy credits.

Provinces that have cap and trade programs don’t also have fuel charges or baseline and credit systems.

Quebec and Nova Scotia are the only two Canadian jurisdictions with cap and trade systems.


Federal

Government of Canada

The federal government has developed two carbon pricing mechanisms – the federal fuel charge (often called the federal carbon tax) and federal baseline and credit system for industrial facilities.

These two programs are referred to as the “federal backstop”, and only apply in provinces and territories that haven’t developed their own programs.

Federal Fuel Charge (Carbon Tax)

The federal fuel charge works by applying a tax on the sale of fossil fuels, based on their carbon intensity.

As of April 2020, the current federal carbon tax is $30 per tonne of CO2e, and it will increase $10 per year until it reaches $50 per tonne in 2022.

For example, here are the 2020 fuel charges rates for some common fossil fuels:

  • Gasoline: $0.0663 per litre
  • Natural Gas: $0.0587 per cubic metre
  • Propane: $0.0464 per litre

You can see the full list of current fuel charge rates here.

The federal fuel charge currently applies in Alberta, Manitoba, Ontario, Prince Edward Island, Saskatchewan, and partially in Nunavut and the Yukon Territory.

Federal Baseline and Credit System

The federal baseline and credit system is called the Federal Output-Based Emissions Pricing System (OBPS). This system applies to industrial facilities that emit more than 50,000 tonnes of CO2e per year.

Under the Federal OBPS, each industrial polluter is allowed to release a baseline amount of emissions per unit of product produced, based on a national performance standard.

For example, here are the baseline emission amounts for three common products:

  • 650 tonnes of CO2e per GWh of electricity produced from solid fuels
  • 0.216 tonnes of CO2e per vehicle produced
  • 0.0728 tonnes of CO2e per tonnes of potatoes processes for animal or human consumption

Click here to see a full list of the federal output-based standards.

If a polluter beats the standard, they earn credits that they may be able to save or sell. If they don’t beat the standard, they must buy credits to offset their excess emissions.

Industrial facilities will also soon be able to buy emissions offsets through the Federal Greenhouse Gas Offset System.

The federal baseline and credit system currently applies in Manitoba, Nunavut, Prince Edward Island, the Yukon Territory, and partially in Saskatchewan.


Alberta

Government of Alberta

Emissions in Alberta are covered by a combination of provincial and federal carbon pricing mechanisms:

  • Federal Fuel Charge (for fuel emissions)
  • Provincial baseline and credit system (for industrial emissions)

Because the federal fuel charge applies, as of April 2020, the current carbon tax in Alberta is $30 per tonne of CO2e, and it will increase $10 per year until it reaches $50 per tonne in 2022.

Baseline and Credit System

Alberta’s baseline and credit system is called the Alberta Technology Innovation and Emissions Reduction (TIER) Regulation. TIER applies to industrial facilities that emit more than 100,000 tonnes of CO2e per year.

Under Alberta’s TIER, each emitter is required to reduce its emissions by 10% compared to a 2013-2015 baseline. If an emitter releases more than their allocated baseline amount, they pay $30 per tonne. If they release less, then they earn credits that they can carry forward for future years.

Industrial polluters can also participate in the Alberta Emission Offset System. Starting in 2021, industrial emitters have to reduce their emissions by 1% annually.


British Columbia

Government of British Columbia

All emissions in British Columbia, including industrial emissions, are covered by the province’s carbon tax.

Industrial facilities may also participate in the CleanBC Industry Fund and the CleanBC Industrial Incentive Program. Some industrial and public sector polluters can also participate in the BC’s GHG Emissions Offset Program.

Fuel Charge (Carbon Tax)

British Columbia’s Carbon Tax works by applying an additional charge to the sale of fossil fuels, based on their carbon intensity.

As of 2020, the current carbon tax in British Columbia is $40 per tonne, and it will increase $5 per year until it reaches $50 per tonne in 2022. However, the most recent increase from $40 to $45 per tonne has been delayed until further notice due to COVID-19.

For example, here are the 2020 fuel charges rates for some common fossil fuels:

  • Gasoline: $0.0889 per litre
  • Natural Gas: $0.0760 per cubic metre
  • Diesel: $0.1023 per litre

You can see the full list of BC fuel charge rates by clicking here.


Manitoba

Government of Manitoba

Manitoba has developed two of its own programs: the Manitoba Green Levy and the Manitoba Output-Based Pricing System (OBPS). However, these programs are not yet approved by the federal government. Therefore, emissions released within the province are covered by the federal programs:

  1. Federal Fuel Charge (for fuel emissions)
  2. Federal Output-Based Emissions Pricing System (for industrial emissions)

Because the federal fuel charge applies, as of 2020, the current carbon tax in Manitoba is $30 per tonne of CO2e, and it will increase $10 per year until it reaches $50 per tonne in 2022.


New Brunswick

Government of New Brunswick

Emissions in New Brunswick are covered under one of two provincial programs:

  1. Provincial Fuel Charge (for fuel emissions)
  2. Provincial Baseline and Credit System (for industrial emissions)

Fuel Charge (Carbon Tax)

New Brunswick has recently implemented the New Brunswick Carbon Tax. However, there is curiously no information about that tax on their website, only a complaint about the federal one.

Presumably, as of 2020, the carbon tax in New Brunswick is currently set at $30 per tonne, and will increase $10 per tonne annually until reaching $50 per tonne in 2022.

Like in other jurisdictions, New Brunswick’s carbon tax is implemented by applying an additional charge on the sale of fossil fuels, based on their carbon intensity.

However, the province is simultaneously decreasing their existing fuel taxes, so the new carbon tax wont lead to a change in fuel prices in the province.

Baseline and Credit System

New Brunswick’s baseline and credit system is called the New Brunswick Output-Based Pricing System (OBPS). The OBPS applies to industrial facilities that emit more than 50,000 tonnes of CO2e per year.

Under New Brunswick’s OBPS, each emitter is required to reduce its emissions annually compared to a historical baseline. If an emitter releases more than their allocated baseline amount, they pay $30 per tonne. If they release less, they earn credits that they can carry forward for future years.

This program was recently approved by the federal government on September 21st 2020, so few official details of the province’s OBPS exist.


Newfoundland and Labrador

Government of Newfoundland and Labrador

Emissions in Newfoundland and Labrador are covered under one of two provincial programs:

  1. Provincial Fuel Charge (for fuel emissions)
  2. Provincial Baseline and Credit System (for industrial emissions)

Fuel Charge (carbon tax)

Newfoundland and Labrador’s Carbon Tax works by applying an additional charge on the sale of fossil fuels, based on their carbon intensity.

As of 2020, the current carbon tax in Newfoundland and Labrador is $30 per tonne, and it will increase $10 per year until it reaches $50 per tonne in 2022.

For example, here are the 2020 fuel charges rates for some common fossil fuels:

  • Gasoline: $0.0442 per litre
  • Diesel: $0.0537 per litre
  • Propane: $0.0310 per cubic metre

You can see the full list of NL fuel charge rates by clicking here.

Baseline and Credit System

Newfoundland and Labrador’s baseline and credit system is called the Newfoundland and Labrador Emissions Performance Standard System (EPS). The performance standard system applies to industrial facilities that emit more than 25,000 tonnes of CO2e per year.

Under the Newfoundland and Labrador’s EPS, each emitter is required to reduce its emissions annually, starting with a baseline amount determined by the facility’s historical emissions or by a sector benchmark.

If an emitter releases more than their allocated baseline amount, they must purchase emissions credits. If they release less, then they earn credits that they can carry forward for future years.


Northwest Territories

All emissions in the Northwest Territories, including industrial emissions, are covered by the territories’ carbon tax. Special considerations apply to Large Industrial Emitters.

Fuel Charge (Carbon Tax)

The Northwest Territories Carbon Tax works by applying an additional charge to the sale of fossil fuels, based on their carbon intensity.

As of 2020, the current carbon tax in the Northwest Territories is $30 per tonne, and will increase $10 per tonne annually until reaching $50 per tonne in 2022.

For example, here are the 2020 fuel charges rates for some common fossil fuels:

  • Gasoline: $0.070 per litre
  • Diesel: $0.082 per litre
  • Propane: $0.046 per cubic metre

You can see the full list of NT fuel charge rates by clicking here. Aviation fuels are exempt.


Nova Scotia

Government of Nova Scotia

All emissions in the Nova Scotia, including industrial emissions, are covered by the province’s cap and trade program.

Cap and Trade System

The Nova Scotia Cap and Trade Program (CaT) applies to all emissions from the industrial, heating, electricity, and transportation sectors. Only the largest facilities from each sector need to participate, and the full list of all 26 participants can be found here.

Under Nova Scotia’s CaT, the government sets a limit on the total emissions can be released annually, and then gives a portion of this limit to participating facilities for free. The remaining portion is sold to facilities in an auction.

If an emitter releases more than their allocated amount, they must buy a credits in the auction or from another participant. If they release less, they earn credits that they can sell in the auction or directly to another participant.

As of June 2020, the current carbon price for allowances sold at auction in Nova Scotia is $24 per tonne of CO2e, with a minimum price of $20 per tonne that will increase 5% annually plus inflation. (auction history)


Nunavut

Government of Nunavut

Nunavut has decided not to develop its own carbon pricing mechanism. Therefore, emissions released within the province are covered by the federal programs:

  1. Federal Fuel Charge (for fuel emissions)
  2. Federal Output-Based Emissions Pricing System (for industrial emissions)

Because the federal fuel charge applies (with one adjustment), as of 2020, the current carbon tax in Nunavut is $30 per tonne of CO2e, and it will increase $10 per year until it reaches $50 per tonne in 2022.

Federal Fuel Charge Adjustment

The Government of Nunavut has worked with the federal government to get a fuel charge exemption for the aviation, electricity generation, and fishing sectors. The Government of Nunavut has also has implemented the Nunavut Carbon Rebate which reduces some fuel charges by 50%.

For example, here are the 2020 fuel charges rates for some common fossil fuels in Nunavut:

  • Gasoline: $0.0332 per litre
  • Diesel: $0.0403 per litre
  • Heating Oil: $0.0403 per litre

You can see the current fuel charge rates in Nunavut by clicking here.


Ontario

Government of Ontario

Emissions in Ontario are covered by a combination of provincial and federal carbon pricing mechanisms:

  • Federal Fuel Charge (for fuel emissions)
  • Provincial baseline and credit system (for industrial emissions)

Because the federal fuel charge applies, as of 2020, the current carbon tax in Ontario is $30 per tonne of CO2e, and it will increase $10 per year until it reaches $50 per tonne in 2022.

Baseline and Credit System

Ontario’s baseline and credit system is called the Ontario Emissions Performance Standard (EPS). The performance standard system applies to industrial facilities that emit more than 50,000 tonnes of CO2e per year.

Under the province’s performance standard system, each emitter is required to reduce its emissions annually, starting with a baseline amount determined by the facility’s historical emissions.

If an emitter releases more than their allocated baseline amount, they must purchase emissions credits. If they release less, then they earn credits that they can carry forward for future years.

This program was recently approved by the federal government on September 21st 2020, so few official details of the province’s EPS exist.


Prince Edward Island

Government of Prince Edward Island

Prince Edward Island has decided not to develop its own carbon pricing mechanism. Therefore, emissions released within the province are covered by the federal programs:

  1. Federal Fuel Charge (for fuel emissions)
  2. Federal Output-Based Emissions Pricing System (for industrial emissions)

Because the federal fuel charge applies, as of 2020, the current carbon tax in Prince Edward Island is $30 per tonne of CO2e, and it will increase $10 per year until it reaches $50 per tonne in 2022.


Québec

Government of Quebec

Cap and Trade System

The Quebec Cap and Trade Program (CaT) is linked with California’s CaT (and previously with Ontario’s CaT, before it was cancelled by the current Ontario conservative government) through the Western Climate Innitiative. This means that CaT participants in Quebec and California can trade emission credits with each other.

The Quebec CaT applies to all emissions from provincial fuel distributors, and all facilities in the industrial and electricity generation sectors that emit more than 25,000 tonnes of CO2e annually. The full list of Quebec participants can be found here.

Under the CaT, the government sets a limit on the total emissions can be released annually. Emissions allowances are then sold in auction to participating facilities.

If an emitter releases more emission than they purchased credits for, they must buy more credits in the auction or from another participant. If they release less, then they earn credits that they can sell in the auction or directly to another participant.

As of August 2020, the current carbon price for allowances sold at auction in Quebec is $22 per tonne of CO2e, with a minimum price of $16.70 per tonne that will increase 5% annually plus inflation. (auction history)


Saskatchewan

Government of Saskatchewan

Emissions in Saskatchewan are covered by a combination of provincial and federal carbon pricing mechanisms:

Because the federal fuel charge applies, as of 2020, the current carbon tax in Saskatchewan is $30 per tonne of CO2e, and it will increase $10 per year until it reaches $50 per tonne in 2022.

Baseline and Credit System

Saskatchewan’s baseline and credit system is called the Saskatchewan Output Based Performance Standards (OBPS). The OBPS applies to industrial facilities that emit more than 25,000 tonnes of CO2e per year, except in the electricity generation and natural gas transmission sectors.

Under Saskatchewan’s OBPS, each industrial polluter will be allowed to release a baseline amount of emissions per unit of product produced, based on the facilities historical emissions. The baseline will then decrease every year, by approximately 5% by 2030 for most sectors.

If an emitter releases more than their allocated baseline amount, they will need to purchase a credit or contribute to the province’s technology fund. If they release less, then they earn credits that they can carry forward for future years.


Yukon Territory

Government of Yukon

The Yukon Territory has decided not to develop its own carbon pricing mechanism. Therefore, emissions released within the territory are covered by the federal programs:

  1. Federal Fuel Charge (for fuel emissions)
  2. Federal Output-Based Emissions Pricing System (for industrial emissions)

Because the federal fuel charge applies (with one adjustment), as of 2020, the current carbon tax in the Yukon Territory is $30 per tonne of CO2e, and it will increase $10 per year until it reaches $50 per tonne in 2022.

Federal Fuel Charge Adjustment

The Government of Yukon has worked with the federal government to get a fuel charge exemption for the aviation, electricity generation, and fishing sectors.


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Carbon Pricing in Canada 2020 was published by Rylan Urban on Sept 25th, 2020.


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