Canada: Canada Releases Discussion Paper On Federal Carbon Pricing

On May 18, the Government of Canada released a technical discussion paper (Discussion Paper) describing how it proposes to implement a backstop carbon price in provinces and territories that do not meet, by 2018, the national benchmark carbon price described in the December 2016 Pan-Canadian Framework on Clean Growth and Climate Change.

What You Need To Know

  • Under the Framework, provinces and territories can meet the national benchmark carbon price by implementing either a price-based system (starting at a minimum of $10 per tonne in 2018 and rising to $50 per tonne by 2022) or a cap-and-trade system (with annual cap adjustments that correspond to the emissions reductions achieved through price-based systems).
  • The Discussion Paper details how the federal government would impose the backstop price in those provinces and territories that do not meet the national benchmark. The backstop would consist of two key elements: a carbon levy applied to the consumption of certain fossil fuels; and an output-based pricing system for industrial facilities that emit above 50 kilotonnes (kt) of carbon dioxide equivalent each year.
  • Interested parties may provide comments on the Discussion Paper until June 30, 2017. Following this comment period, the federal government plans to develop new legislation and regulations to implement the federal backstop.
  • The Province of Saskatchewan, which did not sign the Framework, has objected to the implementation of the federal backstop as currently proposed. The Province says it opposes the Framework in part on the basis that the federal government lacks the constitutional authority to impose the Framework on the provinces.

Highlights of the Discussion Paper

Background on the Federal Carbon Pricing Benchmark

The December 2016 Framework outlines a federal benchmark for carbon pricing that would take effect in 2018. To meet the benchmark, jurisdictions can implement: (i) a price-based system (e.g., British Columbia's carbon tax or Alberta's hybrid carbon levy and output-based pricing system); or (ii) a cap-and-trade system (e.g., Ontario and Québec's programs under the Western Climate Initiative). The benchmark would apply to substantively the same sources as British Columbia's carbon tax, and will become more stringent over time to support Canada's 2030 emissions reduction target of 30% below 2005 levels.

For price-based systems, the benchmark carbon price would start at a minimum of $10 per tonne in 2018, rising by $10 per year to $50 per tonne in 2022. In contrast, jurisdictions that adopt cap-and-trade systems are expected to achieve: (i) emissions reductions of at least 30% below 2005 levels by 2030; and (ii) declining annual caps to at least 2022 that correspond, at a minimum, to the projected emissions reductions resulting from the carbon price that year in price-based systems.

Federal Carbon Pricing Backstop

The Discussion Paper confirms the federal government's plans to impose a carbon price in provinces and territories that do not have a carbon price of their own, or whose carbon price does not meet the national benchmark. The federal backstop would be composed of two key elements: (i) a carbon levy applied to the use of fossil fuels; and (ii) an output-based pricing system for industrial facilities that emit above 50 kt of carbon dioxide equivalent (CO2e), with an option for smaller emitters to opt-in to this system. Those facilities subject to the output-based system would not have their emissions covered by the carbon levy.

Carbon Levy Component

The carbon levy would apply to the use of certain fossil fuels, including liquid fuels (e.g., gasoline, diesel fuel, and aviation fuel), gaseous fuels (e.g., natural gas) and solid fuels (e.g., coal and coke). The rates for each fuel subject to the levy would be set with reference to the national benchmark price of $10 per tonne of CO2e in 2018, rising $10 annually to $50 per tonne in 2022. For example, the Discussion Paper proposes the following levies (assuming a province or territory has no carbon pricing in place):



2018 ($10/tonne)

2019 ($20/tonne)

2020 ($30/tonne)

2021 ($40/tonne)

2022 ($50/tonne)








Diesel / Light Fuel Oil







Heavy Fuel Oil







Marketable Natural Gas







Non-marketable Natural Gas







With some exceptions, the levy would apply to fuels that are used in provinces or territories where the federal backstop is imposed, regardless of whether those fuels were produced in or brought into the jurisdiction. In most cases, the federal government would impose the levy upstream in the fuel supply chain, typically with the levy payable by the producer or distributor, which may in turn pass on the cost to downstream users.

Output-Based Pricing System

A carbon levy on the combustion of fossil fuels would not cover all greenhouse gas emissions in a given jurisdiction. The federal government also recognizes that, in certain carbon-intensive industries, the imposition of a carbon price may raise competitiveness concerns, especially where those industries have competitors in jurisdictions that do not impose a carbon price. The output-based pricing system is intended to address these concerns..

The output-based system would apply to all industrial facilities that emit 50 kt or more of CO2e per year. Municipal buildings, hospitals, universities, schools and certain commercial and other facilities would be exempt. The system would apply to emissions not only from fuel combustion at covered facilities (which would be exempt from the carbon levy), but also emissions resulting from industrial processes and product use (e.g., solvent use) at covered facilities.

The output-based system would apply to the portion of a covered facility's emissions that exceed a prescribed limit, which would be based on an emissions-intensity standard developed for the applicable industrial activity or product. Facilities that emit less than the limit would receive "surplus credits" from the federal government that the facility could use against future emissions or trade to another covered emitters. Similar to Alberta's Specified Gas Emitters Regulation, facilities whose emissions exceed their limit would need to submit compliance units (credits either banked from a previous year or acquired from another facility, or offset credits) or pay the carbon price to account for the difference.

The emissions-intensity standard for a type of industrial activity or product (e.g., tonnes of CO2e per megawatt hour of electricity) would be set at a level that represents best-in-class performance (e.g., top quartile or better). The federal government intends these standards to drive reduced emissions intensity.

Facilities in industrial sectors that emit less than 50 kt of CO2e per year would have the ability to "opt in" to the output-based pricing system. By opting in, smaller emitters could choose to participate in the output-based system rather than pay the carbon levy that would otherwise be applicable to their emissions.

Other Considerations

The governments of Saskatchewan and Manitoba have not signed the Framework. The Saskatchewan government, in particular, has publicly opposed the Framework and indicated that it would be reviewing the province's legal options to challenge it, including on constitutional grounds. According to Globe and Mail reporting, federal Environment Minister Catherine McKenna has reportedly expressed confidence that the federal government has constitutional authority to implement the carbon pricing backstop. Following the release of the Discussion Paper, however, a spokesperson for Premier Brad Wall suggested that the province would pursue legal action if the Framework were implemented.

For further details on the Discussion Paper, please see the Government of Canada's website. Comments will be accepted until June 30, 2017.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions