by Canada has been taking steps to price carbon emissions and create carbon credit s since 2008. The nation implemented its first broad-based carbon tax in British Columbia that year. Since then, several other programs have been introduced at the provincial and federal levels. In 2019, the federal Greenhouse Gas Pollution Pricing Act established a national carbon pricing backstop system. This system applies either an explicit price on carbon via a carbon tax or a cap-and-trade emission trading system in provinces that did not already have equivalent carbon pricing in place.
The federal backstop system started at a price of $20 per tonne of CO2 equivalent in 2019. This baseline carbon price rises by $10 each year until it reaches $50 per tonne in 2022. Provinces can choose to implement their own carbon pricing systems as long as they meet the federal standards. Currently, British Columbia, Alberta, Quebec, Nova Scotia, Newfoundland and Labrador, Prince Edward Island, and the territories all have their own carbon pricing programs in place. The federal backstop system applies directly in Saskatchewan, Manitoba, Ontario and New Brunswick.
How Canada Carbon Credit Programs Work
In a carbon credit program, each tonne of carbon dioxide or its equivalent emitted is assigned a monetary value. Large industrial facilities must purchase carbon credits, also called offsets, equal to their annual emissions. These credits are generated by other entities that have reduced emissions or removed carbon from the atmosphere through approved offset projects.
Under the federal backstop system, covered industrial facilities must track their annual emissions and submit sufficient credits to cover those emissions by April 30th each year. Credits are purchased from the provincial or federal carbon credit auction or exchange. Auctions are held several times per year where credits are sold directly to emitters. Exchanges allow credits to be traded between private buyers and sellers on an open.
Approved offset projects that generate credits include renewable energy, energy efficiency, forestry, agriculture and waste diversion activities. Project developers must apply to have their proposed initiative verified as delivering real, quantifiable and additional emission reductions. Only offsets issued for projects meeting federal protocol standards can be used to compliance with the carbon price. The credits have an expiration date to ensure the emissions they represent are permanent.
Regulated Emitters And Carbon Pricing Impact
The federal carbon pricing system applies to around 200 large industrial facilities that collectively emit over 70% of Canada’s total emissions. This includes oil and gas extraction, mining, cement and lime manufacturing, fertilizer production, and pulp and paper mills. The threshold for coverage is facilities emitting over 50,000 tonnes of CO2e per year.
Economic modeling has shown that carbon pricing raises fuel and production costs for these emitters. This creates an incentive to invest in cleaner technologies and processes to cut emissions at lowest cost. Fuel substitution to lower carbon options and energy efficiency upgrades are common compliance approaches. The price signal also encourages innovation to create new low-carbon products and services.
To mitigate potential competitiveness impacts, the federal system provides partial free allocation of credits to at-risk trade-exposed industries like cement, lime, iron and steel during the initial phases of carbon pricing. Impacted sectors can also apply for province-specific compliance support like exemptions or cost containment reserves. Studies show the net costs of the Canadian carbon price on average households and GDP have been modest.
Canada’s Carbon Credit To Date
Canada’s three compliance carbon s to date are the carbon taxes in British Columbia and federal backstop jurisdictions, along with the cap-and-trade system previously implemented in Quebec and now Ontario. Over 180 million tonnes of credits traded on these platforms through 2020 with a cumulative value of over $3 billion Canadian dollars.
British Columbia has run North America’s first broadly applied carbon tax for over a decade. Its credit auctions have raised over $2.4 billion for reinvestment in low-carbon initiatives. Quebec linked its cap-and-trade system with California’s in 2014, becoming the first jurisdiction in North America with an inter-jurisdictional carbon trading platform. Ontario is set to re-enter the program following its departure in 2018.
The federal backstop system launched auctions for its explicit price-based credits in May 2019. Over 9 million credits have exchanged hands so far generating upwards of $160 million for infrastructure projects. As more provinces adopt carbon pricing and international trading linkages form, Canada’s total carbon value is anticipated to keep growing in the coming decades.
Canada has made progress establishing carbon pricing policies and creating functioning domestic carbon credit s over the past 15 years. The evolving national framework ensures a consistent, economy-wide price signal on GHG emissions is in place across the country. Credits generated through incentive-based offset projects help regulated industries meet compliance obligations at lowest cost while funding emission reduction activities elsewhere. Ongoing reforms aim to further strengthen carbon pricing as a key strategy in Canada’s transition to a low-carbon economy and meeting its climate change commitments.
*Note:
1. Source: Coherent Market Insights, Public sources, Desk research
2. We have leveraged AI tools to mine information and compile it
About Author - Money Singh
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