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The federal government has released draft legislative proposals and regulatory framework outlining how it plans to establish a price for carbon pollution across the country. If implemented, the legislation will create a “backstop” for all provinces that have not created their own system for pricing carbon.

The draft proposals follow the introduction of the federal government’s Pan-Canadian Approach to Pricing Carbon Pollution (the “Benchmark”), which was published in October 2016 and sets a benchmark for provinces and territories to meet should they choose to establish their own programs for carbon pricing. Note that Manitoba and Saskatchewan refused to sign the Pan-Canada Framework on Clean Growth and Climate Change in December 2016.

Both the Benchmark and the proposed legislation set the price for carbon pollution at $10 per tonne in 2018, with an eventual increase to $50 per tonne by 2022.

The proposed federal approach encompasses both a charge for the use of fossil fuels and an output-based pricing system for companies performing in specific sectors, who would either be required to pay a levy for exceeding the average energy use for their sector or receive a credit for using less.

Provinces and territories must decide by the end of March 2018 whether they plan to devise their own systems for pricing carbon. Those provinces and territories that opt to design their own systems must ensure that they comply with the Benchmark and provide details to the federal government by September 2018.

Carbon pricing seeks to shift some of the external costs of carbon emissions from the public to emitters in a manner that allows emitters to determine whether, and if so how, they ought to reduce carbon emissions.

Setting a Pan-Canadian price for carbon is part of the federal government’s efforts to meet its international climate change commitments, including under the Paris Agreement. Pursuant to that agreement, Canada’s Nationally Determined Contribution is to reduce greenhouse gas (“GHG”) emissions by 30 per cent below 2005 levels by 2030.

Currently, four provinces—Ontario, Quebec, Alberta, and British Columbia—have priced carbon pollution through a direct carbon price, such as a carbon tax, a cap-and-trade regime, or, in the case of Alberta a hybrid system encompassing both a direct carbon levy and an output-based pricing system. Manitoba and Nova Scotia are working on establishing their own carbon pricing mechanisms to meet the Benchmark, while the remaining Maritime provinces, as well as the territories, have either not yet developed their own system or will be adopting the federal one. Saskatchewan, on the other hand, has threatened to sue the federal government over its proposed plan.

It remains to be seen what kind of impact the federal carbon pricing regime, if implemented as proposed, will have in enabling Canada to meet its GHG emission reduction target, the fact of which recent predictions have called into question.

Over the next couple of months, the federal government will be consulting with provincial, territorial, and aboriginal governments, along with other stakeholders. Comments are being accepted on the draft legislation until February 12, 2018 and on the draft framework until April 9, 2018.

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