Amendments to transition Ontario industrial facilities from the federal Output-Based Pricing System to Ontario’s Emissions Performance Standards program

On September 20, 2020, the federal government accepted Ontario’s Emissions Performance Standards (EPS) program as an alternative to the federal output-based pricing system (OBPS). They agreed that Ontario’s EPS program meets the federal benchmark stringency requirements for the sources of greenhouse gas emissions that it covers.

The EPS program is a key commitment in our Made-in-Ontario Environment Plan. It is an important way we are working to hold polluters accountable for their greenhouse gas emissions while helping us meet our 2030 emissions reduction target. Our program is intended to regulate greenhouse gas emissions from large industrial facilities, by setting the standards for lowering emissions that facilities are required to meet. The EPS considers specific industry and facility conditions while allowing for economic growth.

We continue to wait for a decision from the federal government on a start date for compliance obligations under the EPS program.Based on discussions with the federal government, the options under consideration are for industry to have compliance obligations under the EPS program begin with their 2021 emissions or their 2022 emissions.We are choosing to consult on proposed amendments now for a 2021 start date (i.e. covering 2021 emissions and onwards), in advance of a federal decision. This is to ensure adequate time for consultation and finalization of the necessary regulatory amendments and a smooth transition for industry from the federal OBPS to Ontario’s EPS program. If the federal government decides on a 2022 start date (i.e. covering 2022 emissions and onwards) instead of a 2021 start date, the proposed amendments below would be adjusted to reflect a 2022 start date.

The proposed amendments include changes to the following regulations and incorporated documents:

• greenhouse gas emissions performance standards regulation(O. Reg. 241/19 or the EPS Regulation) and the incorporated GHG emissions performance standards and methodology for the determination of the total annual emissions eimit (the methodology)
• greenhouse gas emissions: quantification, reporting and verification regulation (O. Reg. 390/18 or the reporting regulation) and the incorporated guideline for quantification, reporting and verification of greenhouse gas emissions (the guideline)

The proposed amendments support a January 1, 2021 start date (covering 2021 emissions and onward) of the EPS program. They are intended to ensure that facilities are not charged twice for the same emissions under the EPS and OBPS programs. These proposed amendments are also intended to ensure that there is no gap in pricing for emissions because of the transition from the OBPS to the EPS program (i.e. coverage of emissions under EPS and OBPS is the same and carbon pricing for those emissions is continuous.

Additionally, the proposed amendments presume the federal government will:

• make amendments to the OBPS regulation so that neither pricing of emissions nor the issuance of credits occurs for ontario facilities after the start date of the EPS program
• make other regulatory amendments so that registered facilities maintain an exemption from the federal fuel charge
• make a regulation removing ontario as a listed province from part 2 of schedule 1 of the Greenhouse Gas Pollution Pricing Act (GGPPA)

We are working with the federal government to achieve this regulatory alignment.

Ontario’s proposed amendments include:

1. Proposed start date of January 1, 2021 for application of all provisions of the EPS program

Currently, only the registration and record keeping related provisions of the EPS regulation apply. The remaining compliance provisions of the EPS program do not apply unless and until the federal government makes a regulation to remove Ontario from the application of the OBPS

We propose that, in general, provisions of the EPS regulation would be amended to start to apply on January 1, 2021 to cover emissions for 2021 and onward.It is also proposed that provisions related to the verification of production data and reporting and verification of the Total Annual Emissions Limit (TAEL) under the Reporting Regulation would begin to apply on January 1, 2021 (in respect of emissions for 2021 and onward).

2. Amending provisions related to the start date of compliance obligations

For facilities already registered in the EPS or OBPS:

We propose that the start date for emissions covered under the EPS be January 1, 2021 for mandatory and opt-in facilities that are already registered under the EPS or OBPS program. This would allow for the transition of facilities from the OBPS to the EPS without a gap in carbon pricing for these facilities.

For facilities that register in 2021 or later:

To align with the federal OBPS and avoid double charging between the EPS and OBPS programs, coverage of emissions for mandatory and opt-in facilities that register in both the OBPS and EPS programs after December 31, 2020 would align with the date of exemption from the federal fuel charge. Following the 2021 transition year, registration would only be required for the EPS program (i.e., 2022 and onwards).

We plan to propose additional changes to the EPS and Reporting Regulation in the future to allow for partial year coverage of emissions instead of the full calendar year to align with the date of exemption from the federal fuel charge. This includes provisions to prorate verified emissions, emission limits, quantity of compliance units due and quantity of credits to be issued for a partial year. We expect to propose these amendments in late winter 2021.

3. Aligning scope of the EPS to match the federal OBPS

We are proposing to amend Item 39 of Schedule 2 of the EPS Regulation(which sets out various activities that are covered by the regulation) to allow facilities in additional sectors to voluntarily opt-in to the program. This would allow those facilities engaging in these activities, which are currently covered by federal OBPS, to participate in the EPS program. (See table below)

Proposed additional sectors that can voluntarily opt-in to the EPS:

4. Amendments to support the ability for registered facilities to maintain their exemption from the federal fuel charge

We are proposing amendments to provide for collection of additional information from all new and existing registered facilities to support the continuation of a facility’s exemption from the federal fuel charge (e.g., federal fuel exemption registration notice, boundary maps, location coordinates) as needed.

5. Other administrative and clarifying amendments

Additional administrative amendments may also be needed to support the transition of and administration of the program, along with technical and clarifying amendments to the Guideline and Methodology that are incorporated by reference into the EPS and Reporting regulations. These include:

• updates to registration and facility accounts (e.g., consolidation of accounts for multi-site facilities)
• clarifications to definitions and terms used in the regulations, methodology and guideline (e.g. cogeneration, corn milled, grey cement)
• clarification on start date for sampling, analysis and measurements
• clarification of reporting methods for steel sector using blast furnace gas or coke oven gas in electricity generation or cogeneration and fertilizer sector (for CO₂captured and used in urea)
• streamlining of emissions reporting in the steel sector (e.g. consolidate reporting for various furnaces)
• assignment of a biomass adjustment factor of two percent of biomass CO₂ emission to the emission performance standard for the pulp and paper sector

We intend to propose additional amendments to the EPS Regulation and the Reporting Regulation and related incorporated documents in late winter 2021. These amendments would address any other issues that may arise from ongoing transition discussions with the federal government. At that time, we may also propose amendments to enhance and improve enforcement and administration of the program, such as:

• prorating of verified emissions, emission limits, quantity of compliance units due and quantity of credits to be issued to align with the date of exemption from the federal fuel charge for new mandatory and opt-in registrants that register in 2021 and onwards
• the treatment of new facilities that are projected to emit 10,000 tonnes or more of carbon dioxide equivalent per year
• the ability for a covered facility that uses the energy use standard to apply for a facility-based emissions intensity standard
• improvements to enforcement for overdue obligations
• cancellation of registration in specified circumstances
• the ability for registered facilities to exit the program in specified circumstances
• revising a compliance obligation with a revised GHG report
• other administrative and clarifying amendments to support compliance and enforcement

The estimated compliance costs for facilities associated with these proposed amendments are expected to be lower than costs imposed by the federal OBPS.

Background

The EPS program is one of our Made-in-Ontario Environment Plan commitments and is a key action in making polluters accountable for their greenhouse gas emissions with a system that is tough but fair, cost-effective and flexible to the needs and circumstances of our province.

This program is a more tailored approach for Ontario’s environment and economy because it helps us achieve emission reductions from big polluters and work towards achieving our share of Canada’s 2030 emissions reduction target without driving away business and job creators.

On July 4, 2019, Ontario filed the Greenhouse Gas Emissions Performance Standards regulation (EPS regulation).

We also made amendments to Ontario’s Reporting Regulation on July 4, 2019 to support the EPS program. The incorporated Guideline sets out the quantification methods to quantify GHG emissions from an activity.

Only the registration and record keeping related provisions of the EPS apply at this time. The remaining compliance provisions of the EPS program do not apply until a federal regulation is made removing Ontario from the application of OBPS.