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

ERO number
019-2813
Notice type
Regulation
Act
Environmental Protection Act, R.S.O. 1990
Posted by
Ministry of the Environment, Conservation and Parks
Notice stage
Decision
Decision posted
Comment period
December 16, 2020 - January 15, 2021 (30 days) Closed
Last updated

This consultation was open from:
December 16, 2020
to January 15, 2021

Decision summary

We made regulatory amendments to support a smooth transition from the federal OBPS to Ontario’s EPS program which applies new obligations and greenhouse gas performance standards for Ontario industry beginning on January 1, 2022. The amendments complement the changes proposed in 019-3719.

Decision details

We made regulatory amendments to support a smooth transition from the federal output-based pricing system (OBPS) to Ontario’s emissions performance standards (EPS) program which applies new obligations and greenhouse gas (GHG) emissions performance standards for Ontario industry. For example, these changes will:

  • begin the new obligations and GHG emissions performance standards under the EPS program on January 1, 2022
  • align the scope of the EPS program with the federal OBPS
  • support the ability of registered facilities to maintain their exemption from the federal fuel charge

The new EPS program is tough but fair, cost-effective and flexible to the needs and circumstances of our province, while helping to lower GHG emissions and hold the largest polluters accountable. The new system will regulate GHG emissions from large industrial facilities by setting the standards for lowering GHG emissions (emissions limits) that facilities are required to meet.

The EPS program recognizes the unique circumstances of Ontario’s economy, and considers specific industry and facility conditions while allowing for economic growth. Under the EPS program, GHG emissions performance standards are tailored to the types of industries in Ontario.

About the amendments:

We made amendments 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 Limit (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 amendments were originally posted for public consultation on the Environmental Registry of Ontario from December 16, 2020 to January 15, 2021.

Specifically, the amendments made regarding this proposal include:

  • beginning compliance obligations for covered facilities under the EPS program (those registered or required to register) on January 1, 2022
  • allowing for partial year coverage of emissions for facilities that register part way in a year
  • adding eight new sectors to the program
  • allowing for the collection of additional information to support exemption from the federal fuel charge
  • other administrative, technical and clarifying amendments.

These amendments will help enable a smooth transition for industry from the federal OBPS to the EPS program and to support implementation of the EPS program. The final amended regulations are now in effect.

Some of these amendments will apply compliance obligations under the EPS program to covered facilities beginning on January 1, 2022.

Other amendments are intended to ensure that:

  • facilities are not charged twice for the same emissions under the EPS program and either the federal OBPS or the federal fuel charge
  • there is no gap in pricing for emissions because of the transition from the federal OBPS to the EPS program (i.e. coverage of emissions under the two programs is the same)
  • covered facilities will remain eligible for their exemption from the federal fuel charge

Additional administrative amendments are also being made to support implementation of the program.

About the EPS program:

The EPS program was developed as an alternative to the federal OBPS component of the federal carbon pollution pricing system that is now in effect in Ontario.  The EPS program is intended to:

  • encourage the industrial sector to reduce GHG emissions
  • minimize carbon leakage – the risk of production leaving the province for other jurisdictions with less stringent climate policies

The GHG Emissions Reporting program is an integral part of the EPS program as it will provide verified emissions, production and emissions limit data to use in the determination of a facility’s compliance obligation or the number of emissions performance units (EPUs) it is eligible to receive.

On September 20, 2020, the federal government indicated it accepted Ontario’s EPS program as an alternative to the federal OBPS. They agreed that Ontario’s EPS program meets the federal benchmark stringency requirements for the sources of GHG emissions that it covers.

On September 1, 2021, the federal Governor in Council made an order removing the application of the federal OBPS from Ontario facilities effective January 1, 2022.

Regulatory impact assessment:

The federal OBPS is currently in effect in Ontario. Fully implementing the EPS program for 2022, including compliance obligations for covered facilities, will provide flexibility for Ontario circumstances as an alternative to the federal OBPS.

For covered facilities, the net present value of cost savings with the full implementation of the EPS is $105 million for 2022, calculated as the difference between total compliance costs under the EPS program and the federal OBPS.

Future consultation

In early 2022, we intend to consult on a future proposal for the 2023-2030 period of the EPS program that aligns with the updated federal benchmark for provincial and territorial programs.

Comments received

Through the registry

22

By email

26

By mail

0
View comments submitted through the registry

Effects of consultation

We received a total of 48 comments from a wide range of stakeholders including:

  • members of the public
  • industries
  • associations
  • environmental non-governmental organizations

We have taken into consideration the comments received from the consultation and grouped them into the following themes:

1. Preference for Ontario’s EPS program over the federal OBPS

A majority of stakeholders support transitioning from the federal OBPS to Ontario’s EPS program and a start date of January 2021 for the EPS program.

Response:

The federal OBPS is currently in effect in Ontario.

On September 1, 2021, the federal government made a regulation removing the application of the federal OBPS from Ontario facilities effective January 1, 2022.

We continue to work with the federal government to ensure a smooth transition to the EPS program, with an emphasis on minimizing burden for facilities where possible.

2. Expanding program scope

Several stakeholders are interested in participating in the EPS program and would like the scope of the program to be expanded to include additional sectors that are currently not covered by the federal OBPS.

Response:

For 2022, the scope of the EPS program is being aligned with the federal OBPS to allow for a smooth transition for Ontario industry.

The federal government has updated the benchmark for the 2023-2030 period. Additional amendments to the EPS program will need to be proposed at a future time for that period. The future program design will give consideration to scope.

3. Incentive for biomass use

Some stakeholders would like to see the proposed biomass adjustment factor of 2% that is applied to the emission performance standard for the pulp and paper sector increased to 5%.

Response:

Substitution of fossil fuel with biomass is currently recognized in a number of ways in the EPS program:

  • CO2 emissions from biomass are not counted as part of emissions
  • stringency factor (annual reduction requirement) is eased for high biomass adoption

A biomass factor of 2% strikes a balance between recognizing reductions and compliance costs.

4. Transferring excess credits from the federal OBPS to the EPS program

A majority of stakeholders want their surplus federal OBPS credits to be eligible for compliance purposes in the EPS program.

Response:

The federal government’s acceptance of the EPS program was based on the current EPS program design including the demand and supply of credits generated under the EPS program alone.

OBPS credits will not be eligible for compliance purposes in the EPS program because this would add credits to the program that were not accounted for in the federal assessment of the EPS program. Such a significant change would likely need to be reassessed by the federal government, potentially leading to further delays to the start of the EPS program.

5. Additional compliance mechanisms

A majority of stakeholders support the use of carbon offsets for compliance in the EPS program.

Response:

Ontario does not currently have a policy on offsets. We are monitoring what is occurring at the federal level. Ontario may consider offsets in the future, once the transition from the federal OBPS to the EPS program is complete.

6. Competitiveness and risk of carbon leakage

Several stakeholders are concerned about the competitiveness impact and carbon leakage risk especially after 2022.

Response:

The stringency factor that applies to each facility’s Total Annual Emissions Limit (TAEL) under the EPS program considers competitiveness impacts for industry in order to minimize carbon leakage.

The EPS program is only designed out to 2022. The federal government has updated the benchmark for the 2023-2030 period. Additional amendments to the EPS program will need to be proposed at a future time for that period. The future program design will give consideration to the potential for carbon leakage.

7. Carbon capture

Various stakeholders would like to see the EPS program recognize emissions reductions from carbon capture and storage (CCS) and carbon capture utilization and storage (CCUS) technologies.

Response:

Currently under the EPS program, any amount of CO2 that is captured under carbon capture and storage is still considered as an emission by the facility that originally generated the CO2.

We will consider this issue in the future, with consideration for the updated federal benchmark for the 2023-2030 period and alignment with national/international practices.

8. Proceeds recycling

The majority of stakeholders would like to see the proceeds from the EPS program recycled back into green initiatives within industry and not be funneled into general revenue.

Response:

We are in the early stages of planning how proceeds from the EPS program (compliance payments) will be used to support industrial GHG emissions reductions.

Stakeholder feedback will be taken into account in the design of how such proceeds will be spent.

Use of proceeds will have to consider the updated federal benchmark for 2023-2030 period and the spending provisions for the proceeds in the Environmental Protection Act.

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Original proposal

ERO number
019-2813
Notice type
Regulation
Act
Environmental Protection Act, R.S.O. 1990
Posted by
Ministry of the Environment, Conservation and Parks
Proposal posted

Comment period

December 16, 2020 - January 15, 2021 (30 days)

Proposal details

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:

NAICS Code Description
31142 Fruit and vegetable canning, pickling and drying
311611 Animal (except poultry) slaughtering
32222 Paper bag and coated and treated paper manufacturing
32614 Polystyrene foam product manufacturing
32621 Tire manufacturing
33211 Forging and stamping
33635 Motor vehicle transmission and power train parts manufacturing

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.

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Comment

Commenting is now closed.

This consultation was open from December 16, 2020
to January 15, 2021

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