Emissions Performance Standards (EPS) program regulatory amendments for the 2023-2030 period

Ontario leads the nation in greenhouse gas emission reductions and is on track to meeting its 2030 reduction target.

Ontario’s Emissions Performance Standards program was fully implemented at the beginning of the year, replacing the more costly federal Output-Based Pricing System that was in place in Ontario from 2019 to 2021.

Now, Ontario has amended the Emissions Performance Standards program to meet stricter benchmark criteria set by the federal government and extend the program to 2030.

We are taking action to ensure Ontario industries remain covered by our own Ontario-made program that will continue to be fair, cost-effective and flexible to meet the needs and circumstances of our province.

Ontario’s program will continue to achieve emission reductions at a lower cost than the federal program, without driving away businesses that create jobs.

We have made regulatory amendments to Ontario’s EPS program to:

• meet the federal benchmark
• continue the program from 2023-2030
• be responsive to stakeholder interests
• improve program implementation and administration

Additionally, we have made amendments to the Greenhouse Gas (GHG) Reporting Program to:

• support the implementation and delivery of the EPS program for the 2023-2030 period
• maintain harmonization with federal GHG reporting requirements

Regulatory amendments to the EPS Program

Ontario has amended:

• Ontario Regulation 241/19: Greenhouse Gas Emissions Performance Standards regulation (O. Reg. 241/19 or EPS Regulation) and the GHG Emissions Performance Standards and Methodology for the Determination of the Total Annual Emissions Limit (the EPS Methodology)
• Ontario Regulation 390/18: Greenhouse Gas Emissions: Quantification, Reporting and Verification regulation (O. Reg. 390/18 or the Reporting Regulation) and Guideline for Quantification, Reporting and Verification of Greenhouse Gas Emissions (the Guideline)

To meet the stricter federal benchmark for the 2023-2030 period, Ontario has increased the stringency of the EPS program by:

• aligning with the minimum carbon price of $65 for the 2023 compliance period, increasing by $15 per year to $170 for the 2030 compliance period
• strengthening the performance standard for generating electricity using fossil fuels from 370 tonnes of carbon dioxide equivalent (tCO₂e) per gigawatt hour (GWh) to 310 tCO₂e/GWh
• adjusting stringency factors (i.e., factors applied to reduce the annual emissions limits of a facility) for covered facilities by applying a decline rate of 2.4% in 2023 from the stringency factors in 2022, and 1.5% per year from 2024-2030

Other key amendments include:

• expanding the scope of the EPS program to cover more industries
• addressing the treatment of major retrofits, expansions, and new sites added to existing facilities
• setting out the process for developing new performance standards for the above facilities and new program registrants
• streamlining standards for cogeneration
• recognizing certain Carbon Capture and Storage (CCS) projects (e.g. geological storage) as an emission reduction at an EPS facility
• allowing a facility or the Director to cancel registration under certain circumstances (e.g., a facility fails to comply)
• adjusting compliance obligations when the facility has been modified (e.g. expansion), submitted a revised report or failed to comply
• determining new performance standards for facilities that currently have emissions limits based on the energy use method

When these changes apply:

• The amended EPS regulation will apply on January 1, 2023.
• Most of the amended Reporting Regulation will apply on January 1, 2023, except for the amendments related to global warming potentials (i.e., section 4 and Schedule 1 of O. Reg. 390/18), which apply immediately to maintain harmonization with federal reporting requirements.
• The amended Methodology and Guideline apply immediately but the October 2021 versions may still be used for the 2022 compliance period if a covered facility elects to do so.

Regulatory impact analysis

Our modelling suggests that the direct compliance costs attributable to the EPS program amendments will be lower than the costs under the proposed federal OBPS. The present value of the cumulative cost savings to regulated industry is estimated to be approximately $1.1 billion for the 2023-2030 period.

Other information

The federal program

The federal Greenhouse Gas Pollution Pricing Act (GGPPA) received Royal Assent on June 21, 2018. The system has two parts:

1. An Output Based Pricing System (OBPS) that regulates GHG emissions from large emitters in manufacturing, resource and electricity generation industries by imposing a charge for emissions exceeding a facility limit.
2. A fuel charge on transportation and heating fuels used by households and enterprises not covered by the OBPS.

Provinces and territories can create their own pricing programs for fuels and/or emissions from industry, but the federal government has indicated that any provincial or territorial program must meet a benchmark (i.e. minimum criteria) it has established. This benchmark is the basis for the federal government’s decision on whether to either impose or continue to impose the federal OBPS and the federal fuel charge.

Ontario’s Emissions Performance Standards Program

The EPS program is a key government action making large, industrial polluters accountable for their GHG emissions. The program is intended to:

• encourage the industrial facilities to reduce GHG emissions
• minimize competitiveness impacts and carbon leakage (the risk of production leaving the province for other jurisdictions with less stringent climate policies)

Ontario’s EPS program came into full effect on January 1, 2022, replacing the federal OBPS that was in place from 2019-2021. Its current design meets the federal benchmark for such systems, however in August 2021, the federal government introduced a stricter benchmark for the 2023 – 2030 period. Amendments to the program were needed for it to continue for the 2023-2030 period.

The federal government announced on November 22 that Ontario’s proposed regulatory amendments to the EPS and GHG Emissions Reporting programs for the 2023-2030 period meets the federal benchmark.

Ontario’s GHG Emissions Reporting Program

The GHG Emissions Reporting program is an integral part of the EPS program as it provides verified emissions, production and emissions limit data for all registrants in the EPS program. These are used to determine a facility’s compliance obligation or the number of emissions performance units (EPUs) it is eligible to receive for emitting less than its emissions limit.