Municipal Affairs and Environment
Finance
Natural Resources
October 23, 2018

Provincial Government Releases Federally-Approved Made-in-Newfoundland and Labrador Approach to Carbon Pricing

The Provincial Government’s Made-in-Newfoundland and Labrador approach to carbon pricing minimizes the impact on residents and maintains the province’s economic competitiveness. The plan reflects the importance of reducing greenhouse gas emissions and the province’s efforts to produce green, renewable energy.

The Federal Government announced plans to implement carbon pricing in 2016 to help Canada meet its greenhouse gas emission targets, and announced today (Tuesday, October 23) that it is accepting the Government of Newfoundland and Labrador’s plan for carbon pricing. The plan comes into effect on January 1, 2019, and reflects the province’s role in helping to address climate change while balancing environmental and economic priorities.

The province’s carbon pricing system is based on the principles of maintaining competitiveness for taxation and trade, minimizing the impact on consumers and vulnerable groups, recognizing the considerable cost we are already paying to decarbonize electricity and delivering meaningful reductions in greenhouse gas emissions.

Key elements of the provincial plan include:

Consumers

  • Will not be taxed on home heating fuels, as they would have been under the Federal Government’s plan.
  • The four cent temporary gas tax will be eliminated and replaced with a federally-mandated 4.42 cent carbon tax, which equates to $20 per tonne.
  • The five cent additional gas tax on diesel will be eliminated and replaced with a federally-mandated 5.37 cent carbon tax, which equates to $20/tonne.
  • Exemptions to carbon tax for off-grid diesel electricity generation, aviation fuel, interprovincial marine transportation, and municipalities.

Industry

  • A performance-based system for offshore and onshore industries that will establish greenhouse gas reduction targets for large industrial facilities and large scale electricity generation.
  • Exemptions from carbon tax for agriculture, fishing, forestry, offshore and mineral exploration, and methane gases from venting and fugitive emissions in the oil and gas sector.

Climate Change

  • When Muskrat Falls achieves full power, renewable electricity consumed in Newfoundland and Labrador will rise to 98 per cent;
  • Partnering with the Federal Government to create jobs in a green economy, as well as reduce the impacts of climate change and carbon emissions. This will be achieved through such initiatives as the Climate Change Action Plan, which will guide investments in the $89.4 million Low Carbon Economy Leadership Fund and the $300 million dedicated to green infrastructure through the Investing in Canada Plan.

More information is included in the backgrounders below.

From our federally-approved plan, the “provincial carbon tax rates shall commence at $20 tonne on January 1, 2019. The provincial Gasoline and Diesel Tax will be adjusted with a goal of Atlantic parity related to provincial taxation (including carbon tax) of fuel products. The carbon tax rates will only increase based on changes to Atlantic parity that allows for rate increases.”

The implementation of this provincial plan remains dependent on the implementation of a national carbon pricing system. The Government of Newfoundland and Labrador reserves the right to cancel its plan if any other province or territory does not put in place their own plan or face the Federal Backstop.

To implement this plan, several pieces of legislation will be amended in the upcoming session of the House of Assembly, including changes to the Revenue Administration Act, the Management of Greenhouse Gas Act and the Atlantic Accord Implementation Act.

Quotes
“Our government has worked very hard to ensure we tackle climate change in a manner that takes into account the economic, social and fiscal realities that Newfoundlanders and Labradorians face. Our system is based on the principles of maintaining competitiveness for taxation and trade, minimizing the impact on consumers and vulnerable groups, recognizing the considerable cost we are already paying for the Muskrat Falls Project to decarbonize electricity, and delivering meaningful reductions in greenhouse gas emissions.”
Honourable Andrew Parsons
Minister of Municipal Affairs and Environment

“Our Made-in-Newfoundland and Labrador plan helps address climate change while protecting citizens and businesses against the federal backstop, which would have resulted in residents paying higher taxes. It reflects more than two years of hard work and our ability to advocate on behalf of our province.”
Honourable Tom Osborne
Minister of Finance and President of Treasury Board

“Our province’s natural resource industries play a significant role in our economy. We have engaged industry on a regular basis in developing this plan recognizing that we need to ensure the province maintains a competitive environment for investment. The plan reflects the province’s role in helping to address climate change while balancing environmental and economic priorities.”
Honourable Siobhan Coady
Minister of Natural Resources

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Learn more

Provincial Government’s Carbon PlanPDF icon

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Media contacts
Lynn Robinson
Municipal Affairs and Environment
709-729-5449, 691-9466
lynnrobinson@gov.nl.ca

Marc Budgell
Finance
709-729-2477, 689-0430
marcbudgell@gov.nl.ca

Nancy Hollett
Natural Resources
709-729-5777, 685-3372
nancyhollett@gov.nl.ca

BACKGROUNDER
Tax approach under the carbon plan

On January 1, 2019, the Provincial Government’s carbon tax will come into effect. As part of this plan, there will be several changes to taxation measures in the Revenue Administration Act, including:

  • The provincial carbon tax rates shall commence at $20 tonne. The provincial Gasoline Tax will be adjusted with a goal of Atlantic parity related to provincial taxation (including carbon tax) of fuel products. The carbon tax rates will only increase based on changes to Atlantic parity that allows for rate increases. To ensure regional competitiveness, the carbon tax will only increase on gasoline and diesel beyond 2019 if fuel taxes increase in all four Atlantic Provinces.
  • Home heating fuels will not be subject to the provincial carbon tax, as they would have been under the Federal Government’s plan.
  • The four cent temporary gas tax will be eliminated and replaced with a federally-required 4.42 cent carbon tax, which equates to $20 per tonne.
  • The five cent additional gas tax on diesel will be eliminated and replaced with a federally-required 5.37 cent carbon tax, which equates to $20 per tonne.

BACKGROUNDER
Exemptions in provincial carbon plan

The Provincial Government’s approved carbon plan features several types of fuel usage which are not subject to a carbon tax under the provincial plan. Exemptions include:

  • Any fuels already exempt by the Federal Government in their Greenhouse Gas Pollution Pricing Act;
  • Fuels used for activities regulated under the provincial Management of Greenhouse Gas Act (which are instead subject to the performance standards system);
  • Fuels used for offshore petroleum exploration;
  • Fuels sold on Reserves to Registered Status Indians and Band Councils as defined under the federal Indian Act;
  • Fuels sold in sealed, pre-packaged containers of ten litres or less;
  • Aviation fuel;
  • All current provincial gasoline tax exemptions and/or rebates specified under the Revenue Administration Regulations (please note: for specific details around exemptions, refer to the Regulationsexternal link icon):
    • Gasoline used for electricity generation;
    • Fuels used for home heating;
    • Gasoline used for farming equipment, including vehicles registered under the Highway Traffic Act;
    • Gasoline used for forestry activity: commercial cutting, harvesting of logs, wood chippers, debarkers and silviculture;
    • Gasoline used in a vessel or boat by a fisher for commercial catching, in accordance with the fisher’s limited species licence;
    • Gasoline used in a vessel or boat used on regularly scheduled routes in international or interprovincial trade;
    • Gasoline used in a vessel or boat used for commercial transportation of fish;
    • Gasoline used in a vessel or boat used for the cultivation or harvesting of aquatic plants or animals;
    • Gasoline used in construction equipment for such purposes as rock crushing, or screening aggregates other than gasoline used in trucks, power shovels, tractors, loaders and drills;
    • Gasoline used in manufacturing equipment and as a raw material in manufacturing, other than gasoline used for the processing or treatment of ore;
    • Gasoline used in equipment for exploration of a mineral;
    • Please note: exemptions do not apply to vehicles licensed under the Highway Traffic Act unless otherwise stated above.

BACKGROUNDER
Performance Standards System for Industry in the Provincial Carbon Plan

The Management of Greenhouse Gas Act establishes Newfoundland and Labrador’s performance standards system for large industrial facilities and large-scale electricity generation, that emit more than 25,000 tonnes of greenhouse gas emissions per year.

To bring the system fully into effect the following will occur:

  • Legislative amendments to the Management of Greenhouse Gas Act will be introduced in the House of Assembly;
  • New regulations pursuant to the Act will be finalized to enable facility-level greenhouse gas targets to be set and fully establish alternative compliance mechanisms; and
  • The federal Canada-Newfoundland and Labrador Atlantic Accord Implementation Act and provincial Canada-Newfoundland and Labrador Atlantic Accord Implementation Act Newfoundland and Labrador will be amended to establish enabling authorities to extend the Management of Greenhouse Gas Act to the offshore area.

Before exemptions, performance standards are expected to cover approximately 44 per cent of greenhouse gas emissions and sources in the province. These include petroleum facilities in the offshore area (pending amendments to the Accord Acts), refining, primary mining, iron ore pelletizing, metal smelting, pulp and paper and large scale electricity generation (pending amendments to the Management of Greenhouse Gas Act) sectors that emit over a defined threshold per year.

Exemptions to performance standards comprise methane greenhouse gas emissions from venting and fugitives in the oil and gas sector which are subject to federal regulation and offshore exploration activities, taking the effective performance standards coverage to about 43 per cent.

Regulated facilities will be subject to greenhouse gas reduction targets based on either a performance standard historical approach or a performance standard sector benchmark.

Performance Standards - Historical Approach

  • Each regulated onshore facility will be assigned an annual greenhouse gas reduction target equal to six per cent below its 2016 to 2017 historical average emissions-to-output ratio for 2019 as calculated by the Provincial Government.
    This will be based on verified emissions reports using the Western Climate initiative methodology.
  • The target will rise to eight per cent below its 2016 to 2018 average emissions-to-output ratio in 2020; 10 per cent below in 2021 and 12 per cent below in 2022 and subsequent years. Fixed process emissions will be excluded
  • Each regulated offshore petroleum facility will be assigned the same percentage reductions to its average emissions level, excluding federally regulated emissions for methane from venting and fugitives.
  • Mobile Offshore Drilling Units (MODUs) that are not undertaking exploration and meet the Management of Greenhouse Gas Act greenhouse gas threshold will be regulated under the Management of Greenhouse Gas Act with its annual target prorated based on the number of days it operates per year. MODUs not undertaking exploration and not meeting these thresholds will be subject to the carbon tax.
  • For the purposes of in-pit mining at a primary mining facility and at the request of the facility, output will be defined as total materials moved on the mining lease.
  • An option will be provided for each industrial facility to use an industry-wide performance benchmark, where feasible, rather than an historical-based target (see details below).
  • Where a facility produces two or more distinct products, the facility’s average greenhouse gas-to-output ratio for each product will be used where the facility demonstrates that the products are distinct, and the product-specific ratios are objectively and reasonably calculated.
  • For the Holyrood Thermal Generating Station, baseline production will be set at the level projected by Newfoundland and Labrador Hydro in its detailed 2012 study that informed the development of Muskrat Falls.
  • New entrants and significantly modified facilities will be phased in through establishing a three-year grace period at the start of production and progressively phasing in greenhouse gas reduction target in equal increments over a five-year period until the full target is applied in year eight. MODUs are not to be considered as a new facility or significantly modified facility.

Performance Standards - Sector Benchmark
For a facility that opts to be regulated according to a performance benchmark, the benchmark will be set according to the following guidelines:

  • It may include all comparable facilities that are located in Canada and the United States, as appropriate, that produced commercial output equal to at least 50 per cent of its reported capacity in the year that the benchmark is set.
  • It will be set on the basis of capacity, production and greenhouse gas emissions as reported to Environment and Climate Change Canada and the United States Environmental Protection Agency and shall be adjusted at least annually or every third year, based on data availability.
  • All facility emissions will be included in calculation of the performance benchmark, including fixed process emissions.
  • Where that facility uses an energy source that differs from normal industry practices in North America, greenhouse gas emissions will be adjusted by converting the energy source used at the facility to the energy source generally used by industry on a British Thermal Unit basis using standard emissions factors published by Environment and Climate Change Canada and amended from time to time.
  • The adjustment factor will be determined based on information provided by the facility where the facility demonstrates that the adjustment factor is objectively and reasonably calculated. The performance benchmark will be set at the top tercile of all facilities in the benchmark. However, performance credits can only be earned based on the facility exceeding the top tier requirements.

Alternative Compliance Options to Meet Performance Standards
The Management of Greenhouse Gas Act provides for the use of greenhouse gas reduction credits as an alternative compliance mechanism. Three forms of credits are established in the Act, including:

  • Greenhouse Gas Reduction Fund credits
    The fund is established in Section 6 of the Act and the fund purpose and structure is outlined in Sections 6 to 9 of the Act. These credits will be priced at the federal carbon tax rate as set out in the federal Greenhouse Gas Pollution Pricing Act.
  • Performance credits
    Performance credits will be awarded to a facility for over-achieving its GHG reduction target in a year. However, for a facility opting for a performance benchmark, performance credits will only be awarded to a facility for over-achieving reductions up to the top quartile. Credits are bankable by a facility and are tradeable across facilities. The credit price will be determined by the market (i.e., the price may vary from the federal carbon price).
  • Offsets credits
    The Act makes provision for offsets credits. The provincial system will not include carbon offsets in 2019. A provincial offsets system will be developed after 2019 and will be informed by the design of offsets system in other provinces and by the federal government, and by ongoing work by the Canadian Council of Ministers of the Environment.

Purchased greenhouse gas reduction credits by a facility, which excludes performance credits that it generates at its own facility, cannot be used to meet more than 90 per cent of its greenhouse gas target obligation in 2020, 85 per cent in 2021 and 80 per cent in 2022 and subsequent years.

If these thresholds are not met, a facility shall pay into the Greenhouse Gas Reduction Fund any required remaining obligation to be in compliance at a rate equal to four times the federal carbon price in that year. These limits on access to credits do not apply to offshore facilities.

A greenhouse gas reduction credit cannot be used by a regulated operator to reduce carbon tax that may be levied under the Revenue Administration Act or any other provincial or federal legislation.

Enforcement Mechanisms
Annual reporting process will include submission of an annual greenhouse gas report by June 1 of year following a reporting period, a verification report by September 1 of that year, and a compliance report by November 1 of that year. The Management of Greenhouse Gas Act contains inspection and compliance authorities that will apply to implementation of performance standards

Reporting
The Management of Greenhouse Gas Act requires public reporting on the activities of the Fund, including revenues collected, and requires annual and public reporting of greenhouse gas emissions from regulated facilities.

2018 10 23                              12:40 p.m.