WHY DIDN’T THE CANADIAN GOVERNMENT ENACT BORDER CARBON ADJUSTMENT MECHANISMS IN THE GREENHOUSE GAS POLLUTION PRICING ACT? HOW DOES OBPS WORK? The Government of Canada committed to return proceeds collected from the OBPS to jurisdictions of origin. Provinces and territories that have voluntarily adopted the federal OBPS can opt for a direct transfer of proceeds collected. Proceeds collected in jurisdictions where the Federal Backstop OBPS is in place will be returned through the OBPS Proceeds Fund. OUR RECOMMENDATION: For a deep dive into Output-Based Pricing Systems go here. LASER TALK: Output-Based Pricing Systems
Border carbon adjustments mechanisms take time to set up. As well, they are tariffs. Tariffs have negative connotations because tariffs are often seen as rallying cries for trade wars. Diplomatically speaking, our trading partners will need several years’ notice to prepare for border carbon adjustments. Thus, while establishing a national carbon price, we have to maintain competitiveness and reduce carbon leakage without border carbon adjustment. To do that, an Output-Based Pricing Systems (OBPS) was designed and implemented.
Industries that qualify can sign-up for output-based pricing systems for their carbon emissions. Each qualifying industry has a formula for quantifying their greenhouse gas output in relation to the best in their class – resulting in high-performing industries paying less in carbon taxes. Thus, there is a price signal to encourage industries to reduce emissions.
Canada’s carbon pricing benchmark price must be economy-wide and must continue to rise beyond 2022 every year until a 90% reduction from 2005 levels is achieved. The OBPS will not encourage the necessary radical industrial transformation. OBPS are a baby step in the right direction, but they must be nurtured into Border Carbon Adjustments in order to face the real-world challenge of global warming. CCL recommends that Output-Based Pricing Systems should be temporary and ultimately replaced with border carbon adjustments.