Targeting Further Areas for Relief: Federal Government Proposes Refinements to its Carbon Pricing Backstop System
In October 2018, the federal government announced certain details on the scope and application of its carbon pricing backstop system. Under the Greenhouse Gas Pollution Pricing Act (GGPPA), the federal carbon pricing backstop system consists of two components:
- a charge on 21 types of fuel and combustible waste that are consumed within a backstop jurisdiction, which will apply starting in April 2019 and will be administered by the Canada Revenue Agency (CRA); and
- an output-based pricing system that applies to emission-intensive industrial facilities (i.e. facilities with emissions 50,000 tonnes of carbon dioxide equivalent, or CO2e), which started applying in January 2019 and is administered by Environment Canada and Climate Change.
At the time of the announcement, CRA released for public comment a proposal for partial relief of the fuel charge for natural gas and propane delivered to greenhouse operators and relief of the fuel charge for light fuel oil (e.g. diesel) delivered to power plant operators that generate electricity for remote activities. Following public consultations, the federal government announced on March 19, 2019 that it is proposing the following refinements to the backstop system:
- Expanding Fuel Charge Relief for Electricity Generation for Remote Communities – In order to ensure that remote communities can generate electricity from cleaner fuel sources, the previously announced proposed fuel charge relief for remote power plant operators that generate electricity for remote communities will also include relief for marketable natural gas. The relief is proposed to be provided upfront through the use of exemption certificates, such that the fuel charge does not apply to light fuel oil or marketable natural gas that is delivered by a registered distributor in respect of those types of fuel to a person that operates a remote power plant if that fuel is for use exclusively at the location of a remote power plant in the operation of the remote power plant. CRA has indicated that:
- A remote power plant will be defined to mean a power plant that generates electricity for general distribution to the public of a remote community, that is not connected to a main electrical network and that is not connected to a distribution system.
- A remote community will be defined to mean a geographic area that is not serviced by a main electrical network and that is not serviced by a distribution system.
This relief is proposed to apply as of April 2019 in all backstop provinces, and as of July 2019 in all backstop territories. CRA has proposed that diversion rules be included to ensure that the fuel charge applies if light fuel oil or marketable natural gas is used in a manner that is contrary to the intended relief.
- Fuel Exported from Canada by Non-Registered, Non-Resident Persons – Under the GGPPA, a registered distributor generally pays the fuel charge upon delivery of the fuel to another person that is not a registered distributor. In recognition that certain fuel producers and distributors deliver fuel (to a location in Canada) to non-residents of Canada who have no other commercial activities in Canada with respect to the fuel aside from exporting fuel from Canada, CRA is proposing to provide a rebate for registered distributors of the fuel charge for fuel that is delivered to, and subsequently exported from Canada by, non-registered, non-resident persons. This is subject to the following conditions:
- the charge was payable by the registered distributor at the time the fuel was delivered;
- the fuel was not further processed, transformed or altered in Canada except to the extent reasonably necessary or incidental to its transportation; and
- the non-registered, non-resident person provides to the registered distributor, and the registered distributor retains, evidence satisfactory to the Minister of National Revenue of the exportation of the fuel by the non-registered, non-resident person.
The rebate would not apply to fuel that is exported in the supply tank of a vehicle. The rebate would also not apply to fuel that is exported otherwise than in the supply tank of a vehicle if the fuel is gasoline, kerosene, light fuel oil or propane, and the quantity of the fuel does not exceed 1,000 litres. This rebate is proposed to apply as of April 2019 in all backstop provinces and as of July 2019 in all backstop territories.
- Integration the Federal Fuel Charge with the Saskatchewan Carbon Pricing System – In October 2018, the federal government recognized that Saskatchewan was on track to only partially meet the federal benchmark requirements. As a result, it was announced that the federal backstop system will generally apply to the emission sources not covered by Saskatchewan’s output-based performance standards system. In particular:
- The federal OBPS applies to electricity generation and natural gas transmission lines, as of January 1, 2019.
- A charge applied to fossil fuels as set out under Part 1 of the GGPPA will start applying in April 2019.
In order to facilitate the proper integration of the federal fuel charge of facilities that are covered by the provincial output-based performance standards system in Saskatchewan, CRA is proposing that:
- facilities that are subject to, and have registered under, the provincial output-based performance standards system in Saskatchewan be covered facilities prescribed by regulations under the GGPPA, subject to certain conditions (including the receipt of a statement in writing from the Minister of the Environment and Climate Change confirming that the facility is subject to a provincial output-based performance standards system);
- a person that is responsible for a prescribed covered facility in Saskatchewan may apply to the Minister of the Environment and Climate Change for a statement in writing to confirm that the facility is subject to the Saskatchewan output-based performance standards system by making an application accompanied with the relevant information; and
- the statement in writing from the Minister of the Environment and Climate Change can be used for purposes of registering as an emitter with the CRA.
Without these changes, a person that is responsible for a facility covered by Saskatchewan’s output-based system would not be eligible to register with CRA as an emitter for the purpose of Part 1 of the GGPPA; this would mean that the fuel charge would apply to fuel delivered by these facilities. These provisions are proposed to be deemed to apply as of January 1, 2019.
- Further Relief for Farmers – The GGPPA provides farmers with relief from the fuel charge for fuels used in tractors, trucks and other farm machinery. In particular, the GGPPA provides that a registered distributor can deliver – without the fuel charge applying – gasoline or light fuel oil to a farmer at a farm, if the farmer certifies that the fuel is for use exclusively in the operation of eligible farming machinery and all (or substantially all) of the fuel is for use in the course of eligible farming activities. This relief is provided upfront through the use of exemption certificates. It is proposed that this relief be expanded to include delivery to a farmer at a cardlock facility, subject to the farmer certifying that the fuel is for use exclusively in the operation of eligible farming machinery and all (or substantially all) of the fuel is for use in the course of eligible farming activities. Cardlock facilities generally consist of automated, unattended gas outlets that can be used for obtaining fuel for commercial and industrial purposes, including farming. The purpose is to ensure that gasoline or light fuel oil used in eligible farming activities is not subject to the fuel charge, regardless of whether a registered distributor delivers the fuel to a farmer at a farm or at a cardlock facility. This relief is proposed to apply as of April 2019 in all backstop provinces and as of July 2019 in all backstop territories.
CRA is inviting comments from the public on its draft regulations amending the Fuel Charge Regulations until April 19, 2019. Comments on the proposed changes on the backstop system can be sent by email to [email protected] or by mail to:
Carbon Pollution Pricing
Department of Finance Canada
90 Elgin Street
greenhouse gas (GHG) Greenhouse Gas Pollution Pricing Act GGPPA CRA Federal Government fuel charge