British Columbia's climate policy landscape has shifted from a traditional carbon tax to an Output-Based Pricing System (OBPS). This change, which took effect on April 1, 2024, is creating new dynamics and opportunities for businesses managing their carbon emissions.
At a recent ClearBlue Markets webinar, our Canadian market experts looked at the intricacies of BC's new OBPS, outlining its mechanisms, who is covered, and the strategic steps companies can take to optimize their financial and compliance positions. As our CEO, Michael Berends, noted, "It's not like it used to be, where you just pay your carbon tax and there's nothing else really to do - we're in a real carbon market here."
The webinar was covered by Carbon Pulse, in the article: British Columbia’s new OBPS offers market opportunity, experts say,
by journalist Chris Ward, here.
Under the new OBPS, facilities exceeding 10,000 tonnes of CO2 per year and producing a regulated product are subject to mandatory compliance. This system incentivizes decarbonization by requiring payment only for emissions above a product-specific benchmark. For smaller emitters, opting in remains an option, though the removal of the carbon tax exemption warrants re-evaluation. Facilities that no longer benefit can apply to opt out by August 1st.
Key Compliance Pathways and Market Dynamics
The compliance window for the BC OBPS extends until November 30th, offering a range of pathways for facilities to meet their obligations:
- Direct Payment: Utilizing the federal carbon price (C$80/tonne in 2024).
- Earned Credits: Generated by outperforming emission benchmarks. These credits offer flexibility as they do not expire and can be held, transferred, sold, or used within annual limits.
- Eligible Offset Units: Representing verified emission reductions from projects, with approved protocols for forestry and methane from organic waste, select credits from the fuel switch protocol under review, and more in development.
It's important to note the differing characteristics of these compliance tools. As Dave Janisse, our Vice President of Market Access and Strategy at ClearBlue Markets, emphasized, market participants can purchase "earned credits to use them for future obligations without worry of expiry," while offsets have a three-year expiry from their creation date.
A crucial aspect of the BC OBPS is the phased reduction in the usage limit for earned credits and offsets. While facilities can use these for up to half of their 2024 obligation, this limit will decrease to 40% in 2025 and 30% from 2026 onwards. This contrasts with other jurisdictions where credit usage limits typically increase over time, according to Adi Dunkelman, ClearBlue’s Director of Policy and Strategy.
Preparing for the Future: Strategic Considerations
With the first compliance deadline in November, and the industrial emissions reporting system and earned credit release slated for September, proactive steps are essential. Facilities should consider:
- Setting up a BC Carbon Registry account.
- Preparing legal and procurement teams for contracting.
- Understanding internal transaction governance.
ClearBlue Markets is already observing market activity, with offsets and earned credits trading at a 10-20% discount to the federal carbon price. Even though earned credits will be issued in September, forward delivery contracts can be locked in now.
The BC OBPS will undergo significant reviews in 2026, which may lead to adjustments in benchmarks, stringency factors, and funding allocations as BC works towards its 2030 climate targets.
Ultimately, the new BC OBPS is not merely a tax; it's a dynamic compliance carbon market that presents both financial risks and opportunities. Understanding its nuances and strategizing effectively will be key to success.
Contact us for information about our Advisory and Market Access services to assist with your OBPS strategy.