The recent release of the CleanBC Independent Review provides an assessment of the British Columbia Output Based Pricing System (BC OBPS). The Review Panel's findings strongly supported the structure and efficiency of the system and provided recommendations to further improve the system. Industry stakeholders recognized the OBPS as an economically efficient regulation because its focus on output-based performance incentivizes companies to pursue the lowest-cost abatement options. Furthermore, the output-based approach helps to reduce the risk of carbon leakage while successfully protecting emissions-intensive, trade-exposed industries. The system itself offers flexible compliance options, enabling companies to change processes, switch fuels, purchase credits from peers, or use eligible offsets.
To ensure the OBPS remains a feasible tool for climate action and long-term stability, the Independent Review also recommended specific measures to ensure its viability. The Review advised the government to build on the core strengths of the OBPS and extend its time horizon through at least 2040, providing necessary long-term certainty for investment. Stakeholders advocated that the province should continue to align its price schedule with the federal government’s determined schedule to maintain the system's credibility. To maintain market integrity, the Review recommended using the annual review of the OBPS to manage the risk of credit oversupply by strengthening performance standards through more stringent reduction factors and/or tightening rates. Finally, the Review urged the government to commit to and transparently report on 100% recycling of industrial carbon pricing revenue back into climate pollution reduction programs, such as the Clean Industry Fund. The approaching deadline and the findings of the Independent Review both confirm that the OBPS is essential for B.C.'s climate goals, requiring a firm commitment to its pricing rules and long-term stability.
Potential Market Implications
The Independent Review’s recommendations, if adopted, would translate into clear market signals for entities regulated under the BC OBPS. The proposed extension of the OBPS to at least 2040 provides a level of regulatory certainty. This is critical for industrial operators planning and executing large-scale, multi-year, capital intensive decarbonization projects. The level of certainty provided may spur investment in low-carbon technologies such as fuel switching, electrification, and carbon capture, utilization, and storage (CCUS).
For entities currently performing below their emission benchmark, the recommendation to strengthen performance standards via increased stringency and/or tightening rates leads to a need for continuous production efficiency. The proposed tightening will increase the cost of inaction from emission-intensive industries and demand for compliance units (earned credits and offsets). Simultaneously, continuous production efficiency will create a rewarding market for those entities that generate earned credits as well as verified offsets from project developers.
The recommendation to commit 100% revenue recycling into programs like the Clean Industry Fund will offer a direct financial mechanism to potentially offset compliance costs. It may also offer a path to invest in the technologies needed to meet the system’s increasingly stringent requirements.
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