Newfoundland and Labrador recently published the 2024 annual outcomes of their greenhouse gas management; seeing emissions exceed the cumulative emissions limit for the first time since the programs inception in 2019. As stringency is expected to increase each year as the program progresses, this raises questions around how provinces can strive to balance industrial growth while meeting climate targets.
Program Overview
Canada’s approach to carbon pricing is through a patchwork of federal, provincial and hybrid programs. The federal government has established the Federal Output Based Pricing System (OBPS) which provinces may elect to use as their own. Provinces retain the autonomy to design their own programs, as long as they are deemed to be in line with the federal benchmark. This is seen in Quebec with their cap-and-trade program, linked to California, and in the Northwest Territories, where a carbon tax is used. Finally, the hybrid approach involves using pieces of the federal system - for example, carbon pricing follows the same schedule as the federal system - but under a province’s own OBPS structure. This is the approach used in Newfoundland and Labrador.
Under the Newfoundland and Labrador Performance Standards System (PSS), a baseline intensity is set for each facility based on historical performance. Using the amount of product produced each year, they are given an associated emission limit calculated with this baseline. If a facility emits above its assigned emission limit, they are subject to a compliance obligation. This obligation can me met through purchasing performance-based credits from facilities that emit below their limit and have generated excess credits, or through purchasing Greenhouse Gas Reduction Fund Credits at the federal carbon price. In the past, the cumulative emission limits from each facility were sufficient to cover all emissions. In 2024, total emissions from the 15 regulated industrial emitters exceeded the cumulative emission limit for the first time, by 100,000 tonnes.
Implications
While the result of a single province is not an encompassing view of Canadian carbon programs, the breach of this cumulative limit raises concern surrounding Canada’s ability to meet their emission reduction targets while encouraging industrial growth. While Canada has seen a decrease in emissions of 8.5% from 2005 to 2023, the 2030 reduction target is 40% from 2005 levels. Carbon pricing programs are designed to meet these targets through increasing stringency each year, indicating that these limits will continue to decrease to incentivize emitters to decarbonize in line with Federal targets. While the emissions shortfall in Newfoundland is relatively small, these results could be an indication of a programs need to adapt or provide avenues for emitters to decarbonize if they are to be able to remain competitive as stringencies tighten. This emphasizes the need for further investment in green technologies and decarbonization projects.
The federal program is currently under review by Environment and Climate Change Canada (ECCC) to strengthen industrial emission regulations and move towards the 2030 target and 2050 net-zero emissions goal. An aim of this review is to further incentivize investment in clean energies and emissions reductions. Once the updated federal benchmark is published, provincial programs will have to engage with the federal government if their programs are not in line. This may present an opportunity for Newfoundland to engage regarding this change in position.
ClearBlue is actively monitoring these developments, for more information about ClearBlue’s advisory services or market intelligence coverage, please contact us.