Policy Forum: Comparing Canadian Output-Based Pricing Systems

The Canadian public widely anticipates the demise of the federal fuel charge in 2025, and politicians and journalists now frequently refer to “industrial carbon pricing” as the main line of defence still held in Canada’s greenhouse gas emission reduction plan. This commentary examines the most important component of this line of defence—namely, federal and provincial output-based pricing systems (OBPS). It assembles hitherto obscure information with respect to three OBPS design features: eligibility, stringency of emission reduction requirements, and total cost to emitters. The study finds that OBPS implementation is off to a weak start. Many sectors that do not genuinely compete with foreign firms are eligible to participate. Provinces encourage facilities to opt into OBPS—meaning, out of full carbon pricing—with little selection. Most provinces only require facilities to slowly reduce emissions relative to their past performance, instead of catching up to low-emission peers. And lowemission facilities face weak incentives to further reduce emissions due to weak or non-existent price signals on emissions-trading markets.