Major Carbon Pricing Changes and Canadian Federal Fuel Charge Amendments

On March 14, 2025, the Government of Canada announced a pivotal shift in its carbon pricing strategy by setting the federal fuel charge rates to zero, effective April 1, 2025. This decision signifies a move away from consumer-level carbon pricing towards a more focused approach targeting industrial greenhouse gas (GHG) emissions. 

Key Amendments to the Federal Fuel Charge 

The recent amendment effectively reduces the fuel charge to zero for all fuel types and combustible waste starting April 1, 2025. Consequently, the requirement to report and remit the fuel charge will cease for activities occurring after March 31, 2025. However, registrants must still fulfill any outstanding obligations for reporting periods prior to this date. 

Impact on the Output-Based Pricing System (OBPS) 

The OBPS remains a critical component of Canada’s carbon pricing framework, targeting large industrial facilities to incentivize GHG emission reductions while mitigating competitiveness impacts and the risk of carbon leakage. Facilities under the OBPS are assigned emissions limits based on sector-specific output-based standards. Exceeding these limits results in compliance obligations, whereas facilities emitting below their limits may receive surplus credits. 

With the elimination of the fuel charge, the OBPS will continue to function as the primary mechanism for industrial carbon pricing in jurisdictions where it applies. Facilities currently registered under the OBPS must continue to adhere to their compliance obligations, including monitoring, reporting, and verification of GHG emissions.  

For the 2025 compliance period, facilities will be required to submit a partial-year report covering January 1 to March 31, 2025, reflecting the period before the fuel charge was set to zero. This report is due in 2026, along with the completion of verification processes. 

Additional Implications and Changes: 

• Voluntary Participants: Facilities that opted into the federal OBPS voluntarily will be automatically removed from the program on April 1, 2025. Facilities that opted into provincial programs should monitor regulatory amendments and changes to obligations under the Ontario EPS program to ensure compliance continuity, we would expect similar changes in provincial programs to be released. 

• On-Site Transportation Emissions: The amendment may lead to changes in how on-site transportation emissions are accounted for and Facilities should review guidance from regulatory authorities to understand any adjustments in reporting requirements. This may differ between federal and provincial programs depending on where a Facility is located. 

Compliance and Reporting Deadlines 

Facilities regulated under both federal and provincial carbon pricing systems are still required to adhere to existing compliance and reporting deadlines: 

• Annual Reporting: The policy change does not impact annual reporting requirements for the 2024 compliance period. Facilities must submit their reports as scheduled to maintain compliance. 

• Partial-Year Reporting for 2025: For the federal OBPS, facilities that opted in (voluntary entities) will be obligated to submit a partial-year report covering January 1 to March 31, 2025. This report, along with the necessary verification, is due in 2026. 

• Verification Processes: All verification activities associated with emissions reporting must be completed within the established timelines to ensure the integrity and accuracy of reported data. 

Potential Impacts on Funding Programs 

The removal of the fuel charge may have implications for funding programs designed to support emissions reductions and sustainability initiatives: 

• Ontario’s Emissions Performance Plan (EPP): Facilities participating in Ontario’s EPP should monitor communications from provincial authorities regarding any adjustments to funding mechanisms or program structures resulting from the federal policy change. 

Conclusion 

The federal government’s decision to set the fuel charge to zero marks a significant shift in Canada’s carbon pricing landscape, emphasizing a targeted approach towards industrial emitters through mechanisms like the OBPS and provincial programs such as Ontario’s EPS. Facilities must remain vigilant in understanding and adapting to these changes to ensure ongoing compliance and to capitalize on opportunities for emissions reductions. We understand that there may be more regulations coming into effect increasing the stringency on large emitters. 

As specialists in carbon pricing, we are committed to assisting our clients in navigating these regulatory amendments. We are actively engaging with fuel suppliers, industry stakeholders, and regulatory bodies to gather comprehensive information and provide informed guidance. Should you have any questions or require support in understanding how these changes impact your operations, please do not hesitate to reach out to our team. 

For detailed information on the amendments to the Fuel Charge Regulations, please refer to the official publication in the Canada Gazette here:
https://gazette.gc.ca/rp-pr/p2/2025/2025-03-15-x2/html/sor-dors107-eng.html