OTTAWA — The federal government has reluctantly given green lights to both Ontario and New Brunswick to use their own carbon-pricing systems for big industrial emitters, rather than have a federal program imposed on them.

The decisions come on the eve of a Supreme Court of Canada hearing that will decide if Ottawa has the jurisdiction to set a national standard for carbon pricing and apply federal programs in any provinces that don't comply.

Environment Minister Jonathan Wilkinson wrote to his counterparts in both New Brunswick and Ontario Sunday to acknowledge their proposals to tax greenhouse gas emissions from heavy industry meet the federal rules in theory. However, he made clear to them he was not happy with how they're going about it.

"Today we have recognized that technically Ontario and New Brunswick's systems have met the benchmark but they produce significantly less in the way of emissions reductions than the federal backstop that is currently in place," Wilkinson said in an interview with The Canadian Press. "That is an issue."

The carbon price system for big emitters sets two specific requirements: the price, and the source of emissions the price must impact. It does not, however, lay out that any equivalent system must show equivalent emissions reductions to the federal backstop. In fact, it doesn't require it to reduce emissions at all.

The federal government set thresholds for emissions by industry, so one limit for steel, one for cement, one for automakers, and so on. Each company pays the carbon price only on emissions over that threshold for its specific industry, and that threshold gets more strict over time.

Ontario and New Brunswick have designed systems that set that threshold by facility, not by industry, which means in many cases that threshold is higher than it would have been under the federal system. As well, the portion of emissions on which the price is applied is smaller.

Ontario Environment Minister Jeff Yurek said in a written statement that Ontario's plan is better for the province, and will curb emissions without hurting the economy. 

"Ontario’s regulation covers the very same polluters as the federal system — there are no free passes, and no one is off the hook," said Yurek.

Wilkinson admits the federal government left room for provinces to do this by not being more specific with its requirements in the legislation that created the carbon price. He said these loopholes will be closed when the legislation is reviewed in 2022.

Canada's carbon tax has two components: a carbon levy on fuel purchases and a carbon price on emissions from big industry. The first is paid by individuals and businesses on fuels they purchase to drive cars, heat buildings or run their barbecues. All but four provinces have their own systems Ottawa has approved, so the federal carbon levy affects only Alberta, Saskatchewan, Manitoba and Ontario.

The big emitters program applies to industrial facilities that produce more than 50,000 tonnes of greenhouse gas a year, so they pay the price on some of what they emit, rather than on the fuels they purchase to operate. It is this system affected by this week's decisions.

In Ontario, there are 322 facilities that hit that benchmark, and there are 18 in New Brunswick. They include things like steel plants, cement producers, oil refineries and natural gas-fired power plants.

The federal system for big emitters will now apply in full only in Manitoba and Prince Edward Island. It will apply to natural gas pipelines and electricity generators in Saskatchewan, which were exempted from that province's program for big industry.

In December, Ottawa approved Alberta's system for big emitters. Wilkinson said Monday that unlike Ontario and New Brunswick, Alberta's system does get comparable reductions in emissions.

The carbon price is currently $30 a tonne and goes up $10 in each of the next two years until it hits $50 in 2022. 

The Supreme Court begins two days of hearings Tuesday to decide whether Ottawa had the jurisdiction under the Constitution, to impose a national carbon price the way it did.

This report by The Canadian Press was first published Sept. 21, 2020.

Mia Rabson, The Canadian Press