Output-Based Pricing System (OBPS)

OBPS sets a performance standard for each industrial activity it covers, expressed as kilograms of greenhouse gas emitted per unit of output. The standard is benchmarked to the national production-weighted average emissions intensity for that activity. A covered facility multiplies its actual output by the applicable standard to derive its annual emissions limit. Facilities that emit above their limit must pay an excess emissions charge or surrender compliance units. Facilities that emit below their limit receive surplus credits, which can be banked for future use or sold to other facilities.

This design protects trade-exposed Canadian industries against carbon leakage (the risk that production shifts to jurisdictions with weaker climate policy). Unlike a flat carbon tax that prices every tonne, OBPS effectively prices only the marginal tonnes above the performance standard. Best-in-class facilities benefit from surplus credits even at high carbon prices; lagging facilities face the full marginal cost. The system is a hybrid of cap-and-trade and carbon taxation.

The federal OBPS is a backstop. Provinces and territories are free to design their own industrial carbon-pricing systems, and most do. Quebec operates a cap-and-trade system linked with California through the Western Climate Initiative. British Columbia runs its own provincial OBPS. Alberta operates the Technology Innovation and Emissions Reduction (TIER) regulation since January 1, 2020, the current iteration of an output-based industrial carbon-pricing regime that began with the Specified Gas Emitters Regulation (SGER) on July 1, 2007 (the first industrial carbon-pricing system in Canada) and ran through the Carbon Competitiveness Incentive Regulation (CCIR) from 2018 to 2019. Ontario, Saskatchewan, and New Brunswick each operate provincial industrial systems that meet the federal benchmark.

As of 2025, the federal OBPS applies only in Manitoba, Prince Edward Island, Yukon, and Nunavut, where there is no compliant provincial or territorial system. The federal backstop architecture allows provinces to design jurisdictionally appropriate systems while the federal government enforces a minimum stringency through the Greenhouse Gas Pollution Pricing Act.

In December 2025, the federal government published a discussion paper titled Driving Effective Carbon Markets in Canada, signaling consultation and potential updates to the federal benchmark and OBPS regulations through winter 2026. That consultation is the most consequential carbon-pricing process underway in 2026.

The federal consumer-facing fuel charge (the part of carbon pricing that applied to gasoline, natural gas, and other fuels purchased by households and small businesses) was eliminated effective April 1, 2025 under the Carney government. The Canada Carbon Rebate, which had returned fuel-charge revenue to households quarterly, was wound down in parallel.

The industrial OBPS was not affected by that elimination. Large emitters continue to operate under the existing OBPS regulations, with the scheduled annual increases in the excess emissions charge proceeding on schedule. The OBPS is the carbon-pricing instrument that touches actual Canadian heavy industry, energy production, and large-scale manufacturing; the consumer charge was the visible political surface but a minority share of total emissions coverage.