British Columbia (BC) has long been a leader in climate policy, and its newly implemented Output-Based Pricing System (OBPS) is the latest evolution in the province's effort to reduce greenhouse gas emissions while maintaining industrial competitiveness. Effective April 2024, the OBPS replaces the Clean Industrial Incentive Program (CIIP) and introduces a compliance framework designed to incentivize emission reductions, align with federal climate goals, and provide industries with new pathways to achieve compliance.
In a recent webinar, Adi Dunkelman, Director Carbon Policy and Elton Lawes, Director Carbon Markets at ClearBlue Markets, and Mark Lawson, Head of Carbon Acquisition at Invert, a leading carbon reduction and removal company focused on developing high-integrity projects in the Americas, shared a comprehensive overview of BC’s OBPS, its implications, and how businesses can navigate this emerging landscape. A summary of the material covered is below.An Overview of BC’s OBPS
Since the introduction of its carbon tax in 2008, BC has been a pioneer in putting a price on carbon pollution to address climate change. Facilities regulated under the OBPS will be exempt from paying the Carbon Tax. Whereas through CIIP, facilities paid the Carbon Tax up front on fuels and received a portion back according to a benchmark. Under the OBPS facilities will be exempt up front and instead be required to pay on the portion of emissions above a benchmark. The key difference is that an OBPS provides the opportunity for facilities performing better than the performance standard to earn credits.
To be regulated under the OBPS, companies must operate in a regulated sector and emit at least 10,000 tonnes of CO2 annually. There is also an opt-in provision for companies below this threshold if they wish to participate.
Key Features of the OBPS:
Exemption from Carbon Tax: Facilities emitting over 10,000 tonnes annually are exempt but must comply with sector-specific performance standards.
Compliance Mechanisms: Facilities can meet their obligations through earned credits, provincial offsets, or direct payments aligned with the federal carbon price ($80/tonne in 2024, rising to $170/tonne by 2030).
Credit Usage Limits: The percentage of compliance obligations that can be covered by credits decreases from 50% in 2024 to 30% in 2026 and holding there out to 2030.
The BC OBPS allows regulated facilities to use three main compliance pathways:
- Earned Credits – These are generated by facilities that perform better than their sectoral benchmark, earning credits for each tonne of CO2e reduced. These credits do not expire and can be banked or sold.
- Offset Credits – These credits come from approved protocols, such as the Forest Carbon Offset Protocol (FCOP) or the Methane from Organic Waste Protocol. Eligible offset units are limited to those vintages issued within three years of the compliance year.
- Direct Payments – For any remaining compliance obligation that was not met with offsets or earned credits, facilities can make direct payments to the program at the federal carbon price (currently $80 per tonne).
“The OBPS strikes a balance between promoting decarbonization and protecting industrial competitiveness,” said Adi Dunkelman, Director of Carbon Policy at ClearBlue Markets. “It provides flexibility for emitters while aligning with broader climate objectives.”
BC’s OBPS is part of a larger ecosystem of provincial policies aimed at achieving net-zero emissions by 2050, including, but not limited to:
- The Low Carbon Fuel Standard (LCFS): Aims to reduce the carbon intensity of fuels.
- The Net Zero Industry Policy: Requires LNG facilities and new developments to achieve net zero by 2030 and by 2050 (respectively).
Supply and Demand Dynamics
Understanding the dynamics of supply and demand is critical to navigating the OBPS. The system’s success hinges on ensuring an adequate supply of compliance credits while incentivizing emissions reductions.
ClearBlue modeling indicates a short-term credit shortage due to:
- The strictness of sectoral performance benchmarks.
- Limited offset supply, as only two protocols are currently approved.
By 2026, as additional protocols (e.g., Carbon Capture and Sequestration) and projects come online, we expect supply to increase. However, near-term challenges remain.
Supply Side: Limited Credits, High Stringency
Facilities can generate earned credits by emitting less than their performance benchmark, and these credits can be traded or banked for future compliance. In addition, provincial offset credits are available under approved protocols, including:
- Forest Carbon Offset Protocol (FCOP) 2.0
- Methane from Organic Waste
- Carbon Capture and Sequestration (CCUS) (Under Development)
Despite these options, supply remains constrained. Existing offset projects, such as the Great Bear Forestry initiative, restrict credit sales to specific buyers, further tightening the market. “This program is launching into an environment where early supply is tight and demand will only grow,” noted Elton.
Demand Side: Escalating Compliance Requirements
Demand is driven by escalating stringency. Facilities must address emissions exceeding the baseline of 65% covered emissions, with compliance pathways narrowing over time:
Direct payments aligned with the federal carbon price are the default option for facilities unable to meet their obligations through credits.
Usage limits for credits drop annually, amplifying the challenge.
“These dynamics underscore the importance of strategic planning,” said Elton. “Early action is critical to managing costs and mitigating risks.”
Challenges Facing the OBPS
The OBPS presents several challenges for businesses and policymakers alike.
Regulatory and Market Uncertainty
Uncertainty looms over the program's long-term trajectory. Factors such as potential federal political shifts and evolving provincial priorities introduce risks. For example, Premier David Eby has indicated that the LCFS could be repealed if the federal Clean Fuel Regulation (CFR) is withdrawn.
“This creates a precarious situation for industries trying to plan for the future,” said Adi Dunkelman.
ClearBlue’s tools, such as its Offset Price Discovery (OPD) model, can help organizations navigate these challenges by providing real-time pricing estimates and forecasts based on market trends. This allows companies to better plan and manage their compliance strategies.
Indigenous Participation
Indigenous engagement is a mandated component of the OBPS, with clear requirements for consultation and benefit-sharing throughout project lifecycles. While this fosters reconciliation, it also adds complexity for developers. The appointment of Tamara Davidson, BC’s first Indigenous Minister of Environment, underscores the government’s commitment to equity.
“Indigenous communities are central to the success of these projects,” said Mark Lawson, Head of Carbon Acquisition at Invert. “This creates meaningful opportunities for reconciliation and equitable participation.”
Credit Market Constraints
The constrained supply of offset credits is a significant hurdle. Protocol development and project timelines mean that credits may not keep pace with demand in the short term, potentially driving up prices. Vintage validity under the OBPS scheme further tightens supply as offset units are limited to vintages generated within three years of the beginning of the compliance year. With an initial reporting year of 2024, credits generated earlier than 2021 are therefore not valid under this scheme.
Opportunities for Stakeholders
Despite these challenges, the OBPS offers significant opportunities for proactive businesses.
Strategic Compliance Planning
Companies can leverage scenario modeling to navigate uncertainty. ClearBlue Markets has developed five scenarios to help businesses anticipate regulatory changes and market dynamics.
“Managing uncertainty isn’t optional; it’s essential,” said Elton. “ClearBlue’s scenarios provide actionable insights for aligning with compliance requirements.”
Partnerships and Indigenous Collaboration
Strategic partnerships with Indigenous communities and experienced developers can help businesses unlock new opportunities. Indigenous leadership ensures that carbon finance benefits local stakeholders.
Approximately 55-60% of project revenues go directly to First Nations, ensuring they are the primary beneficiaries. This is structured through commercial agreements and regulatory requirements. Additionally, BC provides training and funding to First Nations to support their involvement in these projects.
Case Study: The Dene Kʼéh Kusān Forest Carbon Project
Invert’s Dene Kʼéh Kusān Forest Carbon Project highlights the potential of the OBPS to drive innovation and equity. With significant opportunity to scale, the first project, Tsia, protects over 47k hectares of Indigenous land in northern BC, the project is a collaboration with Carbonethic and the Kaska Dena Council Nations.
Key Project Features
- Indigenous Stewardship: Indigenous communities retain 55–60% of carbon revenues, ensuring lasting benefits.
- High Standards: Rigorous forest inventory and remote sensing technologies ensure integrity.
- Scalability: Sequential project phases provide long-term carbon benefits.
“This project sets a high standard for compliance-aligned forestry projects,” said Mark Lawson. “It’s designed to scale and deliver long-term benefits.”
All photos provided by Invert
Several contracting models are available to participate in the project including spot credits for defined-period mitigation, termed contracts for pricing and supply predictability, or strategic partnerships to scale the project and secure longer-term supply and competitive pricing. Ultimately, the acquisition and application of offset units should complement the organization’s broader compliance pathway strategy.
Further Evaluating Carbon Project Integrity: Invert’s Insights
In addition to meaningful community benefit and indigenous participation, carbon projects considered for offset units should meet additional investment criteria to ensure long-term credit integrity. Including:
- Additionality: ensure that emissions reductions are genuine, measurable, and verifiable.
- Realistic model projections: challenge assumptions and perform due diligence on model projections and their likelihood.
- Permanence risk: consider the project’s permanence benchmarks, government requirements, mitigation mechanisms, and probability of natural- and people-related risks.
- Scalability: with short-term demand expected to exceed supply, seek investment in projects that have the capacity to support your near- and long-term compliance pathway.
Modeling Scenarios: ClearBlue’s Insights
ClearBlue Markets has modeled multiple scenarios to anticipate the impact of the OBPS. These include low, medium, and high regulatory pressure cases, reflecting variables like credit supply, benchmark stringency, and carbon price trajectories.
“We modeled a range of outcomes to capture the inherent uncertainty,” said Elton. “It’s about preparing for the unexpected while capitalizing on emerging opportunities.”
Conclusion
British Columbia’s OBPS is a bold and complex initiative that reflects the province’s commitment to climate leadership. While challenges like market uncertainty and regulatory complexity persist, the system also offers significant opportunities for industries, developers, and Indigenous communities.
“BC’s OBPS is more than a compliance tool—it’s a blueprint for how climate policy can drive meaningful change,” said Mark Lawson. “It’s up to us to navigate its challenges and seize its opportunities.”
With proactive planning, strategic partnerships, and an eye on long-term goals, stakeholders can thrive in BC’s evolving carbon market landscape.