On July 6, 2011 the Minister of Sustainable Development,
Environment and Parks announced that the Quebec greenhouse gas
(GHG) emissions cap-and-trade system will come
into force on January 1, 2012. A draft Regulation was published in
the Official Gazette of Québec on July 7, 2011 and the
60-day comment period recently ended.
The draft regulation introduces provisions whereby subjected
enterprises will be obligated to cover their GHG emissions, and
establishes a system to purchase, sell and trade emission
According to the current text, most manufacturers operating in
Québec will be subject to the obligation to cover their GHG
emissions, if they produce 25,000 metric tonnes or more CO2
equivalent annually. The Regulation will impact, in addition to
other sectors, all manufacturing activities that have a North
American Industry Classification System (NAICS) code beginning with
31, 32 or 33. For example, the following activities would be
subject to the GHG system: manufacturing of food, beverages,
tobacco products or textiles; manufacturing of goods made of
leather, wood, paper, rubber, plastic, glass, ceramics, cement,
gypsum or metal (steel, iron, etc.); and manufacturing of
chemicals, computers, electronic products and furniture. Other
sectors are also impacted by the draft Regulation, such as mining;
quarrying; oil and gas extraction; electric power generation,
transmission and distribution; natural gas distribution and
pipeline transportation, and the supply of steam and
For all such sectors the first compliance period will begin in
January 2013 if the Regulation comes into force as currently
proposed. A compliance period is the period in which GHG emitters
who are subject to the Regulation must cover their GHG emissions
declared for the period with emission allowances.
Enterprises that distribute fuel would also be subject to the
Regulation, according to its current text. GHG emissions at or
exceeding 25,000 metric tonnes CO2 equivalent attributable to the
combustion or use of the fuels distributed will trigger the
requirements. The first compliance period for this sector would
begin in January 2015.
The draft Regulation provides details on emission allowances
accounting, the allocation of free emission allowances to certain
emitters, the sale, purchase and trade of emission allowances, and
other accounting and record-keeping measures required to
The current text of the Regulation has GHG emissions capped
starting in 2013. However, the draft Regulation would allow
emitters and other participants in the cap-and-trade system to
register as system users and to buy and sell GHG emission
allowances in 2012.
Limited early reduction credits will be available. Terms and
conditions set out in the draft provide that certain reductions in
GHG emissions made during the period starting on January 1, 2008
and ending on December 31, 2011, with a reference period from
January 1, 2005 to December 31, 2007, are eligible for early
reduction credits. Unfortunately, these reference and reduction
periods would deprive many emitters of the benefits associated with
the reductions which many businesses implemented prior to 2008. For
certain emitters it will be worthwhile to determine whether any
entitlement to such credits exists, and to take the necessary steps
to have them issued. The deadline to apply for such credits, as
currently drafted, is December 31, 2012.
It is expected that a separate regulation on offset credits will
be issued this fall. It should be noted that an emitter would,
under the current draft, be entitled to cover up to 8% of its GHG
emissions with offset credits.
Given the short time frame until the cap-and-trade system likely
comes into force it is important for all affected businesses to
start preparing now to meet the requirements of the GHG system.
This means, for instance, verifying if sufficient and reliable
information is available to claim early reduction credits (if
applicable), determining if the business will be admissible to free
emission units, determining if emission units will have to be
purchased on the system and budgeting for same and, of course,
signing-up for the system as soon as possible.
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