A cap and trade program as a carbon pricing mechanism to fight
climate change is at the forefront of environmental policy for
2015. Earlier this year, the Ontario Government released a climate
change discussion paper (the "Discussion
Paper") that, amongst other things, provided an
overview of carbon pricing approaches being contemplated by Ontario
as part of an official climate action strategy for Ontario to meet
its commitments under the Western Climate Initiative and to move
the Province to a low carbon economy.
The carbon pricing mechanisms contemplated included: (i) a cap
and trade program; (ii) a carbon tax ; (iii) a baseline and credit
approach; and (iv) a regulation and performance standards approach.
Following the close of the comment period for the discussion paper,
reports surfaced that the Government has elected to move forward
with a cap and trade program1. An official announcement
and the details of the pricing program are expected to be released
this Spring and in the coming summer months.
What To Expect From The Cap And Trade Program?
The "cap and trade" program will place a limit, or a
"cap", on total emissions that can be emitted in a given
period and this cap might vary between industry sectors. The
Government intends to auction emission permits and allow such
permits to then be traded in secondary markets. Emitters must
acquire sufficient permits to match their emissions. The Government
claims that the money raised by the auctions for emission permits
will be re-invested to support green initiatives. It is estimated
that the cap and trade system could raise between 1 billion and 2
billion dollars per year for Ontario.
The Partnership With Quebec And California In
the last two years, both Quebec and California implemented a cap
and trade program. Quebec established its cap and trade program in
2013 and linked with California in 2014. Currently, in Quebec the
program applies to electricity generators and industrial
facilities, but in 2015, the program is expected to expand its
application to the transportation and fuel heating sectors.
Ontario's planned cap and trade program will link up with the
existing Quebec and California programs, which means that carbon
permits can be traded by companies across these jurisdictions as
well, thereby expanding access to carbon allowances, facilitating
trading opportunities, and creating flexibility for businesses to
comply with their local emission limits.
How To Benefit From A Cap And Trade Program?
Businesses can capitalize on the program by incorporating
cleaner technology and introducing new energy efficiencies that
will allow them to accumulate excess emission permits early on,
which can then be sold to other emitters. Since the price of carbon
will be dictated by market demand and supply of emission permits,
companies that adapt sooner to the new emission rules may be at an
advantage in the carbon marketplace. Therefore, organizations may
benefit from developing internal GHG reduction goals and transition
timeframe targets. The details of the program, when announced, will
provide better insight on the strategy that businesses can take to
maximize the benefits of the program and to avoid both legal and
practical pitfalls of inaction. We look forward to assisting our
clients of all sectors with adapting and thriving in this upcoming
change in climate. Stay tuned as we follow the progress of
Ontario's first carbon pricing program.
1 Morrow, Adrian "Ontario plan cap-and-trade on
greenhouse gas emissions", The Globe and Mail, April 2,
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