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.
Footnote
1 Morrow, Adrian "Ontario plan cap-and-trade on greenhouse gas emissions", The Globe and Mail, April 2, 2015
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