Canada: Ontario Finally Adopting Carbon Cap And Trade

Last Updated: April 20 2015
Article by Dianne Saxe

Today, Premier Wynne announced that Ontario is finally going ahead to implement a cap and trade system for carbon emissions, in cooperation with Quebec and perhaps California. Ontario originally promised to join Quebec, California and others in the Western Climate Initiative in 2008, but has since fallen behind. Since December, the WCI has conducted two auctions of emission permits, and the third auction is scheduled for May 2015.

In 2009, Ontario put authority for a WCI-style carbon cap and trade system into the Environmental Protection Act Under that Act, the money from selling carbon permits must be segregated from general government revenue, and must be used only for greenhouse gas reduction efforts and for running the system itself. Now, six years later, Ontario has decided to use that authority to fight climate change, instead of a British Columbia style carbon tax. To understand the difference, click here or here.

Today, Ontario will sign an agreement with Quebec; a further agreement with California may follow. Ontario's carbon cap and trade regulation-making authority is wide ranging, and leaves most other details to the regulations that the province will adopt. But if it is well designed, it will provide a strong financial incentive for energy conservation and renewable energy, and for the reduced use of high carbon fuels such as coal.

Environmental Protection Act Authority:

"176.1  (1)  The Lieutenant Governor in Council may make regulations establishing programs and other measures for the use of economic and financial instruments and market-based approaches, including without being limited to emissions trading, for the purposes of maintaining or improving existing environmental standards, protecting the environment and achieving environmental quality goals in a cost effective manner.

Power to make regulations for carbon cap and trade

(2)  Without limiting the generality of subsection (1), the power to make regulations under subsection (1) includes the power to make regulations,

A. prescribing the persons, entities and facilities to which programs and other measures established under subsection (1) apply;

B. governing the economic and financial instruments to be used in programs and other measures established under subsection (1), including,

i. providing for the instruments to be created by or in accordance with the regulations and governing the creation of those instruments,

ii. providing for instruments created by the regulations under subclause (i) to be distributed free of charge, and governing the distribution of those instruments,

iii. governing the use, trading and retirement of instruments created by or in accordance with the regulations under subclause (i),

iv. governing the use and trading, for the purpose of programs and other measures established under subsection (1), of instruments created in other jurisdictions, and

v. requiring notice to be given to other jurisdictions of the use or trading, for the purpose of programs and other measures established under subsection (1), of instruments created in those jurisdictions;

C. prescribing requirements that must be met by persons, entities and facilities to which programs and other measures established under subsection (1) apply, including requirements related to the emission, monitoring and reporting of contaminants;

D. attributing emissions to a person, entity or facility for the purpose of programs and other measures established under subsection (1);

E. providing for or designating a person or body to administer programs and other measures established under subsection (1). 2009, c. 27, s. 2 (1).


Note: On a day to be named by proclamation of the Lieutenant Governor, section 176.1 is amended by adding the following subsections:

(4) A regulation under this section that relates to greenhouse gases may

A. provide for instruments created by the regulations under subclause (2) (b) (i) to be distributed free of charge, or by auction, sale or other means that are not free of charge, and governing the distribution of those instruments;

B. authorize a person or body to prescribe, govern or otherwise determine any matter that may be prescribed, governed or otherwise determined by the Lieutenant Governor in Council under this section.

(5)  Without limiting the generality of clause (4) (a), a regulation under that clause may,

A. prescribe objectives and other matters that must be considered in setting the percentages of instruments to be distributed by any of the means referred to in clause (4) (a);

B. prescribe objectives and other matters that must be considered in setting reserve bids for instruments distributed by auction or sale prices for instruments distributed by sale. 2009, c. 27, s. 2 (2).

Greenhouse Gas Reduction Account

(6)  Any amount paid to the Minister of Finance from the distribution of instruments under the regulations made under clause (4) (a) shall be deposited in a separate account in the Consolidated Revenue Fund to be known in English as the Greenhouse Gas Reduction Account and in French as Compte de réduction des gaz à effet de serre. 2009, c. 27, s. 2 (2).

(7)  For the purpose of the Financial Administration Act, money deposited in the Greenhouse Gas Reduction Account shall be deemed to be money paid to Ontario for the special purpose described in subsection (8). 2009, c. 27, s. 2 (2).

Payments out of account

(8)  Money may be paid out of the Greenhouse Gas Reduction Account for the purpose of reimbursing the Crown in right of Ontario for costs incurred by the Crown in administering the regulations under this section that relate to greenhouse gases and in carrying out or supporting greenhouse gas reduction initiatives, particularly initiatives that relate to the sectors of the Ontario economy to which the regulations apply. 2009, c. 27, s. 2 (2).


(9)  Without limiting the generality of subsection (8), money may be paid out of the account under that subsection with respect to the following costs:

  1. The costs of research into or the development or deployment of lower greenhouse gas emitting technologies in a sector of the Ontario economy to which the regulations under clause (4) (a) apply.
  2. The costs of programs to reduce greenhouse gas emissions in a sector of the Ontario economy to which the regulations under clause (4) (a) apply.
  3. The costs of infrastructure or equipment to reduce greenhouse gas emissions in a sector of the Ontario economy to which the regulations under clause (4) (a) apply.
  4. If the regulations made under clause (4) (a) apply to the electricity sector of the Ontario economy, costs of any greenhouse gas reduction initiative that would otherwise be borne by electricity consumers. 2009, c. 27, s. 2 (2).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Dianne Saxe
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