On April 13, 2015, Premier Kathleen Wynne announced that Ontario
would implement a cap and trade system aimed at reducing greenhouse
gas emissions in the province. Ontario has committed to imposing a
hard cap on pollution for each sector of the economy.
A cap and trade system, in general, places a limit on the amount
of greenhouse gas emissions that may be produced in a specified
time frame. As time progresses, this limit is reduced as per
previously established guidelines. Businesses must hold enough
emission allowances in order to equal their actual greenhouse gas
emissions. If a business does not hold enough allowances for the
given time period, they may purchase allowances to meet the
requirement. Conversely, if a business holds an excess of
allowances, they may save them or sell them to other
Ontario has been a partner of the Western Climate Initiative
since July 2008 along with California, Quebec, Manitoba and British
Columbia. One of the goals of this non-profit organization was to
create a common approach towards reducing greenhouse gas emissions
in North America. Both California and Quebec have implemented cap
and trade legislation, while British Columbia has chosen to adopt a
carbon tax. In 2014, Quebec and California linked their cap and
trade systems together in order to bolster the size of the market
for emission allowances.
Ontario is planning to link its market to the joint
Quebec-California cap and trade system and will attempt to work
with both jurisdictions in order to accomplish this goal. Although
details about the newly announced Ontario system remain unclear, it
is likely that it will be similar to the systems in California and
In California, businesses which produce more than 25,000 tons of
carbon dioxide each year must obtain permits from the state. These
emission allowances are distributed through a mix of free
allocations and quarterly auctions. The amount of free allowances
varies by industry and decreases as time passes. In 2015, the total
hard cap on greenhouse gas emissions is 395 million metric tons of
carbon dioxide and this will be reduced to 334 million metric tons
by the year 2020. Since 2012, California has held one auction per
quarter during which businesses have been able to purchase emission
allowances above and beyond their allocation. At the most recent
auction in February 2015, allowances were sold at $12.21 per ton.
As of September 2014, California had sold roughly $2.27 billion
worth of allowances.
In Quebec, similar to California, businesses which emit more
than 25,000 metric tons of carbon dioxide per year are subject to
the cap and trade system. The Quebec government has committed to
reducing greenhouse gas emissions by 2020 to a level that is 20%
below the 1990 level. The Quebec government was aware that due to
the small size of the province's economy, a carbon market
exclusively in Quebec would not be liquid enough to be efficient.
Quebec thus chose to link their system to the system in California.
This linkage came into effect on January 1, 2014. Allowances from
either system may be used by a business in either jurisdiction in
order to comply with regulatory obligations.
Stay tuned as further details and a schedule of implementation
for the new Ontario system become available over the next few
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