As we recently discussed here, on April 13, 2015, Ontario Premier
Kathleen Wynne formally announced plans to create a cap-and-trade
system for greenhouse gas emissions in Ontario, to be linked with
the systems already in place in Quebec and California. This is not
the first time Ontario's government has announced intentions to
implement cap-and-trade in the province; prior efforts have lacked
the political will and determination to bring cap-and-trade to
fruition. In this blog post, we highlight some of the major recent
cap-and-trade developments in Ontario and the U.S. to help put the
re-launching of the province's cap-and-trade efforts in
The Acid Rain Program (ARP), established under
Title IV of the 1990 Clean Air Act (CAA)Amendments, was the first federal U.S. law to
adopt an emission trading system on a large scale and was a
precursor to a similar regime that was established in Ontario
shortly thereafter. The ARP was a market-based initiative taken by
the United States Environmental Protection Agency (EPA) beginning
in 1995 to reduce atmospheric levels of sulfur dioxide (SOx) and
nitrogen oxide (NOx), the primary precursors of acid rain, from the
power sector. The program set a permanent cap on the total amount
of SOx that may be emitted by electric power plants in the country,
with allowances being bought and sold in secondary markets.
Reductions in NOx emissions were also required and were mainly
achieved through retrofits to coal-fired plants. The program was
largely hailed as a success, significantly reducing SOx and NOx
emissions in the U.S. In Ontario, the first air emissions trading
program was introduced in 2001. The program includes the Emissions Trading Code, which was intended to
supplement Ontario Regulation 397/01, which governs
emissions trading under the Ontario Environmental Protection Act.
The program introduced the use of a market-based system for
reducing emissions of NOx and SOx in the province.
Unlike the system introduced in 2001 that was limited to SOx and
NOx emissions, the Government of Ontario has been contemplating the
introduction of a wide-ranging cap-and-trade system for greenhouse
gas emissions since at least 2008, when it joined the Western Climate
Initiative (WCI). The WCI consists of a voluntary
coalition of US states and Canadian provinces that have developed
guidelines to facilitate mutual cooperation in order to reduce
greenhouse gas emissions. One of the WCI's main goals is to
work together with member jurisdictions to "identify,
evaluate, and implement emissions trading policies to tackle
climate change at a regional level." In fact, California and
Quebec's cap-and-trade systems that came into force in 2013 are
based largely on design recommendations made by the WCI. Under the
WCI, member jurisdictions are not compelled to establish a
cap-and-trade system, rather, the WCI's non-binding nature
allows jurisdictions to maintain their autonomy in combatting
climate change. California and Quebec are currently the only two
WCI members that utilize an integrated cap-and-trade system.
Also in 2008, Ontario further moved towards the establishment of
a cap-and-trade regime when Ontario Premier Dalton McGuinty and
Quebec Premier Jean Charest signed a Memorandum of Understanding (MOU) with
respect to a provincial and territorial cap-and-trade initiative.
The MOU set out the two provinces' plans to create an
interprovincial cap-and-trade system for the trading of emissions
credits, which was expected to be implemented by as early as 2010.
Interestingly, the MOU invited other provinces and territories to
sign on and "work collaboratively on the cap and trade
initiative", and contemplated forming linkages with other
North American and international trading schemes. California and
Quebec's cap-and-trade systems were formally linked in 2014,
with its firstjoint auction of
greenhouse gas allowances taking place in December 2014, and its
second in March, 2015.
Shortly after joining the WCI and entering into the MOU, the
Government of Ontario demonstrated its further commitment to a
cap-and-trade system by introducing enabling legislation in 2009.
Bill 185, or the Environmental Protection
Amendment Act (Greenhouse Gas Emissions Trading), amended the
Environmental Protection Act through the addition of
provisions that provided the government with broad authority to
implement emissions trading systems and establish rules relating to
the scope, trading, distribution and administration of such a
system. Like the WCI and MOU, Bill 185 explicitly contemplated
integration with other cap-and-trade systems, noting that such
linkages could provide emissions reductions at a lower cost, while
improving the pace of innovation and allowing for larger trading
volumes and liquidity.
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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