Canada: Ontario's Proposed Approach To Cap And Trade

Last Updated: December 7 2015
Article by Kirsten Mikadze

Last week, the Ontario Ministry of the Environment and Climate Change ("MOECC") posted to the Environmental Registry its proposed approach to establishing a cap and trade regime in the province. Preferred and considered options for such a regime were are outlined in a "Cap and Trade Program Design Options" document, upon which the MOECC is accepting comments until December 16, 2015.

The proposed program follows Ontario's announcement, from April 2015, to join Quebec and California in implementing an inter-jurisdictional cap and trade program aimed at limiting greenhouse gas ("GHG") emissions. The MOECC anticipates releasing a draft regulatory proposal in early 2016.

The proposed system would  begin in January 2017, and the initial (2017) cap would both align with 2017 emissions estimates and be designed induce a decline in GHG emission of 3.7 % annually, making it the primary means through which Ontario will meet its 2020 target of reducing emission levels by 15% below 1990 levels. The proposed cap would cover all emissions "that can be reliably measured or estimated."

A few of the key elements being proposed:

  • Credit auctions, the first of which would take place in March 2017, would take place every quarter (aligning with the Quebec-California schedule).
  • The sectors covered would include:
    •  Electricity, including imported electricity
    • Industrial and large commercial (e.g., manufacturing, base metal processing, steel, pulp and paper, food processing)
    • Transportation fuel, including propane and fuel oil
    • Distribution of natural gas (e.g., heating fuel)
    • Energy-from-waste facilities would likely also somehow be covered
  • Emissions would be covered at various points, depending on the source:
    • Industrial and institutional sources with annual GHG emissions equal to or greater than 25,000 tonnes, emissions would be covered at the point of emission
    • Domestic electricity generation would be covered at the fuel distributor level
    • Electricity imports would be covered where the electricity enters the province
    • Transportation fuels (covered at volumes of 200 litres or more) would be covered at the first level of market distribution
    • Distributors of natural gas in with annual GHG emissions equal to or greater than 25,000 tonnes would be regulated at the point the gas is transferred from pipeline into the distribution network
  • Both combustion emissions and fixed process emissions

The program will potentially also include:

  • "flexibility mechanisms," (banking of unused allowances)
    • off-set credits," including the potential participation of uncapped sectors.

Compliance and enforcement is being proposed which also aligns with what is in place for the Quebec-California regime (including a three-to-one rule requiring emitters to submit an additional three allowances for each allowance short at true-up, in addition to the allowance originally owed and administrative monetary penalties).

The government is considering reinvesting any profit raised through the auctioning of credits in "complementary measures" to support reduction of GHG emissions while facilitating the transition of households and businesses transition to a low carbon economy.

The release of the proposed regime dovetails with the publication, shortly thereafter, of the province's Climate Change Strategy and of the Paris Conference on Climate Change, which has been ongoing since November 30.

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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