Canada: Full Steam Ahead: Ontario Releases Draft Cap And Trade Regulations And Revised Guideline For GHG Reporting

The Ontario government has released its first regulation – The Cap and Trade Program Regulation (the Draft Regulation) – under the proposed Climate Change Mitigation and Low-Carbon Economy Act, 2016 (the Act, which is discussed in further detail here). The Draft Regulation sets into motion Ontario's plan to reduce its greenhouse gas (GHG) emissions 15% below 1990 levels by 2020, 37% below 1990 levels by 2030, and 80% below 1990 levels by 2050. While some details of the cap-and-trade system remain to be worked out by future regulations, including an offset regulation to be released later in 2016, the Draft Regulation sets out important details such as proposed caps, compliance periods, rules related to registration and participation in the cap-and-trade system, description of capped and uncapped participants in the system, and the allocation of allowances including early action credits and free allowances. A revised Guideline for Greenhouse Gas Emissions Reporting (the Guideline) has also been released by the Ministry of Environment and Climate Change (MOECC) for public review and comment. The Draft Regulation and Guideline is open for comment until April 10, 2016.

Highlights of the Draft Regulation include:

  • A program start date of January 1, 2017 with the first compliance period ending December 31, 2020. Thereafter, each compliance period will last three years (i.e. starting January 1, 2021 until December 31, 2023, and so on).
  • The cap on allowances for 2017 is the "business as usual" projection of 142,332,00 allowances (equal to 142,332,00 carbon dioxide equivalents). Between 2017 and 2020, the cap is expected to decline at an average rate of 4.17% each year to meet Ontario's 2020 emissions reduction target. The heating and transportation fuel sector and industries will face cap declines. However the sector-specific cap for the electricity generation sector will remain unchanged from year to year, which recognizes the significant emissions reduction that the sector has already undertaken with the closure of coal-fired power plants.
  • Covered emitters (mandatory participants) include large industrial emitters with emissions of 25,000 tonnes or more of carbon dioxide equivalent per year (CO2e) (including facilities in the ammonia production, cement production, copper and nickel production, iron and steel production, and glass production sectors), as well as natural gas distributors with attributed emissions of 25,000 tonnes or more of CO2e per year, petroleum product suppliers that supply 200 litres or more in the province per year, and importers of electricity.
  • Some capped emitters will be eligible to receive early reduction crédits, based on actions that they have already take to reduce the emission of GHGs. A maximum of two million early action credits will be available distribution and emitters will need to apply for such credits.

According to the 2016 Ontario Budget, proceeds from the auction of emissions allowances are expected to amount to $478 million in 2016-17 and $1.8-$1.9 billion annually starting in 2017-18. All proceeds will be deposited into a new Greenhouse Gas Reduction Account and dedicated to investments that support GHG emission reductions such as energy efficiency for homes and businesses, public transit, research, innovation and clean technology adaptation.

An overview of the key provisions of the Draft Regulation are set out in the table below. We encourage interested parties, particularly mandatory capped emitters, to provide comments to the government by the April 10, 2016 deadline.

Ontario – Proposed Cap & Trade Program – Overview of Key Features

Issue Details and Commentary

Status of Draft Regulation

  • Regulatory proposal for a cap-and-trade regulation (including an appendix presenting detailed technical information for the distribution of allowances to eligible capped emitters for the first compliance period (2017-2020) and details related to early reduction credits) released by MOECC on February 25, 2016 for a 45-day public review and comment period.
  • Comments accepted between February 25, 2016 and April 10, 2016.
Legal Authority
  • Authorized by proposed Climate Change Mitigation and Low-carbon Economy Act (Bill 172) introduced into the legislature on February 24, 2016. This proposal has been posted for a 30-day public review and comment period. Comments accepted between February 24, 2016 and March 25, 2016.
  • Bill 172 outlines provisions relating to two main areas: (1) emissions reduction targets and action plans, and (2) cap-and-trade program and use of proceeds.
Proposed Start Date and Compliance Periods
  • The cap-and-trade program will take effect as of January 1, 2017 with the first compliance period ending December 31, 2020. Thereafter, compliance periods will last three years (i.e. starting January 1, 2021 until December 31, 2023, and so on).
Regulation Coverage
Threshold of Coverage
  • Sources that emit ≥25,000 tonnes of CO2e/year are subject to the cap-and-trade program.
Voluntary and Market Participants
  • In addition to mandatory participants, the Draft Regulation contains provisions for voluntary participants and market participants.
  • A facility that is obliged to report emissions under the Greenhouse Gas Emissions Reporting Regulation (O.Reg. 452/09) (the Reporting Regulation), with annual emissions of between 10,000 and 25,000 tonnes, may opt-in to the cap-and-trade program as a voluntary participant. This approach allows companies with smaller emissions profiles to participate on the same basis as larger emitters in the same sector, including access to free allocation of allowances.
  • A person who is not an employee of a mandatory or voluntary participant in the cap-and-trade program may apply to register as a market participant.
GHGs Covered The following greenhouse gases are covered by the program:

  • carbon dioxide;
  • methane;
  • nitrous oxide;
  • hydrofluorocarbons;
  • perfluorocarbons;
  • sulphur hexafluoride;
  • nitrogen trifluoride;

and such other contaminants as may be prescribed as a greenhouse gas by the regulations.

Sectors Covered
  • All activities set out in Table 2 of the Reporting Regulation that are engaged in at a single facility (i.e. the large industrial emitters).
  • Electricity importation.
  • Natural gas distribution.
  • Petroleum product supply.

The cap-and-trade program will cover approximately 82% of the Ontario's total GHG emissions.

Point of Regulation
  • Industrial and institutional sources with annual GHG emissions ≥25,000 tonnes: at the point of emission (i.e. at the facility).
  • Domestic electricity generation: at the fuel distributor level.
  • Electricity imports: at the point the electricity enters the province (first jurisdictional deliverer).
  • Transportation fuels (including fuel oil and propane): at the distribution level where they are first placed into the market; imports and domestics covered at volumes of 200 litres or more and that are delivered to an Ontario consumer.
  • Distribution of natural gas: for distributors of natural gas that, in aggregate, is associated with annual GHG emissions ≥25,000 tonnes, the point of regulation would be at the point the gas is transferred from pipeline into the distribution network for local customers.

Allowance Allocation

Distribution Method
  • Emitters covered under the program must hold an allowance for every tonne of greenhouse gas emissions released.
  • As the cap declines each year, emitters would need to hold a sufficient number of allowances to cover their annual emissions. To comply, emitters could reduce their emissions or purchase allowances in the carbon market.
  • Allowances will be distributed through auctions and free-of-charge allocation to industry.
  • Emissions attributable to electricity generation would not be eligible for free allocation of allowances, but emissions due to intensive production of a trade exposed good will be eligible.
  • Free allocation amount will decline over time. The timing for the decline will be determined before the end of the first compliance period as part of a program review. The proportion of free allowances will decline as other jurisdictions adopt carbon policies, Ontario entities transition to the carbon price, and border carbon adjustments are introduced.
  • The rest of the allowances (i.e. those not distributed free-of-charge) will be sold at auction.
Allocation Methodology
  • Facility allocations will be determined primarily by three factors and calculated based on the equations set out in the Draft Regulation. The three factors include the following:
    • Assistance Factor (up to 100%); certain emissions intensive and trade exposed industries will receive a higher assistance factor.
    • Base amount for facility, determined according to product-output benchmarks (based on allowances per unit of output), energy use (based on allowances per GJ of energy used) or historical emissions.
    • Cap Adjustment Factor (reflects annual reduction in the cap)
  • Examples of sectors or facilities eligible for allocation based on product-output benchmarks: iron and steel making; petroleum refining; grey cement manufacturing; hydrogen manufacturing; beer manufacturing.
  • Examples of sectors or facilities eligible for allocation based on energy use: eligibility requirements under this category are based on exclusions set out the Appendix to the Draft Regulation – facilities that use energy in certain processes, operations or activities are not eligible for this type of allocation.
  • Examples of sectors or facilities eligible for allocation based on historical emissions: white cement manufacturing; glass manufacturing; ammonia manufacturing; nitric acid manufacturing; carbon black manufacturing; ethylene manufacturing; lubricant manufacturing; styrene manufacturing; magnesium production; high calcium lime production; dolomite lime production; mining, base metal smelting, refining; brick making; and mineral wool insulation manufacturing.
  • Direct allocations will also be made to certain participants (as set out in the Appendix to the Draft Regulation), including: Carmeuse Lime Canada; Terra International (Canada) Inc.; University of Toronto; University of Western Ontario; University of Guelph; York University; London Health Sciences Centre; Hamilton Health Sciences Corporation; Queen's University; Emerald Energy From Waste Inc; and Clean Harbors Canada Inc.
  • Quarterly auctions – initially separate; joint auctions once the program is officially linked to Quebec and California.
  • Sealed bid, single round, lots sizes of 1000 allowances, uniform price.
  • First auction: March 2017 stand-alone auction (to be aligned with Quebec and California's schedule where auctions are currently held every quarter).
  • Participants must provide financial guarantee covering full value of any bid.

A summary of the results of the February 2016 Quebec-California auction is available online.

Price Stability Mechanisms Auction Reserve Price

  • Ontario will align its reserve price with the price in the joint Quebec-California market for 2017. The 2016 reserve price in Québec and California was CAD $12.82 and US $12.73 respectively.

Strategic Reserve

  • 5% of total allowances from the cap each year will be set aside by the province in a strategic reserve and made available to Ontario emitters at fixed prices to manage price impacts in the event there is high demand for allowances.
  • Ontario plans to align its price tiers with the price in the joint Quebec-California market for 2017. For Quebec and California, these price tiers were set at $40, $45 and $50 per allowance in 2013, escalating annually at 5% plus inflation and converted to Canadian currency.
  • Only covered entities can purchases allowances from reserve and allowances can only be used for compliance.
Early Reduction Crédits
  • Early Reduction Credits will only be awarded for reductions of eligible emissions during the reduction period between January 1, 2012 and December 31, 2015.
  • Eligibility criteria and calculation methods are set out in the Appendix to the Draft Regulation.
Market Rules
  • A holding limit will apply to any registered entity, which will depend on supply of allowances in the market.
  • A purchase limit prevents covered entities from purchasing more than 25% of allowances sold at auction; for non-covered entities the limit is 4%.

Market Flexibility

  • Purchasers and covered entities would be allowed to bank allowances, without restrictions on the amount of allowances that may be banked or on how long they may be banked (subject to holding limit).
  • Borrowing of allowances from future compliance periods will not be allowed (with possible exception for complying with penalty rule).
  • Ontario intends to allow the use of offsets for compliance in its program, and to take account of protocols for project types currently accepted in Quebec and California. The draft regulation for offsets will be released later in 2016.
  • Ontario plans to:
    • establish an Offset Credit Registry;
    • issue offset credits for emissions reductions and removals from eligible projects within Canada;
    • allow for the aggregation of projects (bundling of identical projects for reporting purposes);
    • recognize offset credits issued by California and Quebec, in anticipation of linking to Ontario's program; and
    • limit use of offsets to up to 8% of the total compliance obligation.
Compliance Period
  • Initial four year compliance period to allow harmonization in a linked program with Quebec and California's compliance periods. Subsequent compliance periods will be three years.

Emissions Reporting and Verification

  • Capped participants must report annually under the Reporting Regulation (as required since 2010).
  • All participants must register with MOECC to participate in allowance trading market.
  • Third party verification is required for sources emitting ≥25,000 tonnes per year, or exceeds another verification threshold listed in the Reporting Regulation.

Compliance and Enforcement

Compliance Period Obligation
  • Following a compliance period, all entities with a compliance obligation must surrender a number of compliance units (e.g. allowances, offset credits) equal to their emissions during the period. This process is commonly referred to as a true-up.
  • Acceptable compliance units for true-up include emission allowances, strategic reserve allowances, early reduction credits and offset credits issued by Ontario.
  • For entities with a compliance obligation, the requisite number of compliance units from each entity's compliance account will be placed into a retirement account and retired.
  • Any entity participating in the cap-and-trade market (including voluntary participants) may choose to voluntarily retire allowances or offset credits to benefit the environment.
  • An entity will be permitted to use offset credits for up to 8% of its total compliance obligation for each compliance period.
Penalty for Non-Compliance
  • An entity with excess emissions will be subject to a three-to-one compliance penalty where an additional three allowances for each allowance short at true-up is required, plus the allowance originally owed (meaning that four allowances must be surrendered for every tonne not covered in time).
  • Enforcement measures for the cap-and-trade program are aligned with those measures set out in the Quebec and California cap-and-trade programs.
  • Potential fines for non-compliance with the Act or related regulations range from minimum fines set at $5,000 and $25,000 to maximums as high as $4 million and $6M million for individuals and corporations, respectively, on first convictions. The Act also allows for the issuance of administrative monetary penalties, which are similar to the environmental penalties that can be issued under the Ontario Environmental Protection Act and the Ontario Water Resources Act.


Western Climate Initiative
  • Ontario intends to link its proposed cap-and-trade program with the existing programs in Quebec and California, which will likely occur in 2018.
  • Ontario will propose any necessary amendments to the regulations to facilitate linking of the Ontario program with the programs of Quebec and California once linking agreements are in place (Quebec and California are currently parties to a linking agreement for their joint program). These amendments would include:
    • recognition of allowances and credits from Quebec and California;
    • adjustment of the holding limits and purchase limits to account for the size of the linked markets; and
    • currency adjustments related to the auction.
  • Manitoba has indicated that it plans to join the linked program as well.

As noted above, a revised Guideline for GHG reporting was also released with the Draft Regulation. To support the proposed cap-and-trade program, the MOECC is proposing to revoke the current Reporting Regulation and replace it with a new GHG reporting regulation and incorporated Guideline under the Act. Proposed changes will include:

  • requirements to report production and other process related information;
  • provisions to allow facilities with emissions between 10,000 and 25,000 tonne to opt-in to the cap-and-trade program;
  • clarifications on measurement requirements and reporting of biomass types; and
  • refinements to facilitate implementation of the Draft Regulation.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.