Canada: A Guide To Ontario's New Cap And Trade Regime

Ontario has picked up the pace on addressing climate change. On May 18, 2016, the provincial government passed the Climate Change Mitigation and Low-carbon Economy Act, 2016 (the "Act"),1quickly followed by two regulations on May 19, as well as two guidance documents incorporated into the regulations by reference:

  1. Ontario Regulation 144/16 - The Cap-and-Trade Program (the "Cap-and-Trade Regulation") and its incorporated Methodology for the Distribution of Ontario Emission Allowances Free of Charge (the "Methodology"); and
  2. Ontario Regulation 143/16 - Quantification, Reporting and Verification of Greenhouse Gas Emissions Regulation (the "Reporting Regulation") and its incorporated Guideline for Quantification, Reporting and Verification of Greenhouse Gas (the "Guideline").

As noted in a previous article, Ontario is currently one of the largest per capita greenhouse gas emitters in the world. The Ontario government intends to use the cap-and-trade program as a market mechanism to aggressively reduce greenhouse gas emission levels and transition the province to a low-carbon economy.2

On June 8, 2016, the provincial government released Ontario's Five Year Climate Change Action Plan 2016 – 2020, which will be funded by the cap-and-trade program. The plan is discussed in more detail below.

Framework for Cap-and-Trade Program

The Act sets out the framework for the cap and program including requirements for quantifying, calculating, reporting and verifying greenhouse gas emissions, and submitting allowances and credits to match greenhouse gas emissions. It also provides the rules for creating and distributing allowances and credits through free allowances, auctions and sales, and it establishes an offset program.

The Cap-and-Trade Regulation and incorporated Methodology set out the details of the cap-and-trade program including caps, compliance periods, rules related to registration and participation, details regarding who is a mandatory participant and who can participate as a voluntary or market participant, as well as information on allocating emission allowances.

The Reporting Regulation and incorporated Guideline set out more details regarding quantifying, calculating, reporting and verifying greenhouse gas emissions.

Coordination with Other Jurisdictions

The Act allows for agreements to link Ontario's cap-and-trade program with programs in other jurisdictions as part of a broader international effort to reduce emissions.3 As we mentioned in a previous article, in 2008, Ontario joined with other jurisdictions, including Québec and California, to create the Western Climate Initiative model cap-and-trade program. Québec and California already have carbon markets, and Ontario has structured its cap-and-trade program to ultimately align with these existing markets.4

Greenhouse Gases and Reduction Targets

The Act and Reporting Regulation list the greenhouse gases that are covered by the regulatory regime including: carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, sulphur hexafluoride, nitrogen trifluoride5

Consistent with earlier drafts, the Act sets the following targets for reducing Ontario's overall greenhouse gas emissions from 1990 baseline levels:

  • A 15% reduction by the end of 2020;
  • A 37% reduction by the end of 2030; and
  • An 80% reduction by the end of 2050.6

These targets are aligned with the recommendations made by the Intergovernmental Panel on Climate Change. The regulatory regime allows the government to make these targets more stringent and to establish additional interim targets.7

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1 Climate Change Mitigation and Low-carbon Economy Act, 2016, S.O. 2016, c. 7 (the "Act").

2 Act, s. 2 (Purpose).

3 Act, s. 76.

4 Ontario Regulation 144/16 - The Cap-and-Trade Program (the "Cap-and-Trade Regulation") specifically provides for Quebec and California as designated jurisdictions (Cap-and-Trade Regulation, s. 1(1)).

5 Act, s. 5; Cap-and-Trade Regulation, Schedule 1. The government may add other greenhouse gases by regulation going forward (Act, s. 5).

6 Act, s. 6(1).

7 Ibid., ss. 6(2) and (3).

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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