The Ontario Ministry of the Environment and Climate Change
(MOECC) held the first auction of greenhouse gas (GHG) allowances
on March 22, 2017 and published the auction's results on April
3, 2017. All 2017 allowances were sold at the auction at a
settlement price of C$18.08 per tonne of GHG.
At the end of each compliance period, mandatory participants in
the cap-and-trade program must have enough allowances to equal
their emissions. Companies that require additional allowances to
match their emissions can buy them at an auction or on the
secondary market. The MOECC has outlined that there are two ways
they can purchase allowances on the secondary market: (i) a
registered participant in the cap-and-trade program can directly
negotiate and buy allowances from another company that holds
allowances; or (ii) registered participants can buy allowances
through a financial instrument, like a futures contract that is
typically bought and sold on a financial exchange. With respect to
such exchange traded derivatives, vintage 2017 futures and options
are currently offered by Intercontinental Exchange, which also
trades in California allowance futures and options.
The GHG allowances auctions will be held four times per year
during the 2017–2020 compliance period. The auctions are
administered in a sealed-bid format and an online platform. All
participants submit bids at the same time without seeing
other's bids. A party must be registered and approved in the
compliance instrument tracking system service as a mandatory,
voluntary or market participant of Ontario's cap-and-trade
program before it can participate in an auction. The results of the
auction must be posted on the MOECC webpage within 45 days of the
Allowances were offered at the auction for the current vintage
budget year (2017) and a future vintage budget year (2020).
2017 allowances (current vintage):
over 25 million (25,296,367, to be exact) were available for sale
and sold. The settlement price was C$18.08. The highest bid was
2020 allowances (future vintage):
over 3 million (3,116,700, to be exact) were available for sale and
812,000 were sold. The settlement price was C$18.07. The highest
bid was C$27.69.
There were 47 qualified bidders (out
of 232 registered participants in the cap-and-trade scheme);
The auction proceeds total
The market monitor of the auction
confirmed that the auction was cleared in a manner consistent with
the auction clearing rules in the Ontario Cap and Trade Program
Although the auction's results — the sale of all of
the 2017 allowances and a large number of 2020 allowances —
were positive, the MOECC has stated that the true barometer of
success will be whether GHG emissions are reduced.
The settlement prices are at a similar level to the most recent
settlement price (US$13.57) of the joint Californian and Quebec
auctions (Joint Auctions) and the fact that the two settlement
prices were similar follows the pattern of the Joint Auctions.
Furthermore, the Joint Auctions' settlement price is most often
the floor minimum price. The first five Joint Auctions sold all the
current vintage allowances, but there have been considerable
variations in the success of the recent auctions in terms of the
number of allowances sold (in May 2016 only 10 per cent of the
allowances were sold). It will be interesting to monitor the
results of the future Ontario 2017 auctions, which are scheduled
for June 6, 2017, September 6, 2017 and November 29, 2017. Ontario
intends to link the cap-and-trade program with the Californian and
Quebec systems in 2018 and establish a Californian, Quebec and
Ontario joint auction.
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