On June 2, 2008, the premiers of Ontario and Quebec signed a Memorandum of Understanding (MOU) committing the two provinces to establish a joint greenhouse gas (GHG) emissions cap-and-trade regime. The MOU invites other provinces and territories to collaborate with Ontario and Quebec in implementing the regime by as early as January 1, 2010.

Although it only outlines a general framework for action, the MOU makes it clear that the Ontario-Quebec regime will be different from the current incarnation of the federal government's proposed Regulatory Framework for Air Emissions (the Framework).1 For example, while the Framework proposes limiting the intensity of industrial GHG emissions (also known as a "soft" or "floating" cap), the MOU proposes setting absolute caps on these emissions and explicitly rejects intensity-based targets. The MOU also contemplates a 1990 baseline year for calculating reduction targets, instead of the Framework's use of 2006 as a baseline. Many jurisdictions have adopted the 1990 baseline, largely because it is used by the Kyoto Protocol. As the MOU indicates, the use of a 1990 baseline also allows a regime to recognize any emissions reductions made by the regulated facilities since then.

The MOU also emphasizes Ontario and Quebec's desire to link the proposed emissions trading regime with others in North America and abroad, noting that participation in larger emissions trading markets can allow for greater trading volumes and improved liquidity – leading, in turn, to a decreased cost of compliance. The MOU notes that Ontario and Quebec will seek to harmonize any GHG emissions–reporting requirements they implement with those of other jurisdictions.

The MOU does not cite a specific jurisdiction or other regional regime with which Ontario and Quebec might link. One potential option is the Western Climate Initiative (WCI), a group of seven U.S. states and three Canadian provinces that have undertaken to establish a regional cap-and-trade regime for reducing GHG emissions. Quebec is currently a member and Ontario an observer of the WCI, and although Ontario has hesitated to adopt California's tailpipe emissions standards, a prerequisite for membership, the Ontario government has indicated that it is negotiating membership on modified terms. Other options for linkages include the Regional Greenhouse Gas Initiative (RGGI) and the Midwestern Greenhouse Gas Reduction Accord (Midwestern Accord). RGGI, which the Ontario government has expressed interest in joining, is an effort by northeastern and mid-Atlantic U.S. states to establish a regional trading regime that would, at least initially, focus on reducing carbon dioxide emissions from power plants. The Midwestern Accord, which was established by six U.S. states and the province of Manitoba, advocates a multisector cap-and-trade regime to achieve its emissions-reduction targets.

For further information, please see www.premier.gov.on.ca/news/Product.asp?ProductID=2281.

Footnote

1. For further details, please see Torys' Climate Change bulletin at http://www.torys.com/Publications/Documents/Publication PDFs/CC2008-6.pdf.

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