Canada: Ontario's Cap And Trade Agreement With Québec And California

Ontario plans to join the Québec-California carbon market as of January 1, 2018, under a harmonization and integration agreement (linkage agreement) announced on September 22.1 The Ontario Ministry of the Environment and Climate Change (MOECC) has also proposed changes to its cap and trade regulations, which are open for public comment until November 6, 2017.

What You Need To Know

  • The linkage agreement will facilitate joint auctions of Ontario, Québec and California greenhouse gas (GHG) emissions allowances; harmonization of each party's cap and trade and GHG reporting regulations; mutual recognition and trading of compliance instruments; and a common accounting mechanism to determine each party's share of GHG emission reductions.
  • The proposed amendments to the Cap and Trade Program Regulation (O. Reg. 144/16) and the Methodology for Distribution of Ontario Emission Allowances Free of Charge (Free Allowance Methodology) would lay the groundwork for linkage with Québec and California; modify the rules for free allowance allocation; and establish the methodology for determining 2021-2030 GHG emissions caps.
  • The MOECC also proposed a new regulation regarding administrative monetary penalties for certain offenses under the Climate Change Mitigation and Low-carbon Economy Act, 2016 (CCMLEA), and proposed changes to the Quantification, Reporting and Verification of Greenhouse Gas Emissions Regulation (O. Reg. 143/16) and the Guideline for the Quantification, Reporting and Verification of Greenhouse Gas Emissions (Reporting Guideline).

Linkage with the Québec-California Carbon Market

Ontario's cap and trade system for GHG emissions was developed under the Western Climate Initiative (WCI), a regional framework under which both California and Québec have implemented their own cap and trade systems. In 2014, the California and Québec systems were linked, allowing them to host joint auctions of carbon allowances. Throughout the development of its cap and trade system, the Ontario government stated its goal of participating in this joint market.

The anticipated benefits of linkage include increased liquidity of carbon allowances realized through access to a larger market, administrative efficiencies achieved through sharing in the administration of joint auctions, and lower overall costs of emissions reductions.

Summary of the Linkage Agreement

The linkage agreement is a high-level framework for achieving integrated carbon markets. Ontario, California and Québec will follow this framework as they complete the steps necessary to implement linkage as of January 1, 2018.

Under the linkage agreement, the three jurisdictions will hold joint auctions of emissions allowances, similar to those currently held by California and Québec. Allowances generated in each system, including those sold at joint auctions, may be used by capped participants in any of the three jurisdictions toward their compliance obligations.

Table 1 illustrates the recent activity at Ontario and Québec-California auctions of carbon allowances, prior to Ontario linkage.

Table 1: Qualified Bid Summary Statistics Comparison2

Qualified Bid Summary Statistics

Current 2017 Vintage

Future 2020 Vintage

Ontario – September 2017 Auction

Québec-California – August 2017 Auction

Ontario – September 2017 Auction

Québec-California – August 2017 Auction

Auction Reserve Price (CAD)

$16.79

$17.24

$16.79

$17.24

Settlement Price (CAD)

$18.56

$18.74

$18.03

$18.49


As of linkage, all three jurisdictions will have common auction reserve and settlement prices; the auction reserve price is expected to be the highest reserve price in any of the three jurisdictions.

Integration of regional cap and trade programs will require harmonization of the respective parties' regulations and reporting requirements. Under the linkage agreement, the parties will examine their respective regulations, determine whether any differing elements require alignment and consult each other regarding a harmonized approach. The linkage agreement also contemplates the development and implementation of an accounting mechanism to attribute to each party its portion of the total GHG emission reductions achieved by the linked cap and trade programs. The intent is to provide transparent and data-driven calculations for how GHG reductions from the cap and trade programs are counted toward each party's emission reduction target.

As the integration process unfolds, Ontario may require additional amendments to its cap and trade program. For example, California enacted legislation (AB 398) in July 2017 to extend its cap and trade program—which was set to expire at the end of 2020—until the end of 2030, and to adjust certain program requirements in a way that departs from the standard WCI model. Changes included reducing the limit for offset credits usage (from 8% of a regulated entity's compliance obligations to 4% for 2021-2025 and 6% for 2026-2030), and requiring the establishment of a price ceiling and price containment points to control allowance prices.

Proposed Amendments to the Cap and Trade Program

Changes to O. Reg. 144/16 and Free Allowance Methodology

The MOECC is proposing certain amendments to O. Reg. 144/16 and the Free Allowance Methodology, as follows:

  • To support the linkage agreement, the amendments would recognize compliance instruments from California and Québec, facilitate joint auctions of emissions allowances, adjust holding and purchase limits for allowances to account for the emissions cap of all three jurisdictions, require related persons in Ontario to share their holding and purchase limits with related persons in California and Québec, and allow registration in multiple jurisdictions for capped participants and offsets sponsors.
  • The MOECC also proposes to develop an approach to provide allowances free of charge to voluntary participants on account of GHG emissions that do not result from combustion (e.g., process emissions that result from chemical reactions). These emissions are not eligible for free allowances under the energy use-based allocation method currently applicable to voluntary participants.
  • The amendments would also establish a methodology for determining emissions caps for the years 2021 to 2030. The plan is to set the 2030 cap using a method similar to that used for the first compliance period. More specifically, the 2030 cap will be set at a level to support Ontario's 2030 GHG reduction target under the CCMLEA (37% below 1990 levels) once emissions not covered by cap and trade and emissions from electricity import have been taken into account.3 The final regulatory amendments will set declining annual caps to 2030 based on the 2020 cap, amounting to approximately a 26% reduction in the 10 year period.

Changes to O. Reg. 143/16 and Reporting Guideline

The MOECC is proposing certain amendments to O. Reg. 143/16 and the Reporting Guideline, which will require reporters to submit verification reports. This amendment is intended to improve program efficiency by reducing the administrative burden for the MOECC in reviewing emissions reports.

Proposed Administrative Penalties Regulation

The MOECC also proposes a new regulation under the CCMLEA to provide a framework for issuing administrative penalties for contraventions of the CCMLEA. The proposed regulation includes: (1) a framework and process for issuing administrative penalties under the CCMLEA; (2) ranges and maximum amounts of penalties; (3) considerations taken into account in determining penalty values; and (4) potential reductions for actions taken to prevent and mitigate a contravention.

Comments on the proposed amendments and new regulations can be submitted online to the MOECC through the Environmental Registry by November 6, 2017.4

Footnotes

1 See: https://news.ontario.ca/opo/en/2017/09/quebec-ontario-and-california-join-forces-to-fight-climate-change.html

2 See: http://files.ontario.ca/summary_results_report_english_2017-09-13.pdf; and http://www.mddelcc.gouv.qc.ca/changements/carbone/ventes-encheres/2017-08-22/Vente_22-08-en.pdf

3 Emissions from generation of imported electricity (which are covered under Ontario's cap-and-trade program) are not included for the purposes of Ontario's emission reduction targets.

4 See: http://www.ebr.gov.on.ca/ERS-WEB-External/displaynoticecontent.do?noticeId=MTMzNTQx&statusId=MjAzMDcx

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 Mondaq.com.

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

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (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 www.mondaq.com

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 Mondaq.com’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.

Disclaimer

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.

Registration

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 unsubscribe@mondaq.com 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.

Cookies

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.

Links

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.

Mail-A-Friend

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.

Security

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 webmaster@mondaq.com.

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 EditorialAdvisor@mondaq.com.

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 enquiries@mondaq.com.

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