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
Similar Articles
Relevancy Powered by MondaqAI
Borden Ladner Gervais LLP
Norton Rose Fulbright Canada LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Borden Ladner Gervais LLP
Norton Rose Fulbright Canada LLP
Related Articles
 
Related Video
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions