Canada: Québec Lays The Foundation For An Emerging Carbon Market

Last Updated: July 27 2009

In May 2009, the Minister of Sustainable Development, Environment and Parks, Line Beauchamp, introduced Bill 42 which, if passed into law, would create government regulatory powers that would deepen its control over greenhouse gas (GHG) emissions through market mechanisms.

This measure was adopted in connection with Québec's involvement in the Western Climate Initiative (WCI), which is a grouping of Canadian provinces, including Québec, Ontario, Manitoba and British Columbia, and American States, including Arizona, California, Montana, New Mexico, Oregon, Utah and Washington, known as the WCI partners. The WCI partners are planning on establishing an integrated carbon market by 2012 by instituting cap-and-trade systems in participating jurisdictions.

Regional Carbon Market

Essentially, Bill 42 will allow for the creation of a provincial cap-and-trade system, the details of which will be established by government regulation following the enactment of the law. The entities and installations, to be identified by future regulation, will be required to obtain sufficient emission allowances to cover their actual annual GHG emissions, each allowance being equal to one metric ton of CO2-equivalent (see below for a description of different types of emission allowances). Failure to comply with this requirement will result in penalties which have yet to be determined.

Entities subject to the regulation will also have an incentive to reduce emissions below required levels in that any allowance surpluses generated by such reductions may be sold on the carbon market to other facilities and firms which, due to technical, economical or strategic considerations will choose to buy allowances as an alternative to reducing their own emissions. Accumulation and banking of emission allowances for subsequent compliance periods or future transactions will also be permitted.

Each WCI partner jurisdiction is expected to pass legislation in order to create compatible cap-and-trade systems, with each jurisdiction recognizing allowances issued in other jurisdictions, thus creating an integrated and regionalized carbon market. The Montréal Climate Exchange (MCeX) will potentially be involved in this carbon market.

Caps on emissions will not be established by the WCI on a regional basis, but rather, each partner jurisdiction will have the discretion to set its own GHG emissions reduction targets and decide how it will distribute the budgeted emission allowances to regulated firms and facilities.

Bill 42 will allow the government to ensure harmonization of its cap-and-trade system with those of other jurisdictions, whether it be Ontario, other WCI partners, and eventually Canada and the United States, or even Europe.

Entities subject to the law

Although Bill 42 does not identify the categories of firms and facilities that will eventually be subject to the cap-and-trade regulation, the government intends to first target the electricity generation industry and large industries, emitting 25,000 tons or more of GHG. These are the sectors that the WCI proposes to regulate during the first compliance period, i.e. 2012 to 2015. During the second phase, the residential, commercial and transportation sectors will also be subject to an emissions cap, thereby covering nearly 90% of GHG emissions in WCI partner states and provinces.

Types of emission allowances

At least three types of emission allowances will be issued: emission units, offset credits and early reduction credits, each allowance being equal to one metric ton of GHG in CO2-equivalent.

1. Emission units

Firstly, the government will issue emission units to entities subject to the cap-and-trade system by either allocating them without charge, by selling them at auction, or by agreement, in accordance with their mandatory reduction targets.

According to the model recommended by the WCI, a minimum of 10% of the total emission allowances for the first compliance period should be sold at auction, although each partner jurisdiction is free to auction off a greater proportion. This proportion will increase in time until it reaches 25% by 2020, eventually reaching 100%. Auctions will be coordinated amongst the WCI partners by means of a regional process to ensure that the emission allowances issued by one jurisdiction may be bought by firms operating in any other partner jurisdiction. This process should be elaborated by the WCI before the end of 2009.

2. Offset credits

In addition to these emission units, offset credits will also be awarded to businesses and municipalities not subject to the mandatory reductions imposed under the cap-and-trade system, but who will carry out projects that will capture, store, eliminate or avoid causing GHG emissions. Such offset credits may then be sold on the carbon market to entities which require additional allowances to meet their emission targets under the regulation.

For example, constructing an energy efficient building that reduces emissions would entitle the entity to offset credits that could then be sold or traded to firms subject to the regulation to use towards their compliance obligations.

Awarding offset credits for projects that meet specific criteria allows firms to reduce compliance costs, while reaching the global system reduction targets, and promoting innovation and technological development related to carbon sources and carbon sinks not subject to mandatory reduction targets.

Cap-and-trade systems typically limit the amount of offset credits which can be used towards compliance obligations so that the regulated firms and facilities fulfill the majority of their reduction obligations themselves. The participating jurisdictions of the WCI have agreed to limit the use of offset credits to 49% of the amount of emission reductions for the 2012-2020 period.

3. Early reduction credits

Finally, the third type of emission allowances will be early reduction credits. Voluntary measures reducing GHG emissions before the system is enforced, will be recognized with early reduction credits. While Bill 42 does not specify the admissibility period related to these voluntary measures, the WCI partners have agreed to recognize reductions that will have taken place between January 1, 2008 and January 1, 2012, i.e. within the four-year period preceding the projected enforcement of the cap-and-trade system. Specific criteria governing the eligibility of such voluntary measures will be established by the partner jurisdictions before the end of 2009. This being said, typically, in order to be recognized, emissions reductions must be voluntary, additional, real, verifiable and permanent.

For the time being, the specifics regarding the reductions imposed, and the allocation of the allowances amongst the regulated firms, remain undefined. The details relating to the awarding of all three types of emission allowances will be defined by government order and regulation following Bill 42's enactment.

GHG public register and mandatory declaration

Bill 42 also provides for the creation of a public register of emissions of the following GHGs: carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulfur hexafluoride, being the six GHGs targeted by the Kyoto Protocol at the international level.

Next fall, the government intends to adopt a regulation to require certain GHG emitters to report their annual emissions starting in 2010. The WCI proposes that emitters producing more than 10,000 tons of GHG in CO2-equivalent emissions be required to declare their emissions.

Based on the data collected in this register, the government will elaborate the rules with respect to the allocation of emission allowances among the regulated firms and facilities.

Trends in other jurisdictions

Ontario recently introduced a Bill proposing a cap-and-trade system which could be harmonized with Québec's Bill 42. Last year, British Columbia also adopted a similar law, although its cap-and-trade system is not yet operational.

The Federal Government has recently released a series of draft guides relating to the proposed Canadian offset credits system, intended to form part of the future regulatory scheme on the reduction of industrial GHG emissions. However, the Federal Government has also expressed its intention to delay the implementation of its own program, initially planned for 2010, in order to revise and harmonize it with a future cap-and-trade system south of the border. The American Congress is presently studying a legislative proposal for such a program (the American Clean Energy and Security Act of 2009), which aims to come into force in 2012.

The harmonization of the various cap-and-trade systems in North America would surely contribute to the efficiency of an emission allowances market, and reduce the costs linked with GHG reductions. In Canada, the legislation proposed by Québec and Ontario creating the framework for the regulation of GHG emissions, is, in this respect, an important milestone in the establishment of an efficient carbon market in North America.

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

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

In association with
Related Video
Up-coming Events Search
Font Size:
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
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
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 you may opt out by clicking here

    Terms & Conditions and Privacy Statement (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

    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’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.


    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.


    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.

    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 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.


    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.


    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.


    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.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    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

    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

    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

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

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