Ontario is designing and moving to harmonize its Cap & Trade System (C&T System) with Québec and California. The C&T System in Québec is a highly technical and flexible market mechanism used to place a cost on carbon. Québec is a good place to start in order to get a sense of what is coming in Ontario, but the details in Ontario are yet to be developed.

Cap and Trade

Although C&T Systems have been talked about for a long time, very little has happened on this front in Canada since the signing of the Kyoto Protocol in 1997. In 2007, the Western Climate Initiative (WCI) was founded. WCI is an organization that coordinates efforts of various jurisdictions. Currently, Québec and California are WCI partner jurisdictions with cap-and-trade legislation, and negotiated to harmonize the systems. Ontario is soon to join Québec and California as an active member of WCI.

Ontario's Regulatory Status

Since 2009, Ontario has had Greenhouse Gas Emissions Reporting Regulation requiring emitters of 25,000 CO 2 e to verify the emissions and report them in accordance with the regulation. The threshold is now proposed to be reduced to 10,000 CO2e in order to be in harmony with the requirements in California and Québec. The Ontario government has started making regulatory announcements and proposals, but there is still a great amount of detail remaining to be developed. The final regulation related to the design of a cap and trade system for Ontario is expected to be posted on the Environmental Registry in 2016 and government has stated it hopes to have a system in place in 2017.

Québec Cap and Trade

Québec has been working on the C&T System for a very long time. The Québec regime rests on two regulations:

  • Regulation respecting mandatory reporting of certain emissions of contaminants into the atmosphere (RMR); and
  • Regulation respecting a cap-and-trade system for greenhouse gas emission allowances (C&T System Regulation).

Under the RMR, businesses are required to file a detailed report on a yearly basis, if they meet the stated threshold. In some cases, a verification report is also required. The system is quite technical with different calculations methods for different types of business, activities and/or equipment.

The C&T System Regulation came in force in 2012, but was implemented in 2013. The C&T System Regulation targets emitters that conduct targeted activities and that meet the stated threshold. This is a flexible market mechanism used to place a cost on carbon. Under this regulation, the Québec government has set a cap on the number of emission units that it will put in circulation each year. Starting in 2015, the cap will gradually be reduced each year.

There are currently three compliance periods:

  • 1st compliance period: 2013 and 2014
  • 2nd compliance period: 2015, 2016 and 2017
  • 3rd compliance period: 2018, 2019, 2020

At the end of each compliance period, all targeted emitters must have enough GHG emission allowances in their account to cover their total reported and audited GHG emissions for the period in question.

Emission allowances may be acquired in various ways:

  • Allocation without charge by the Ministry of Sustainable Development, Environment and the Fight against climate change (MSDEFCC), but such allocation is only available to emitters engaged in certain targeted industrial activities;
  • Auctions by the MSDEFCC and by the California Air Resources Board (ARB);
  • Sale by mutual agreements by MSDEFCC;
  • Early reduction credits (for targeted emitters and for the period between 2008 and 2011);
  • Offset credits for non targeted GHG emissions reduction projects referred to in protocols approved by the MSDEFCC and by the ARB; and
  • Transfers between targeted emitters as well as between targeted emitters and non targeted emitters.

While Québec and California have their own legislative and regulatory regimes, they have entered into an agreement to harmonize the key elements of these regimes in order to allow allowances and emission off-sets to be traded between the two jurisdictions and eventually with other jurisdictions (like Ontario) that join the WCI.

System Differences, Challenges and Changes

There are some system differences between Québec and California, and between Québec and Ontario. Among such differences, there are the types of projects that are eligible to offset credits. Ontario has yet to design it system, but (as already noted) is moving to harmonize with California and Québec by lowering the reporting threshold from 25,000 tonnes to 10,000 tonnes.