The Ontario government has released its first regulation – The Cap and Trade Program Regulation (the Draft Regulation) – under the proposed Climate Change Mitigation and Low-Carbon Economy Act, 2016 (the Act, which is discussed in further detail here). The Draft Regulation sets into motion Ontario’s plan to reduce its greenhouse gas (GHG) emissions 15% below 1990 levels by 2020, 37% below 1990 levels by 2030, and 80% below 1990 levels by 2050. While some details of the cap-and-trade system remain to be worked out by future regulations, including an offset regulation to be released later in 2016, the Draft Regulation sets out important details such as proposed caps, compliance periods, rules related to registration and participation in the cap-and-trade system, description of capped and uncapped participants in the system, and the allocation of allowances including early action credits and free allowances. A revised Guideline for Greenhouse Gas Emissions Reporting (the Guideline) has also been released by the Ministry of Environment and Climate Change (MOECC) for public review and comment. The Draft Regulation and Guideline is open for comment until April 10, 2016.

Highlights of the Draft Regulation include:

  • A program start date of January 1, 2017 with the first compliance period ending December 31, 2020. Thereafter, each compliance period will last three years (i.e. starting January 1, 2021 until December 31, 2023, and so on).
  • The cap on allowances for 2017 is the “business as usual” projection of 142,332,00 allowances (equal to 142,332,00 carbon dioxide equivalents). Between 2017 and 2020, the cap is expected to decline at an average rate of 4.17% each year to meet Ontario’s 2020 emissions reduction target. The heating and transportation fuel sector and industries will face cap declines. However the sector-specific cap for the electricity generation sector will remain unchanged from year to year, which recognizes the significant emissions reduction that the sector has already undertaken with the closure of coal-fired power plants.
  • Covered emitters (mandatory participants) include large industrial emitters with emissions of 25,000 tonnes or more of carbon dioxide equivalent per year (CO2e) (including facilities in the ammonia production, cement production, copper and nickel production, iron and steel production, and glass production sectors), as well as natural gas distributors with attributed emissions of 25,000 tonnes or more of CO2e per year, petroleum product suppliers that supply 200 litres or more in the province per year, and importers of electricity.
  • Some capped emitters will be eligible to receive early reduction crédits, based on actions that they have already take to reduce the emission of GHGs. A maximum of two million early action credits will be available distribution and emitters will need to apply for such credits.

According to the 2016 Ontario Budget, proceeds from the auction of emissions allowances are expected to amount to $478 million in 2016-17 and $1.8-$1.9 billion annually starting in 2017-18. All proceeds will be deposited into a new Greenhouse Gas Reduction Account and dedicated to investments that support GHG emission reductions such as energy efficiency for homes and businesses, public transit, research, innovation and clean technology adaptation.

An overview of the key provisions of the Draft Regulation are set out in the table below. We encourage interested parties, particularly mandatory capped emitters, to provide comments to the government by the April 10, 2016 deadline.

Ontario – Proposed Cap & Trade Program – Overview of Key Features

Click here to view the table.

As noted above, a revised Guideline for GHG reporting was also released with the Draft Regulation. To support the proposed cap-and-trade program, the MOECC is proposing to revoke the current Reporting Regulation and replace it with a new GHG reporting regulation and incorporated Guideline under the Act. Proposed changes will include:

  • requirements to report production and other process related information;
  • provisions to allow facilities with emissions between 10,000 and 25,000 tonne to opt-in to the cap-and-trade program;
  • clarifications on measurement requirements and reporting of biomass types; and
  • refinements to facilitate implementation of the Draft Regulation.