The Ontario Government and the Government of Canada have both recently announced further details on systems to be implemented to facilitate the regulation and trading of carbon offsets.

Ontario

On May 27, 2009, the Government of Ontario released a notice proposing the passage of the Environmental Protection Amendment Act, (Greenhouse Gas Emissions Trading) 2009 accompanied by a government produced discussion paper on the design of a greenhouse gas emissions trading system for Ontario.

The proposed Ontario legislation would amend the definitions laid out in s. 1 of the Environmental Protection Act (Ontario) (the "EPA") to include greenhouse gases and, more significantly, repeal and replace s. 176.1 of the EPA.

Currently under s. 176.1 of the EPA, the Lieutenant Governor in Council is given broad power to implement market-based regulation of emissions, a power which includes emissions trading regulation. Without limiting this general power, the proposed legislation includes further provisions which aim to make clear that the Lieutenant Governor in Council has the authority to implement, regulate, and administer economic and financial instruments in relation to greenhouse gases specifically, as well as other emissions.

The proposed legislation and the discussion paper make clear that the Ontario Government is aiming to establish a cap-and-trade system within the province, which is anticipated to be in place between 2012 and 2015.

Canada

On June 10, 2009, the Federal Government released a revised overview of its proposal to create a credit based carbon offset system that will be administered under section 322 of the Canadian Environmental Protection Act 1999 and will coexist with Federal emissions standards. This is all part of the Federal government's plan to reduce greenhouse gas emissions to 20% below 2006 levels by 2020, as announced in the "Turning the Corner" framework it released in 2007.

This offset system, which is expected to be in place by the end of 2009, will allow companies or individuals to propose novel projects which reduce or capture greenhouse gas emissions and, as long as the project produces effective quantifiable results in accordance with prescribed criteria, the proponent will receive offset credits for implementing its project. These credits can then be cancelled for the benefit of the environment or sold to federally regulated companies who exceed prescribed emissions standards for a price to be determined by market demand.

While the Federal offset plan is not limited to the participation of federally regulated sectors, offset credits will not be issued to companies who reduce greenhouse gases in compliance with provincial emissions standards or to receive the benefits of any other emission reduction incentives. As a result, it is unclear whether the industries that will be subject to regulation by the Ontario cap-and-trade system could even benefit from the Federal plan.

Despite the potential for these Ontario and Federal systems to create a duality of carbon trading systems within the province, both plans mention the possibility of integration with other North American jurisdictions. To this end, in 2008 Ontario joined the Western Climate Initiative, a group which includes Quebec, British Columbia, Manitoba and several U.S. states coming together in an attempt to establish a regional cap-and-trade system. Accordingly, the potential for integrated federal-provincial cap-and-trade systems does exist. For Ontario companies, this would result in transferability of carbon credits between federally and provincially regulated sectors, optimizing the marketability of credits obtained under either system.

Regardless of the exact structure of the Ontario cap-and-trade system or effect of the Federal greenhouse gas offset system, these messages from the Canadian and Ontario Governments are a sign that companies operating within the province should begin looking at ways of reducing their greenhouse gas emissions.

Online References

The proposed Ontario legislation and the discussion paper have been posted on the Ontario Environmental Registry for a 60-day comment period until July 26, 2009. Details of the Federal offset system have also been published online. Links are provided below:

The proposed Environmental Protection Amendment Act

The discussion paper

Information on Canada's Offset System for Greenhouse Gases

A Detailed Overview Of Canada's Offset System for Greenhouse Gases