On January 1, 2017, Ontario’s Cap and Trade Program came into effect. We authored an overview of the Cap and Trade Program in our November 2, 2016 Special Edition of EnviroNotes! Since then, the Ministry of the Environment and Climate Change (the “MOECC”) has hosted a practice auction of emission allowances; scheduled the first exclusive Ontario auction for March 22, 2017; released its Compliance Offset Credits Regulatory Proposal (the “Offset Proposal”); and released regulatory amendments to the Cap and Trade Program Regulation on December 28, 2016 (discussed below).
The next steps in Ontario’s carbon pricing initiatives include: (1) implementing the Offset Proposal in early 2017, which provides a framework for carbon offset credits and a corresponding opportunity for businesses not subject to the cap and trade regime to sell carbon credits in the carbon marketplace; (2) reporting the results of Ontario’s exclusive auction on April 3, 2017; and (3) linking its cap and trade market with Québec and California in 2018.
Regulatory Amendments to the Cap and Trade Program Regulation
These amendments clarify technical, administrative and policy requirements for participants, and further align Ontario’s Cap and Trade market with Québec and California. The following is an overview of the amendments:
1. Expanding the eligibility criteria for voluntary participants:
- Emissions associated with indirect useful thermal energy (IUTE), such as steam that is generated at one facility and used at another facility, will count towards the threshold for opting into the Cap and Trade Program (i.e. 10,000 tonnes of emissions/year). The policy behind this amendment is to ensure that all emitters receive the same treatment, regardless of whether IUTE is generated at the site or imported for use. Participants under this new eligibility criteria will be allowed to apply for free allowances in 2018 for the IUTE emissions during the 2017 compliance year. Notably, the compliance obligation for IUTE emissions remain with the supplying facility and therefore participants eligible for free allowances for IUTE emissions will not have to submit allowances for these emissions.
2. Allowing clearing houses to register as market participants:
- This provides clearing houses the ability to serve as an intermediary between registered sellers and buyers of carbon credits. Clearing houses will be exempt from the holding limit and from the prohibition of holding allowances and credits owned by another participant. However, they will be subject to a time limit of five days before allowances and credits must be transferred.
3. Further aligning Ontario’s Cap and Trade Program with Québec and California:
- The changes in reporting business relationships include the requirement to report parents and subsidiaries of non-corporation partnerships and the requirement to disclose auction account representatives that are consultants and/or advisors.
- The changes in financial assurance include allowing bidders to combine different forms of assurances and allowing the Financial Services Administrator to draw on these assurances for bidding.
- The amendments also allow the collection of personal information from account agents who are approved in Québec and California, and are being designated as account agents in Ontario.
4. Clarifying the scope of participants:
- An electricity generator that is currently not required to register in the Cap and Trade Program, and that uses fuel other than natural gas or petroleum products, will have a compliance obligation for the resulting emissions from all fuel combustion.
- New owner/operator of a participating facility has the compliance obligation for the entire compliance period. The prior owner/operator can transfer allowances to the new owner/operator by request to the MOECC.
- Market participants must be residents of Canada or have an establishment in Canada.
5. Exceptions to the prohibition on sharing information:
- The changes now allow sharing information related to auction participation between related persons. The policy behind this amendment is to facilitate participation in auctions, which may require approvals from parent corporations.
Complementary changes were made to the Quantification, Reporting and Verification of Greenhouse Gas Emissions Regulation (O. Reg. 143/16) as well as to the incorporated Methodology for the Distribution of Ontario Emission Allowances Free of Charge and Guideline for Greenhouse Gas Emissions Reporting.