On June 15, 2018, Ontario Premier-designate Doug Ford announced that following the swearing-in of his government, his cabinet's first act will be to cancel Ontario's cap-and-trade program (the “Program”), indicating that Ontario would be serving notice of its withdrawal from the Western Climate Initiative agreement linking the Ontario, Québec and California cap-and-trade programs (the “Announcement”). The Announcement confirmed that the Premier-designate has directed officials to immediately take steps to withdraw Ontario from any future auctions for cap-and-trade credits.

The Announcement also stated that the Premier-designate will issue directions to his incoming attorney general to use all available resources at the disposal of the government to challenge the federal government's authority to impose a carbon tax in Ontario.

Background 

The Program took effect in Ontario on January 1, 2017, with the initial compliance period scheduled to end on December 31, 2020.

Ontario’s Program was linked to that of the Province of Québec (“Québec”) and the State of California (“California”) on January 1, 2018, through the Agreement on the Harmonization and Integration of Cap-and-Trade Programs for Reducing Greenhouse Gas Emissions (the “Agreement”), harmonizing and integrating the three jurisdictions’ greenhouse gas (“GHG”) emissions reporting and cap-and-trade programs. This included a commitment by the three jurisdictions to hold joint auctions of emissions allowances and accept compliance instruments issued by any of the other two cap-and-trade programs. The first joint auction was held on February 21, 2018.

The next joint auction is scheduled for August 14, 2018.

Implications and Next Steps 

The Announcement is of interest to all participants in Ontario’s Program, including mandatory participants, voluntary participants, market participants, offset initiative operators and offset initiative sponsors, as well as Québec and California participants. End users of regulated products, including gasoline, diesel and natural gas, and rate payers in all three jurisdictions will also be affected.

Pursuant to Article 17 of the Agreement, any party may withdraw from the Agreement by giving written notice of its intent to withdraw to the other two parties. The Agreement specifies that such a party shall endeavour to (i) give 12 months’ notice of its intent to withdraw to each of the other parties, and (ii) match the effective date of withdrawal with the end of a compliance period.

At present, it is unclear exactly when and how both the termination of the Program and withdrawal of Ontario from the Agreement will occur, and how Québec and California will respond. It remains to be seen how allowances and credits already purchased by Program participants will be treated, how Ontario allowances and credits purchased by Québec and California participants will be treated, and what additional obligations Ontario participants may have as a result of the termination of the Program.

The Third Reading in the Senate of Bill-74, the Budget Implementation Act, 2018, No. 1, was completed on June 14, 2018. Should the Bill receive Royal Assent, it will enact the Greenhouse Gas Pollution Pricing Act which creates a federal GHG emissions pricing scheme to ensure that, taking provincial GHG emissions pricing systems into account, GHG emissions pricing applies broadly in Canada.