As Ontario’s Cap-and-Trade Program is now in full swing, we wanted to provide an update on some of the more noteworthy developments.

Quarterly Auction Kick-Off

On March 22nd, 2017, the Ontario Government held the first quarterly auction for emission allowances under the Cap-and-Trade Program. As we previously reported, the Ontario Government indicated that it expects to raise $1.9B yearly from the sale of emission allowances. The first auction generated $472,031,155 in proceeds from the sale of 25,296,367 current allowances sold at $18.08 each, and 812,000 from future vintage allowances sold at $18.07 each. The auction sold 100% of current vintage allowances and 27% of future vintage allowances.

There were 47 qualified bidders in this auction, out of a total of 232 registered participants. The next auction is scheduled for June 6, 2017. The full report of the auction is available at: https://www.ontario.ca/page/cap-and-trade-auction-allowances

As required by legislation, the Ontario Government must put the proceeds from auctions into the Greenhouse Gas Reduction Account and must make information about the initiatives that are being funded from the Greenhouse Gas Reduction Account available to the public annually. To date, the Government has indicated that the proceeds will be used in various ways to reduce greenhouse gas pollution, including helping homeowners use less energy and reduce energy bills through retrofits.

The California Connection

The Ontario Government has stated its intention to link Ontario’s cap-and-trade market with Quebec and California in 2018. However, there has been some uncertainty regarding California’s cap-and-trade program, based in part on a lawsuit filed by the California Chamber of Commerce which sought to have the system declared an illegal business tax that would have required a two-thirds vote of the legislature to take effect. The California State Air Resources Board argued that the program fell within their regulatory authority. On April 6, 2017, the District Court of Appeal released its decision, and agreed with the State that the cap-and-trade program falls within their authority and is not an unconstitutional tax. The decision may be appealed to the California Supreme Court.

Regulatory Refresh

Finally, on April 5th, 2017 the Ontario Government posted proposed regulatory amendments to the Cap-and-Trade Program. The proposed changes include: (i) changes to the methodology for determining the amount of free allowances distributed to particular industrial facilities; (ii) administrative amendments to improve program administration and implementation; and, (iii) changes to the emission reporting requirements of specified emitters. Comments on the proposed amendments can be submitted to the Ministry of the Environment and Climate Change until May 20, 2017 through the Environmental Registry.