The British Columbia Ministry of Environment (the "Ministry") is interested in establishing a regional emissions cap and trade system (the "System") that includes carbon offsets, pursuant to the Greenhouse Gas Reduction (Cap and Trade) Act, S.B.C. 2008, c. 32 (the "Act") and supporting Regulations. On October 25, 2010, the Government issued two white papers and is seeking comments from stakeholders, First Nations and the general public on the proposed Emissions Trading and Offsets Regulations.

In addition to being the regulator and monitor of the future System under the current Regulations, the Climate Action Secretariat of the Ministry is currently in the process of developing the Emissions Trading Regulation and the Cap and Trade Offsets Regulation under the Act. With regard to the Emissions Trading Regulation, the Government is now seeking comments in particular on:

  1. specifying the subjected facilities (i.e. facilities emitting more than 25,000 tonnes of carbon dioxide equivalent), based on greenhouse gas emissions source and overall greenhouse gas emissions;
  2. defining the process by which the cap for regulated emitters and distribution of allowances is established;
  3. defining the functions and operation of the registry; and
  4. providing a foundation for linking other emissions trading systems.

With regard to the Offsets Regulation, the Government is also seeking comments in particular on:

  1. defining the criteria for eligible offsets;
  2. establishing a process to recognize valid emission reductions as offsets;
  3. establishing accreditation requirements for third-party validators and verifiers; and
  4. defining the obligations of project developers, including the requirement to replace deficient offsets.

The cap and trade system would apply to activities / businesses / facilities that are not subject to the current carbon tax. Because the cap and trade system is designed to fit under the Western Climate Initiative (WCI) – a coalition of seven U.S. states and four Canadian provinces working to address climate change – the market price of carbon allowances and offsets will be set broadly across the entire region, and businesses in B.C. could buy, trade, or sell the allowances or offsets to other businesses within the WCI. The cap on carbon emissions itself will be based on projected emissions in 2012 and subsequent years. There will be no restriction on the ownership of allowances and offsets; they will be tradable between and among businesses or third parties.

Additionally, allowances and offsets could be banked indefinitely for later use if they are not sold. Under the System no more than 49% of emission reductions may come from offsets, measured in comparison to the initial baseline level of emissions across the System.

The total amount of allowances equals the "cap" under the System. The number of allowances will be set through the Government’s nine-year allowance forecast and three-year compliance period. However, the number of allowances issued annually will be reduced over time. Essentially, at the end of every three-year compliance period, one compliance unit must be retired for each tonne of covered emissions. Each partner jurisdiction in the WCI will forecast the number of allowances that it will issue annually for 2012 through to 2020 in advance of the first compliance period. This will provide an early indication of the supply of allowances in the regional marketplace. Consistent with this recommendation, the Government will publish its forecast in the first quarter of 2011. By December 31, 2014 the forecast out to 2023 would be established – with the forecast revised and published prior to the beginning of each subsequent compliance period. The Government also intends to set a cap on allowances issued during a compliance period – i.e., a three-year allowance budget – prior to each compliance period.

One of the main allowance distribution mechanisms would be an auction, by which allowances offered for sale would be sold jointly by the Government or WCI partner jurisdictions (or on their behalf by a third party) in regular (e.g., quarterly), centrally coordinated, regional auctions held on a single round, sealed-bid and uniform price basis starting in 2011. The auctions would be open to anyone with an account in the compliance unit tracking system (registry), but an eligible party would need to apply for approval to submit bids in the auction. The Government would have the ability to set a minimum price (reserve price) that it is willing to accept for the allowances it offers for sale at any particular auction. A reserve price may be adopted in order to ensure against over-allocation of allowances in early years of the program. The Government would determine how the reserve price is set and whether it is announced in advance of or after the auction, or not at all.

There will be a 45-day public comment period, ending December 6, 2010. More information, consultation documents / papers, and response forms can be found at www.env.gov.bc.ca/cas/mitigation/ggrcta/.