On December 14, 2011, the Government of Québec officially adopted the Regulation respecting the cap-and-trade system for greenhouse gas emission allowances (the Regulation) which is based on the rules established by the Western Climate Initiative (WCI).

The Regulation will come into force on January 1, 2012. The first year of the system will be a transition year which will allow emitters and participants to familiarize themselves with how the system works. In 2012, emitters and participants will be able to register with the system, take part in pilot auctions and buy and sell greenhouse gas (GHG) emission allowances on the market. No reduction or capping of GHG emissions will be required during this transition year.

The capping and reduction of GHG emissions will start officially on January 1, 2013. Starting on January 1, 2013 some 75 operators, primarily in the industrial and electricity sectors, whose annual GHG emissions equal or exceed the annual threshold of 25 kt CO2e (25 thousand tonnes of carbon dioxide equivalent), will be subject to the capping and reduction of their GHG emissions.

Starting on January 1, 2015, the operators of businesses that distribute fuel in Québec or import fuel for their own consumption, and whose annual GHG emissions due to its combustion reach or exceed the annual threshold of 25 kt CO2e, will also be subject to capping and reduction.

The Government of Québec has stated that, unlike traditional regulation, where companies must not exceed an emission standard (a strict limit on the discharge of pollutants), the cap and trade system will give companies flexibility in planning their short, medium and long term investments. In effect, the system will allow companies to buy emission allowances on the market until they are ready to modernize or replace certain equipment. Companies that reduce their GHG emissions below the regulatory requirement would have an allocation of emission units that is higher than what they actually produce. By selling their excess units, such companies could either recover part of their investments or use the proceeds to engage in further optimization.

Links to our previous blogs on this Regulation are available here.