introduction

On May 27th, 2009, the Ontario government introduced enabling legislation that, if passed, will create a cap and trade program in the province which is aligned with North American and international cap and trade systems.1 The government hopes that a cap and trade system will attract businesses, create jobs, and encourage investment in green technology, as well as address climate change and greenhouse gas emissions.2 The legislation is in the form of Bill 185, which amends the Environmental Protection Act.3

cap and trade systems

In cap and trade systems, corporations receive greenhouse gas emission allowances permitting them to release a certain amount of carbon.4 This creates a market economy for allowances as any unused allowance can be sold for profit or banked for the future.5 The government promotes cap-and-trade as being “costeffective” and as encouraging innovation.6

Ontario’s cap-and-trade proposal

Ontario’s cap and trade proposal recommends a number of amendments to the Environmental Protection Act, which, if passed, would create regulations that provide for a greenhouse gas emissions trading system.7 If all amendments and proposals are passed, the cap and trade system will be implemented in 2012.8

The proposal centers on a cap and trade system that is integrated with that of other jurisdictions, such as the states and provinces involved in the Western Climate Initiative, as well as Quebec, which signed a Memorandum of Understanding with Ontario regarding cap and trade collaboration.9 Ontario took an important step towards this goal in June 2009, when it joined the International Carbon Action Partnership, an organization that is made up of states interested in implementing or having already implemented cap and trade systems and that promotes regulatory consistency between such systems.10

The proposed amendments to the Environmental Protection Act include:

  1. A definition of “greenhouse gas” that encompasses carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulphur hexafluoride.11
  2. Regulation-making power for establishing programs and other measures that will maintain or improve existing environmental standards, protect the environment, and achieve environmental quality goals in a cost-effective manner.12 This includes prescribing persons, entities, and facilities and governing economic and financial instruments for these programs as well as monitoring and reporting contaminants.13

The Ontario government also released a Discussion Paper (the “Paper”), entitled “Moving Forward: A Greenhouse Gas Cap-and-Trade System for Ontario,” to which stakeholders can respond until July 26, 2009.14 The Paper’s purpose is to “identify policy issues and present options” for designing Ontario’s Cap and Trade system.15

The Paper presents a number of issues available for comment:

(1) Cap options – for example, which emission levels should be used as a cap;

(2) Baseline options – for example, 3 or 5-year average emissions;

(3) Scope, thresholds, and phasing-in scenarios;

(4) Allowance distribution (allocation), such as allowances based on sector type, as well as set-asides, use of auction revenue, and reserve price;

(5) Incentives for early action, such as credits, reduction allowances, or benchmarking;

(6) Offsets, such as, for example, focusing on soil sequestration;

(7) Reporting, such as cost and accuracy considerations; and

(8) Transition, such as who the coordinating body should be and how the transition to cap and trade should be funded.16

next steps

The Ontario government will be accepting comments to the Paper until July 26, 2009.17 The proposed amendments could be passed in the fall of 2009.18 If the amendments pass, the government will use stakeholder comments to the Paper in designing the regulations.19 Ontario will work closely with the federal government to prevent duplication in regulations.20 If all amendments and regulations are passed, the cap and trade system will likely be implemented in 2012.21