On February 25, the Ontario government posted its draft cap and trade regulatory proposal for a 45-day public and stakeholder comment period. Covering select large industrial emitters, natural gas distributors, petroleum product suppliers and importers of electricity, the proposed program captures 82% of the province’s total GHG emissions.
The regulatory proposal is accompanied by a proposal to further amend the Greenhouse Gas Emissions Reporting Regulation. These amendments would allow facilities with emissions between 10,000 and 25,000 tonnes of GHG emissions to opt-in to the cap and trade system, clarify biomass measurement and reporting requirements, and provide guidelines to facilitate the implementation of the cap and trade system.
The province also announced its proposal to implement the Climate Change Mitigation and Low-carbon Economy Act, 2016 (the Bill). The Bill intends to establish a long-term framework for climate action by setting enshrining emissions reduction targets and plans to achieve them in law and establishing the legislative framework for the cap and trade system.
How Does Cap and Trade Work?
- Starting in 2017, a province-wide cap on greenhouse gases would be in place. Through 2020, the cap will decline each year (by an estimated 4.17% per year).
- The Province would distribute allowances through auctioning and free-of-charge allocation to industry.
- Emitters covered under the program must hold an allowance for every tonne of greenhouse gas emissions they release into the air.
- As the cap declines each year, emitters would need to hold a sufficient number of allowances to cover their annual emissions. To comply, emitters could reduce their emissions or purchase allowances in the carbon market.
- Covered sectors also have the option of funding emission reductions in non-covered sectors (such as agriculture), through purchasing offset credits. An offsets regulation will be proposed later in 2016 to describe the requirements proponents must meet to be able to create, verify, and register offset credits.
The proposed program is estimated to raise revenue of approximately $478 million in 2016-17 and $1.8-$1.9 billion annually starting in 2017-18. The Bill requires that revenue be dedicated to investments that support greenhouse gas emission reductions such as energy efficiency for homes and businesses, public transit, research, innovation and clean technology adoption.
As a “down-payment” on this revenue, the province announced that it will invest $325 million in 2015-16 through a Green Investment Fund.
In addition, the Province is providing a new $17 million endowment to support the Toronto Atmospheric Fund (TAF). The TAF is a non-profit corporation with a mandate to innovate, promote, and invest in GHG emission reduction opportunities and improve air quality in Toronto.
- “Jobs for Today and Tomorrow: 2016 Ontario Budget – Budget Papers”. Available at ontario.ca/budget
- Government Backgrounder: Cap and Trade Program Design. Feb 25, 2016. https://news.ontario.ca/ene/en/2016/02/draft-cap-and-trade-program-design.html
- News Release: Ontario Posts Cap and Trade Regulation. Feb 25, 2016. https://news.ontario.ca/ene/en/2016/02/ontario-posts-cap-and-trade-regulation.html