Ontario’s Cap-and-Trade System: In Effect and Moving Forward
On January 1, 2017, Ontario’s cap-and-trade system came into effect. As we have outlined in previous blog posts, January 1, 2017 is the start of the first four-year compliance period for the cap-and-trade program, which compliance period will end on December 31, 2020. Thereafter, the cap-and-trade program compliance periods will be three-years long, aligning with the compliance periods in the Québec and California cap-and-trade markets. The Government of Ontario has stated its intention to link with the Quebec and California markets in 2018.
On January 1, 2017, certain amendments to The Cap and Trade Program regulation (Ontario Regulation 144/16) under the Climate Change Mitigation and Low-carbon Economy Act, 2016, came into effect. The amendments include the following:
- Expanding the eligibility criteria for voluntary participation in the cap-and-trade program to allow emissions associated with indirect useful thermal energy (IUTE) to be counted towards the voluntary participant threshold for opting-in (i.e. 10,000 tonnes emissions per year). IUTE would include, for example, steam that is produced at one facility and used at another. The purpose of this change is to ensure that emitters are treated equally regardless of whether IUTE is generated at the site or imported for use.
- Addition of a new section 9.1 clarifying that a new owner or operator of a mandatory or voluntary participant has the compliance obligation for the entire compliance period. The previous owner will be required to provide the Ministry of the Environment and Climate Change notice of the change ownership within 30 days in an approved form (which has not yet been published);
- Allowing for the registration of clearing houses as market participants to provide clearing services to other registered participants in the cap-and-trade program.
- Providing an exception to the prohibition on sharing information related to participation in an auction between related persons. Specifically, the changes provide that the prohibition on sharing such information does not apply to disclosure between related persons.
- Clarifying that the information to be provided regarding business relationships includes the requirement to report subsidiaries and parents of non-corporation partnerships and add a requirement to disclose whether any persons designated as account representatives for the purposes of the cap-and-trade program are consultants.
- Ensuring emissions resulting from electricity generation that uses fuel other than natural gas or petroleum products (for example, process gas) are obligated to comply with the cap and trade program.
Complementary changes were made to the Quantification, Report and Verification of Greenhouse Gas Emissions Regulation (Ontario Regulation 143/16) under the Act, the Methodology for Distribution of Ontario Emission Allowances Free of Charge, and the Guideline for Greenhouse Gas Emissions Reporting.
On a related note, offset credits will be permitted under Ontario’s cap-and-trade program to provide greater compliance flexibility for mandatory participants. An Offset Regulatory Proposal is currently under consultation, and further amendments to The Cap and Trade Program regulation are expected in 2017 to facilitate the implementation of an offset credit program.
cap-and-trade Climate Change Mitigation and Low Carbon Economy Act Greenhouse Gas Emissions Regulation