Ontario – GHG Accounting

Ontario Introduces Draft Climate Change Legislation and Supporting Cap & Trade Regulation

To facilitate the implementation of its cap and trade program, Ontario has introduced framework climate change legislation and a supporting cap and trade regulation. The Climate Change Mitigation and Low Carbon Economy Act (the Act) legislates Ontario’s greenhouse gas (GHG) emissions targets, requires the publication of a climate change action plan, and establishes the framework rules for the cap and trade program, as well as the rules for managing the proceeds from the cap and trade program. Ontario has also introduced a draft regulation setting out the details of the cap and trade program, which will cover industries, institutions, electricity generators, and suppliers and distributors of heating fuels that emit 25,000 tonnes of GHG emissions per year or more, as well as suppliers and distributors of transportation fuels that distribute 200 litres of fuel per year or more. The program would also cover entities that import electricity and fuels in to Ontario. Under the cap and trade program, which will come into force on January 1, 2017, 82% of the province’s total GHG emissions will be covered. To create a robust offset credit program in Ontario, a separate offsets regulation will be drafted under the climate change legislation later in 2016.

Overview of the Climate Change Mitigation and Low Carbon Economy Act
The proposed Act looks to:

Make Ontario’s greenhouse gas reduction targets legally binding – the following targets have been established: 15% below 1990 levels by 2020, 37% below 1990 levels by 2030 and 80% below 1990 levels by 2050.
Formally direct all cap and trade auction proceeds to a new Greenhouse Gas Reduction Account that would fund green projects to reduce emissions.
Ensure transparency by requiring an annual public report on funds flowing in and out of the Greenhouse Gas Reduction Account, including a description of funded initiatives and their alignment with climate change action plans.
Provide a legal framework for the cap and trade program.
Provide a framework for reviewing and increasing targets, as well as establishing additional interim targets.
Allow for transitional allowances to large industrial emitters which would be phased out over a period of time.
Require the government to prepare and implement a climate change action plan for achieving these targets, with progress reports and a review of the plan at least every five years.

Overview of Draft Cap and Trade Regulation
In connection with the proposed cap and trade program, the Ministry of Environment and Climate Change (MOECC) has posted a regulatory proposal for a cap and trade regulation, which includes an appendix presenting detailed technical information for the distribution of allowances to eligible capped emitters for the first compliance period, details related to early reduction credits, and an overview of complementary amendments for the reporting regulation and incorporated guideline to support implementation of the cap and trade program.
Ontario is planning to set a cap on emissions for each year of the first compliance period that will start in 2017 and last through 2020; the cap would be set based on the emissions that are forecast for each of those four years. The cap would translate into the total number of emissions allowances that would be made available for covered sectors through auctioning and free-of-charge allocation. Under the program, regulated emitters will be required to hold a sufficient number of allowances to cover their annual emissions.
Between 2017 and 2020, the economy-wide cap is expected to decline at a rate of 4.17% each year to meet Ontario’s 2020 emissions reduction target. The heating and transportation fuel sector and industries will face cap declines. However, the sector-specific cap for the electricity generation sector will remain unchanged from year to year in recognition of the emission reductions that the sector has already undertaken with the closure of coal-fired power plants.
In order to provide transitional support for emissions intensive and trade exposed industries, Ontario plans to allocate emissions allowances free of charge to a broad range of industries including cement, lime and steel. This is aimed at reducing the risk of “carbon leakage”, or the relocation of local industries to other jurisdictions with less stringent environmental standards or no carbon pricing policy. Ontario will review the allocation of allowances at the end of the first compliance period in 2020. The coverage of electricity and fuel imports in the program seek to provide a level playing field for Ontario’s electricity generation and fuels sectors. The government has also indicated that it will consider additional actions to prevent carbon leakage, including border carbon adjustments.
To facilitate compliance, covered sectors would also have the option of funding emissions reductions in non-covered sectors, such as agriculture, through the purchase of offset credits. The government will establish the criteria for creating offset credits that are real, permanent and quantifiable. Furthermore, emitters that have voluntarily taken early and verifiable action to reduce GHG emissions would be rewarded through one-time early reduction credits. Smaller emitters with annual emissions of between 10,000 and 25,000 tonnes would have the choice of opting into the cap-and-trade program and have access to the free allocation of allowances.
The cap and trade proposal has been posted for a 45 day public review and comments may be submitted to MOECC by April 10, 2016.

Revised GHG Reporting Guideline
MOECC has also issued a revised Guideline for Greenhouse Gas Emissions Reporting. To support the proposed cap and trade program, MOECC is now proposing to revoke the Greenhouse Gas Emissions Reporting Regulation (O.Reg. 452/09) and replace it with a new greenhouse gas reporting regulation and incorporated Guideline under the Act. Proposed changes will include:

Requirements to report production and other process related information;
Provisions to allow facilities with emissions between 10,000 and 25,000 tonnes to opt-in;
Clarifications on measurement requirements and reporting of biomass types; and
Refinements to the Regulation and Guideline to facilitate implementation of the Cap and Trade Regulation.

Amendments to Ontario’s GHG Reporting Regulation now in Force

In December 2015, the Ontario Ministry of the Environment and Climate Change filed amendments to the Greenhouse Gas Emissions Reporting Regulation (O.Reg. 452/09) that came into force on January 1, 2016. An amended Guideline for Greenhouse Gas Emissions Reporting was published as well. The amendments include:

lowering the reporting threshold to 10,000 tonnes carbon dioxide equivalent (CO2e) from the current threshold of 25,000 tonnes per year, while maintaining the requirement to have emissions greater than 25,000 tonnes per year third party verified;
dividing the emission sources into those that only need to report and those that require third party verification;
clarification on verification to allow for the use of qualified positive, in addition to positive and adverse verification statements;
adding petroleum product suppliers and natural gas distributors to the reporting regulation starting in 2016, to support the implementation of a cap and trade program; and
adding other sources to the reporting regulation including:
– equipment used for natural gas transmission, distribution and storage;
– electricity imports;
– electricity transmission and distribution;
– magnesium production; and
– mobile equipment at facilities (optional reporting only).

These amendments were made to support the implementation of Ontario’s cap and trade program, the design for which is expected to be finalized in spring 2016. As previously announced by the Ontario government, it will also be releasing a detailed five-year action plan in 2016 which will include specific commitments for the province to meet its 2020 emission reduction targets and establish the framework necessary for Ontario to meet its 2030 and 2050 emission reduction targets.

Ontario, Quebec and Manitoba Agree to Link Cap & Trade Systems

On December 7, 2015, Ontario, Quebec and Manitoba signed a memorandum of understanding at the Paris climate talks to formalize the intent of all three provinces to link their cap and trade systems. Under the Western Climate Initiative, the three provinces’ cap-and-trade systems would then link to California’s cap and trade program.
Quebec’s cap and trade system has operating since 2013 and is already linked with California’s cap and trade program. Ontario is in the process of finalizing the details of its cap and trade program, which is expected to come online in 2017. When it released province’s new climate change strategy on December 3, 2015 – Climate Change and Green Economy Action Plan – Manitoba confirmed its intent to introduce a cap and trade program for 20 large emitters. Speaking in Paris, Manitoba Premier Greg Selinger said he believes more states and sub-national governments can be convinced to join them in linking cap and trade system, who can learn from each other’s experiences.

Ontario Outlines Next Steps Of Climate Change Strategy

On November 24, 2015, the Ontario government released the province’s Climate Change Strategy which sets out the government’s near and long-term vision for a low-carbon future. Although the strategy is short on details, it provides an indication of the government’s priorities on climate change. The Ontario government has said that it will release a detailed five-year action plan in 2016, which will include specific commitments to meet near-term 2020 emissions reduction targets, and establish the framework necessary to meet targets for 2030 and 2050. Ontario has set an interim emissions reduction target of 37% below 1990 levels by 2030 and a long-term target of an 80% reduction in emissions over 1990 levels by 2050.

As articulated in the strategy, by 2050, the Ontario government envisions that its citizens will be using less energy and the energy they do use will be from low-carbon sources. Communities will be climate-resilient, complete and compact. More people will choose electric or other zero-emission vehicles and transit to get swiftly and efficiently where they need to go. Agricultural lands, natural areas and ecosystems will be better protected for the benefit and enjoyment of all. By 2050, the government sees a province that will be employing new ways to reduce waste while ensuring that more of the waste produced is reintroduced to the economy. Industries will be thriving while generating fewer or zero emissions. Finally, businesses and innovators will be creating world-leading clean technologies and products that drive new economic growth, productivity, and job creation.

Under the Climate Change Strategy, the government will:

Introduce climate legislation to establish a long-term framework for action and make the cap-and-trade program law in Ontario.
Integrate climate change mitigation and adaptation considerations into government decision-making and infrastructure planning.
Introduce changes to government operations, procurement, employee training, building retrofits and in other areas to help government move towards carbon neutrality.
Develop a coordinated approach to reduce emissions from new and existing buildings.
Reduce emissions from transportation by promoting the uptake of zero emission and plug-in hybrid vehicles.
Develop data and metrics to measure emission impacts of projects and programs including progress towards emission reduction targets. This will entail the development of tools to assess climate change risk to food production, human health, vital infrastructure, and the economy.

The government will also report on, and renew, its action plan every five years. This strategy is meant to support Ontario’s proposed cap-and-trade program and complements earlier climate initiatives, which include establishing a 2030 mid-term emissions reduction target, ending coal-fired electricity generation, and electrifying and improving Ontario’s commuter rail network.

Ontario’s cap-and-trade program design options released for further consultation

In the lead-up to Paris climate talks (COP 21), the Ontario government has released a consultation paper that sets out the early details of how Ontario’s proposed cap-and-trade program will work. The proposed program details are not final and are subject to further consultation before a final cap-and-trade regulation is expected to be issued in spring 2016.

Ontario’s proposed cap-and-trade system would commence on January 1, 2017 and the cap on greenhouse gas emissions would decline by 3.7% in each of the following three years, falling to 15% below 1990 levels by 2020. It is anticipated that the cap-and-trade program will have a broad reach and most sectors of the economy will fall under the cap including heavy industry, transportation fuel (including gasoline and natural gas), and electricity generation.

Since the transportation sector accounts for a significant portion of the province’s overall emissions, a carbon price on transportation fuels will seek to incentivize drivers to choose alternative means of transportation. The Canadian Fuels Association has estimated that if Ontario’s carbon allowances trade at the same minimum price as those under Quebec’s cap-and-trade system, the cost of gasoline will initially increase by at least 3.6 cents per litre, rising to 4.6 cents by 2020.

In order to provide some relief to certain trade-exposed sectors, the Ontario government has proposed allocating free allowances to certain industries, in some cases up to 100% for the first four years of the program. Under the cap-and-trade program, these industries will still be required to reduce emissions in order to comply with their obligations under the cap, but their compliance costs would be lower.

Consultations with industry and other stakeholders is ongoing, and as noted above, it is anticipated that the details of the cap-and-trade program will be finalized in spring 2016. As we reported earlier, Ontario has proposed changes to the provincial Greenhouse Gas Emissions Reporting Regulation, which will help to facilitate the linking of Ontario’s cap-and-trade program with the Quebec and California programs.

Ontario Resurrects Cap-and-Trade

Following recent public consultations on its Climate Change Discussion Paper, Ontario is expected to bring in a cap-and-trade system which reports say could raise between $1 billion to $2 billion per year, depending on the price of carbon permits. Ontario Environment Minister Glen Murray is expected to present the plan to cabinet for approval by mid-April 2015. Under a cap-and-trade system, a limit is placed on total greenhouse gas (GHG) emissions with the price of carbon being determined by the market. Under the system envisioned by Ontario, the cap will be divided into permits, some of which will be given away (to maintain competitiveness, particularly where a particular industry is trade sensitive) while the remaining permits will be auctioned off. Regulated emitters will be required to obtain a sufficient number of permits to cover their emissions and where emitters are able to reduce emissions, they will be able to sell permits to those emitters who need more. The auction proceeds will likely be directed into GHG emission reduction initiatives such as energy conservation retrofitting.

Once implemented, Ontario’s system could be linked with Quebec and California’s current cap-and-trade program, which would create a carbon market of 61 million people that covers more than 60% of Canada’s population. Ontario’s cap-and-trade plan has been waiting in the wings for a while. The province agreed to price carbon when it joined the Western Climate Initiative with Quebec, B.C. and California in 2008, and subsequently the Ontario government passed enabling legislation for a cap-and-trade system. However, cap-and-trade soon took a back seat to the recession and political uncertainty meant that there was little appetite for moving forward with climate change plans. With Ontario Premier Kathleen Wynne taking a climate leadership role, there is new impetus for bold action on GHG reduction initiatives at the provincial level.

Ontario Carbon Pricing Plan

Ontario Premier Kathleen Wynne announced on January 14, 2015 that a carbon pricing plan is currently under consideration by the provincial government. This follows the signing of a Memorandum of Understanding Concerning Concerted Climate Change Actions by Ontario and Quebec in November 2014, which includes a commitment by Ontario to explore the use of market-based mechanisms to curb emissions. To that end, Environment Minister Glen Murray is in the process of preparing a report on the various options to put a price on carbon, including the potential implementation of a carbon tax or a cap-and-trade system. It is anticipated that more details will be released about the carbon pricing plan in spring 2015.

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Ontario Ministry of Environment seeks input on Greenhouse Gas Discussion Paper

On January 21, 2013, the Ontario Ministry of the Environment (MOE) released a discussion paper entitled Greenhouse Gas Emissions Reductions in Ontario. The purpose of the paper (available online): is to support discussions and gather feedback on the development of a greenhouse gas (GHG) emissions reduction program. In addition, these discussions will elicit information to support Ontario’s intention to obtain equivalency with the developing federal greenhouse gas regulations in certain sectors (including natural gas‐fired electricity generation), meaning that Ontario industries will not be subject to duplicate requirements.

In 2007, Ontario introduced its Climate Change Action Plan which includes the following GHG emissions reduction targets:

6% below 1990 levels by 2014,
15% below 1990 levels by 2020, and
80% below 1990 levels by 2050.

Ontario estimates that current initiatives to reduce greenhouse gas emissions will deliver 60% of the reductions needed to reach the 2020 reduction target. While a GHG emissions reduction program alone will not close the gap, it will play an important role in moving Ontario towards its goal of being 15% below 1990 emissions levels by 2020.

The program elements presented for discussion in the paper have been developed based on a set of key principles aimed at balancing Ontario’s economic and environmental interests. These principles include:

Achieving absolute reductions in greenhouse gas emissions in a cost‐effective way that considers competitiveness and supports achieving equivalency with the federal government.
Simplicity, consistency, transparency and administrative efficiency.
Striving to treat sectors and facilities equitably.
Taking into account early action by industry leaders.
Using accurate and verified emissions data to support policy development.
Promoting development and deployment of clean technologies.
Considering broad alignment with other emissions reduction programs of similar rigour that provides opportunity for linking in the future.
Considering integration with other provincial environmental policies.

The paper indicates that Ontario’s program would initially limit GHG emissions from fossil fuel-fired electricity generators and large GHG emitters in certain industries, including petroleum refining, chemicals, steel, cement and pulp and paper. The paper also indicates that the program would limit emissions from facilities in these sectors (other than the electricity generation sector) to the level of their current total emissions, with the limit declining thereafter by 5% over five years. Although it does not explicitly advocate a cap-and-trade system, the paper does suggest that the MOE will consider the use of emissions trading mechanisms to establish a carbon price and provide businesses with options on how to achieve reductions at the lowest cost.

In addition, the paper proposes that Ontario’s program would be in place one year prior to federal regulation of greenhouse gases from industry. A one year window will provide time for the province to negotiate and finalize an equivalency agreement with the federal government to ensure there is a single regulator for greenhouse gas emissions in the province.

Ontario acknowledges that other North American jurisdictions are also taking action to address emissions of GHGs. It notes that Quebec, British Columbia, Alberta, Saskatchewan and Nova Scotia all have or are developing regulations to reduce greenhouse gases. It also notes that in the USA, the Regional Greenhouse Gas Initiative limits emissions from electricity generation in north-eastern states, while California has introduced a broad greenhouse gas emissions trading regime with an intention of linking to Quebec’s program.

The MOE will accept submissions on the discussion paper until April 21, 2013. For further information, please refer to the Environmental Registry: Here

Canadian Provinces Forge Ahead on Cap-and-Trade System

Canada’s three largest provinces – Québec, Ontario and BC – are moving forward with a cap-and-trade system designed under the Western Climate Initiative (WCI) to reduce greenhouse gas (GHG) emissions. This decision comes after plans for a cap-and-trade system have been abandoned by the U.S. Senate.

The cap-and-trade system, scheduled to begin trading in January 2012, would cap emissions on large industrial facilities in Ontario, Québec and BC, as well as in California and New Mexico. The five jurisdictions forging ahead are part of the WCI (other group members, such as Utah and Arizona, have not committed to the system). On Tuesday July 27, 2010, the WCI released its comprehensive design strategy (for more information on the design document, please see our overview: link

The WCI’s commitment is to reduce industrial GHG emissions at the regional level from 15% below 2005 levels by 2020.

Each jurisdiction continues to weigh the pros and cons of moving ahead with the WCI system. In BC, any industrial operation emitting more than 25,000 tonnes of greenhouse gas per year will be subject to the system. This threshold will capture 40 operations in the province. While the regulatory framework for a cap-and-trade program has been put in place (under the Greenhouse Gas Reduction (Cap and Trade) Act and its associated Reporting Regulation), the details of the program as they will apply in BC have not yet been settled.

Ontario Issues GHG Reporting Regulation

On December 1, Ontario issued O. Reg. 452/09 (the “Regulation”) under the Ontario Environmental Protection Act, which requires large emitters to report their greenhouse gas (GHG) emissions to the Ministry of Environment (MOE). The purpose of the regulation is to provide MOE with better data about the province’s emissions levels, while supporting the implementation of a cap-and-trade program in Ontario that will eventually link to other North American trading systems. The Regulation, which applies to 26 types of facilities, requires the following:

reporting of specified GHG data by all facilities that emit 25,000 tonnes of carbon dioxide equivalent (CO2e) or more per year;

annual reporting of GHG emissions, starting with 2010 emissions;

mandatory use of identified standard quantification methods to quantify emissions starting with 2011 emissions;

flexibility to use the best alternative quantification methods for 2010 emissions;

annual third-party verification of emissions, beginning with 2011 emissions;

emission reports to be submitted on June 1 starting with 2010 emissions in 2011; and

verification to be completed by September 1 starting with 2011 emissions in 2012.

The delay of third party verification until the 2011 reporting year is intended to allow the required professional services capacity to grow in order to meet demand in the province. The flexibility to use best alternative verification methods in 2010 is also intended to smooth the transition to standardized reporting requirements in 2011.

The Regulation was based significantly on the approach set out by the Western Climate Initiative and the September 22, 2009 EPA ruling on GHG reporting. With respect to biomass, the Regulation allows regulated emitters to deduct up to 15,000 tonnes of carbon dioxide generated from a facility through the combustion of biomass based on the theory that the combustion of biomass, which draws CO2 from the atmosphere as it grows, is carbon neutral. In contrast, BC’s new reporting regulation provides that all carbon dioxide from wood biomass, or the wood biomass component of mixed fuels, is not to be included in the calculation of GHG inventories.

The MOE has also issued a technical Guideline for Greenhouse Gas Emissions Reporting, which details standard quantification methods and best alternative quantification methods.

A copy of the Regulation is available in the Links on this site.