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.