Québec – GHG Accounting

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.

Québec’s First Cap & Trade Permit Auction Results

In the first auction of permits under Québec’s cap-and-trade scheme on December 3, 2013, bidders purchased only about one-third of the emission allowances offered – or 1.03 million of the 2.97 million 2013 permits. As a result of the low demand, the permits cleared at the lowest possible price of $10.75 per metric tonne of carbon dioxide equivalent.

Québec said it sold a combined CAD $29 million in 2013 and 2016 allowances in the auction. The province plans to sell the remaining 2013 carbon allowances in future auctions, which will be held every quarter starting March 4. Regulated entities will have until November 1, 2015 to acquire carbon allowances covering emissions generated in 2013 and 2014.

Yves-François Blanchet, Québec’s Minister of Sustainable Development, Environment, Wildlife and Parks said that the province is very satisfied with the results of the first auction and is confident that the remaining units will be sold at the upcoming auctions. Bloomberg New Energy Finance market analyst William Nelson observed that it was a “surprisingly under-subscribed auction”, but went on to say that the province’s failure to sell all the allowances in the first auction was a “one-time freak result”. Nelson anticipates that future auctions will fare better as the entities that did not participate in the auction this week will eventually show up as they still need to cover their emissions for the next two years.

Quebec’s program will be integrated with the larger California cap-and-trade market in 2014, when entities from both jurisdictions will be able to buy and sell emission allowances and offsets in either jurisdiction. At California’s last auction on November 19, 2013, the state sold 16.6 million tons of carbon allowances at a price of $11.48 each, which was in line with market expectations.

The results of the Québec auction are available online (in French only)

The results of California’s November 2013 auction are also available from the state’s Air Resources Board.

California Governor Gives Green Light to Link Carbon Market to Quebec

In a letter dated April 8, 2013 to the state Air Resources Board (ARB), California Governor Jerry Brown approved a proposal to link the California’s cap-and-trade system with Quebec’s program, paving the way for companies to trade carbon permits across borders.

In the April 8 letter, Governor Brown found that the request from the ARB met all necessary state requirements. The ARB, which has been working with Quebec for several years to develop complementary systems, will consider changes to its cap-and-trade program on April 19 that will allow it to link with Quebec. Quebec is the first region that California has proposed to partner with, which will lay the foundation for a broader system that other governments may join.

ARB staff has said a link with Quebec would expand investments in low-carbon technologies, many of which are being developed in California, and improve market liquidity for carbon allowances by increasing the pool of both permits and companies trading them. According to the Governor’s letter, California will not link systems with Quebec until January 1, 2014. In the meantime, the ARB and Quebec’s Ministry of Environment will test their auction platforms and trading systems to ensure they are compatible. Governor Brown has asked the ARB to file a report with his office by November 1, 2013 outlining how the ARB will review and take public comment on changes to a linked program and whether there are any impediments to linkage occurring on January 1, 2014.

Quebec plans to reduce emissions to 20 percent below 1990 levels by 2020 with its cap-and-trade program, which applies to about 75 companies in the province. Under California’s program, carbon emissions from power generators, oil refineries and other industrial plants will be capped and then gradually reduced to 1990 levels by 2020. The system will eventually regulate 85 percent of the greenhouse gases released in California.

Regulators in both California and Quebec are issuing carbon allowances through a combination of free allocations and auctions, each permitting the release of 1 metric ton. Companies must turn in allowances to cover their emissions, and those with more allowances than they need, can sell or trade the excess.

California Holds Successful First Auction of Carbon Allowances

The California Air Resources Board (CARB) held its first auction on November 14, 2012 for the purchase and sale of carbon allowances for its planned cap-and-trade regime. Mary Nichols, chairman of CARB, declared the auction a success:

“The auction was a success and an important milestone for California as a leader in the global clean tech market. By putting a price on carbon, we can break our unhealthy dependence on fossil fuels and move at full speed toward a clean energy future. That means new jobs, cleaner water and air – and a working model for other states, and the nation, to use as we gear up to fight climate change and make our economy more competitive and resilient.”

The auction results were released to the public on November 19^th (available online) . A tonne of carbon for the 2013 vintage year sold for $10.09, which is slightly above the $10.00 price floor set by CARB. The highest bid was a whopping $91.13. Also, there was three times the number of bidders at the auction than actual buyers, indicating a healthy and competitive market. Furthermore, 97% of allowances were purchased by regulated entities indicating that prices were not influenced by speculative buyers. Instead, it seems to indicate that regulated entities are looking to retire allowances for compliance purposes. Perhaps most importantly, the auction sold out with all 23,126,110 2013 vintage year allowances being purchased, raising approximately US$233 million. This auction kicks off the largest carbon market in North America and the second largest in the world, behind the European Union Emissions Trading Scheme.

California’s partners in the Western Climate Initiative (WCI) – including British Columbia, Manitoba, Ontario, and Québec – are no doubt paying close attention. Apart from Québec, which will launch its emissions trading system on January 1, 2013 with California, the success of California’s cap-and-trade program may spur the other WCI partners into action to implement a similar scheme.

Québec introduces 2012-2020 Climate Change Action Plan with 63% of Funds Targeted at Transportation

On June 3, 2012, Québec introduced its 2012-2020 Climate Change Action Plan and the accompanying Government Strategy for Climate Change Adaptation. Under the new action plan and strategy, nearly $2.7 billion will be invested towards the government’s climate change goals. Revenues to implement the plan, which is intended to be self-funded, are expected to come from the carbon market as well as charges on fossil fuels and combustibles which have been extended until 2014.

As the transport industry is estimated to account for 43% of all greenhouse gas (GHG) emissions in Québec, two-thirds of revenues from the action plan will fund transportation measures such as public and alternative transit, as well as inter-modality and energy efficiency in freight transport. The plan also allocates $200 million to support efforts by businesses to reduce GHG emissions through initiatives such as investing in projects related to energy efficiency, process optimization and the installation of environmentally friendly equipment. In addition, $40 million will be dedicated to support the development and marketing of new technologies.

These initiatives constitute the first phase of the 2013-2020 action plan. The second phase of the plan will be launched at the mid-point of the plan and will take into consideration the revenue generated by the carbon market and the new policy directions adopted with respect to sustainable mobility, land use planning and energy. The action plan will also evolve based on new developments in climate science, technologies and Québec’s progress in the attainment of its objectives.

Québec introduces amendments to draft GHG Regulations

To help Québec meet its emission reduction targets, the province introduced amendments to two draft GHG regulations in the June 8, 2012 edition of the Québec Official Gazette: (i) Regulation respecting mandatory reporting of certain emissions of contaminants into the atmosphere, and (ii) Regulation respecting a cap-and-trade system for greenhouse gas emission allowances.

Amendments to the Regulation respecting a cap-and-trade system for greenhouse gas emission allowances are intended to link the Quebec system with the California system as well as those of future partners such as Ontario and British Columbia. To this end, it specifies system registration admissibility conditions and necessary documents, as well as the procedure regulating emission rights trading and auctions, and provides the conditions for the delivery of offset credits, including protocols regarding certain admissible projects. Finally, amendments were made to adjust the regulation further to the adoption of Bill 89, An Act to amend the Environment Quality Act in order to reinforce compliance, by providing for administrative penalties and stronger sanctions.

The Regulation respecting mandatory reporting of certain emissions of contaminants into the atmosphere was also amended in order to complete the necessary harmonization with Western Climate Initiative (WCI) rules by adding declaration protocols. It provides, among other things, that the obligation to audit GHG emission declarations only applies to emitters subject to the GHG cap-and-trade system. In Québec, 2012 is a transition year during which regulated entities will have an opportunity to become familiar with the cap-and-trade system. The first carbon market compliance period will begin on January 1, 2013.

Québec Prepares to Start Emissions Trading as it Formally Adopts Cap-and-Trade Regulation

On December 14, 2011, Québec formally adopted the Regulation respecting the cap-and-trade system for greenhouse gas emission allowances (the Regulation), which came into force on January 1, 2012 and is based on the rules established by the Western Climate Initiative (WCI).

With the adoption of the Regulation, Québec officially steps to the starting line next to California. The first year of implementation of the system will be a transition year, which will allow emitters and participants to familiarize themselves with how the system works. In particular, 2012 will provide emitters and participants with opportunities to register with the system, take part in pilot auctions and buy and sell greenhouse gas (GHG) emission allowances in the market. No reduction or capping of GHG emissions will be required during this transition year. Over the course of the year, emitters will also be able to make any adjustments that may be necessary to meet their emission reduction obligations, which will come into force on January 1, 2013. Starting on January 1, 2013, some 75 operators in Québec (primarily in the industrial and electricity sectors) whose annual GHG emissions equal or exceed the annual threshold of 25,000 tonnes of carbon dioxide equivalent (CO2e), will be subject to the capping and reduction of their GHG emissions.

It should be noted that starting in 2015, companies which import or distribute in Québec fuels that are used in the transportation and building sectors (and whose combustion generates an amount of GHGs greater than or equal to 25,000 tonnes of CO2e per year) will also be subject to the capping and reduction of their emissions.

For all participating WCI members, the adoption of a cap-and-trade regulation a cap is the first of two key steps towards the establishment of a regional North American carbon market. The second step will consist of concluding a series of recognition agreements, among the different partners, to link their systems together.

BC and Ontario in the meantime continue to dither on whether to join the cap-and-trade scheme and businesses in those provinces are losing out on key opportunities to participate in the transitional market, recently valued for 2012 at almost US$ 800 million by Thomson Reuters Point Carbon. By finalizing their cap-and-trade regulations in a timely way, BC and Ontario could continue to be leaders in regional efforts to reduce GHG emissions and to spur technological innovation in their provinces.

Québec releases draft cap-and-trade regulation

On July 6, 2011, Québec’s Ministry of Sustainable Development, Environment and Parks announced the publication of a draft regulation to facilitate the implementation of its cap-and-trade system based on the Western Climate Initiative (WCI) guidelines. The regulation is now undergoing public consultation for a period of 60 days.

The regulation to be adopted following consultation will enable Québec to implement its carbon market as early as January 1, 2012. The first year will be transitional in nature, allowing emitters and market participants to familiarize themselves with how the system will work. They will be able to register as system users, take part in pilot project auctions and buy/sell greenhouse gas emission allowances through the market. This phase will also enable partners to make any required fine-tuning in order to make a smooth transition to their obligations under the cap-and-trade system that will come into force on January 1, 2013.

Industrial facilities that emit 25,000 or more tons of carbon dioxide equivalent annually will be subject to the system for capping and reducing their emissions.

The draft regulation is available 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.

Québec announces greenhouse gas reduction target of 20% by 2020

On November 23, 2009, Premier Jean Charest unveiled Québec’s target to reduce greenhouse gas emissions (GHG) by the year 2020. By targeting a 20% reduction below 1990 levels, Québec has set a goal similar to the target established by the European Union. Québec currently hold the best GHG emissions record in Canada, which is approximately eleven tons per capita, half of the Canadian average. With a -20% target by 2020, Québec will have the smallest level of emissions per capita in North America.

From the government’s perspective, achieving this goal will depend on the introduction of a GHG cap and trade system in 2012. Therefore Québec took an important step in June 2009 when the National Assembly unanimously passed new draft legislation for climate change. Through this legislation, Québec will contribute to implementing the largest planned GHG cap and trade system in North America, which it is currently being developed by partners of the Western Climate Initiative.

With just a few weeks to go before the December 2009 climate conference in Copenhagen, Denmark, Québec is taking a strong leadership stand on this key issue. Perhaps the federal government will take notice and assume a leadership role of its own.

Press release Link:

http://www.mddep.gouv.qc.ca/communiques_en/2009/c20091123-cibleges.htm