Cap and trade
On January 1, 2017, Ontario’s cap-and-trade program came into effect. The cornerstone of the legislation is the Climate Change Mitigation and Low Carbon Economy Act (the Act), which provides a general framework for the program. Central to the Act is the requirement that emitters quantify and report their GHG emissions and submit “allowances” and credits to match the reported emissions at the end of each “compliance period.”
The Act also establishes categories of mandatory, voluntary and market participants and provides the rules for creating and distributing allowances through the allocation of free allowances, auctions and sale processes. An offset program is also available under the Act, injecting flexibility into the scheme by enabling emitters to meet their compliance requirements through emissions reduction, avoidance, or removal. The Act is rounded out by administrative and enforcement provisions, which establish significant penalties for non-compliance.
The Act must be read in conjunction with the related regulations and the documents incorporated by reference in those regulations. These regulations and associated documents set out the substance of Ontario’s cap-and-trade program and include the following:
- Cap and Trade Program Regulation and Methodology for the Distribution of Ontario Emission Allowances Free of Charge: [PDF] establishing the caps for emission allowances over the first compliance period (2017-2020) and the dates for subsequent compliance periods to follow (2021-2023 and each subsequent three-year period). The regulation also sets out the rules relating to registration and participation as a mandatory participant, voluntary participant and market participant. Mandatory participants are facilities that emit over 25,000 tonnes of CO2 in a year; voluntary participants are facilities that emit between 10,000 and 25,000 tonnes of CO2 in a year and choose to opt-in to the program; and market participants are those that choose to trade in the market. Additionally, the regulation governs the establishment and administration of cap-and-trade accounts and provides details on the creation/distribution of emission allowances.
The Act also allows for linkage between Ontario’s cap-and-trade program with programs in other jurisdictions through the Western Climate Initiative. Effective January 1, 2018, Ontario’s market is linked with those of Québec and California pursuant to a trilateral agreement. Together, the three jurisdictions form the largest carbon market in North America and the second-largest in the world, after the European Union. The combined market allows the governments to harmonize regulations and reporting, while also planning and holding joint auctions of GHG emission allowances.
So far, Ontario has held four stand-alone allowance auctions, the total proceeds of which total to around $1.9 billion. At the most recent auction (conducted in November 2017), some 20.8 million current allowances and 3.1 million future allowances were sold for prices of C$17.38 and C$18.89 respectively.
In late 2017, the province also introduced several new regulations under the Climate Change and Low-Carbon Economy Act, 2016. Two of the most important developments were a new Offset Credits Regulation and an Administrative Penalties Regulation. The Offset Credits Regulation allows for the creation of new credits for use in the cap-and-trade program. These offset credits, which can be used to meet up to 8% of compliance obligations for a given facility, reward greenhouse-gas reduction initiatives such as planting trees. Valid offsets must comply with protocols developed under the regulation, most of which are still forthcoming. Separate and distinct from these cap-and-trade offsets, the province is developing a separate class of offsets under the Voluntary Carbon Offsets Program. The “voluntary” offsets will not be usable to meet compliance obligations.
The Administrative Penalties Regulation provides a three-step process to impose penalties for non-compliance with the Act or its regulations. The process allows those facing penalties to make written submissions in their defence. The penalties themselves are based on a formula that includes a daily “base penalty” and an amount that represents the economic benefit resulting from the non-compliance. The penalty can be reduced by specific, limited amounts where the non-compliant party can show actions it took to prevent the contravention, to come back into compliance or to prevent future contraventions.
Climate Change Action Plan
On June 8, 2016, Ontario released its Climate Change Action Plan [PDF] (the Plan). The Plan sets out specific commitments to meet the province’s near-term 2020 emissions reduction targets. Addressing a broad spectrum of sectors, some of the key components of the Plan include: (i) establishing a “green bank” to assist homeowners and businesses finance energy-efficient technologies; (ii) increasing the availability of zero-emission vehicles and substantially increasing transit; (iii) providing incentives for the installation and retrofit of clean-energy systems; and (iv) implementing new rules and regulations to increase energy efficiency in new buildings.
As part of its Climate Change Action Plan, Ontario further announced in 2017 that it would be investing in two funds: the Municipal GHG Challenge Fund (up to $100 million) and the Green Ontario Fund ($377 million). The Municipal GHG Challenge Fund is meant to support municipal initiatives in the fight against climate change, while the Green Ontario Fund is “a new not-for-profit provincial agency that will deliver programs and rebates to help reduce energy costs in homes and businesses.”
Coal and fuel
In conjunction with the province’s procurement of additional renewable energy generation facilitated by the Green Energy Act, the province closed its last remaining coal-fired energy generating plant in 2014, positioning Ontario as the first jurisdiction in North American to completely phase out coal as a source of electricity generation.
Green Energy Act
The province’s 2009 Green Energy Act (the Act) created a series of financial incentives for the development of renewable energy such as wind, solar and biomass, including the creation of a feed-in tariff program. The Energy Conservation and Demand Management Plans regulation under the Act has also established a requirement that public sector agencies routinely develop and update five-year plans for energy conservation.