Ontario's cap and trade update

04 May 2017


Ontario's Cap and Trade program is being updated. On March 22, 2017, as we reported here, Ontario held its first stand-alone auction of greenhouse gas ("GHG") allowances, selling all 25,296,367 current vintage allowances that were available and 812,000 of the 3 million available 2020 vintage allowances. The selling prices were $18.08 and $18.07 respectively, with a reserve or floor price of $18.07.[1]

Meanwhile, the Ministry of Environment and Climate Change ("MOECC") has proposed amendments to the Cap and Trade Program Regulation, O. Reg. 144/16, and the Quantification, Reporting and Verification of Greenhouse Gas Emissions Regulation, O. Reg. 143/16, and the Methodology for the Distribution of Ontario Emission Allowances Free of Charges (which is incorporated by reference into the Cap and Trade Program Regulation) and the Guideline for Quantification, Reporting and Verification of Greenhouse Gas Emissions. The proposed amendments are intended to tighten up gaps in the regime and clarify certain methods for determining the number of free allowances with the announcement of proposed amendments. Comments on the proposed amendments may be made on the Environmental Registry until May 20, 2017.

The proposed amendments include:

  • For certain facilities (including pulp and paper, mineral wool insulation, used oil processing, fuel ethanol sector, and beer production), changes to the energy-use based and historical absolute emissions methods for calculating free allowances to product output benchmark or historical emissions intensity methods. The revised methods are intended to better account for changes in productions and operations while calculating free allowances.
  • Administrative amendments to address situations in which a voluntary participant becomes a mandatory participant.
  • Clarifications would to the reporting required for the calculation of free allowances.
  • Clarification on the methods of calculating allowances for facilities receiving indirect useful thermal energy ("IUTE"). These amendments would allow facilities to claim only the IUTE that facility receives minus any IUTE that is transferred out of the facility.
  • Further clarification for iron and steel producers, with the proposed amendments imposing the compliance obligation on emissions from process fuels on the iron and steel producer, even where the process fuels are transferred prior to combustion.
  • Finally, the proposed amendments clarify that emissions from the combustion of natural gas delivered to a participant with a compliance obligation bears a compliance obligation, even where the natural gas is subsequently transferred to an entity not subject to a compliance obligation.
  • It can be expected that MOECC will finalize the regulatory and offset credit amendments announced in late 2016 and reported on here. In the future MOECC can also be expected to provide a proposal for an administrative monetary penalty regime.

The second auction of greenhouse gas allowances will occur on June 6, 2017.[2]

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