Blog Post

Government of Ontario Officially Ends Cap and Trade

On July 3, 2018, Premier Doug Ford announced that the Government of Ontario has revoked Ontario Regulation 144/16 – The Cap and Trade Program under the Climate Change Mitigation and Low-carbon Economy Act, 2016 (Climate Change Act) and that his government will take immediate steps towards an “orderly wind-down” of all programs funded by the province’s Cap and Trade revenues. (You can view the revoked Regulation here.) The government’s latest announcement confirmed the Premier’s previous commitment to honour rebates under the Green Ontario Fund for contracts that have already been signed between consumers and tradespeople.

As previously discussed, much uncertainty remains around how Ontario’s Cap and Trade program will be wound down. At the same time as the Cap and Trade Program Regulation was revoked, the government also enacted a new regulation titled “Prohibition Against the Purchase, Sale and Other Dealings with Emission Allowances and Credits” under the Climate Change Act, which states that “no registered participant shall, on and after the day this Regulation comes into force, purchase, sell, trade or otherwise deal with emission allowances and credits.” The effect of the new regulation is to confirm that those who hold compliance instruments (including allowances purchased at auction) are not able to deal with (monetize) those instruments.

To date, the Ontario government has provided no details about whether there will be any compliance requirement for participants (emitters) to provide allowances or other compliance instruments in relation to their emissions for the period during which Cap and Trade was in effect (January 1, 2017 to July 3, 2018). If such a requirement is imposed, then presumably participants will have to be given a further opportunity to acquire compliance instruments to bring themselves into compliance. On the other hand, if there is no compliance requirement, then those participants who have spent substantial sums of money to purchase compliance instruments (an aggregate amount of close to $3 billion, as described here, here and here) may seek refund or compensation from the government.

We will continue to report on this matter as developments occur.

Regardless of its own steps to cancel Cap and Trade, Ontario may not be able to avoid carbon pricing altogether. The federal government has stated that it will impose a national minimum carbon price on provinces that do not adopt their own pricing system, pursuant to the Greenhouse Gas Pollution Pricing Act. Premier Ford has stated that Ontario will challenge the constitutionality of the federal legislation. Saskatchewan has similarly commenced a “reference case” to the Saskatchewan Court of Appeal, asking for a determination about whether the federal carbon levy will be “unconstitutional, in whole or in part.” However, it may be that the federal carbon backstop will come into effect in Ontario on January 1, 2019, because the Ontario challenge will not be completed by that time.