Blog Post

Ontario and Quebec Commit to Work with Mexico to Advance Carbon Markets

Overview

On August 31, 2016, Ontario signed a Joint Declaration with Mexico and Quebec, pledging to work together "in the fight against climate change." More specifically, the parties agreed to conduct cooperation activities on carbon markets and jointly promote the expansion of carbon market instruments for greenhouse gas emissions reduction in North America. According to the press release from the Government of Ontario, this agreement will "drive progress on the common commitment to pricing carbon." As noted in a recent news article, Mexico also has a similar agreement with California.

Ontario is launching its cap and trade program in January 2017. One year later, Ontario will link its emissions credits to the Quebec and California joint auction under the Western Climate Initiative. The Joint Declaration with Mexico appears to open the possibility of another participant in this joint market in the future. This underlines the interesting question about what will happen with the future pricing and revenues from carbon emissions credits. To the extent that the joint market expands, Ontario emitters may have more opportunities to acquire credits from out of the jurisdiction. That is an important issue in Ontario, where government revenues from the sale of credits (forecast at around $1.8 billion per year) are earmarked to fund the Climate Change Action Plan. Where Ontario's cap and trade revenues are lower than forecast (perhaps because the price is lower than expected, or because credits are purchased from other jurisdictions), the scope of the programs under the Climate Change Action Plan will have to be revisited and reduced.