Blog Post

Ontario Confirms Updated Cap and Trade Regulations to Link with Quebec and California

Ontario’s Ministry of the Environment and Climate Change (MOECC) has confirmed that a decision has been made to proceed with amended regulations to facilitate the linkage of Ontario’s Cap and Trade program with California and Quebec (discussed in an earlier post). This will ensure that the linkage will be in place for January 1, 2018.

The MOECC’s November 28, 2017 Regulation Decision Notice confirms the amendments to the existing Cap and Trade Program Regulation and related instruments that will implement the linkage. The key amendments to facilitate the linkage include the following items that are listed in the recent Notice:

  • Recognizing compliance instruments from California and Quebec and allowing trading between registered participants in all three jurisdictions;
  • Enabling joint allowance auctions to be held by all three jurisdictions;
  • Setting an Ontario minimum annual auction price beginning at C$13.75 in 2017 and escalating each year by five percent plus inflation;
  • Expanding the holding limit to account for the size of the larger linked market;
  • Expanding the purchase limit to account for the size of the larger linked market;
  • Allowing registration in multiple jurisdictions for mandatory, voluntary and market participants;
  • Clarifying and extending requirements regarding related persons to persons who are registered in Quebec or California; and
  • Expanding the director’s authority to cancel the registration of a market participant under specific circumstances related to contraventions and convictions.

The MOECC’s decision to permit market participants to register in multiple jurisdictions is a change from the original proposal, made in response to comments received from interested parties.

There are a couple of other items of note in the November 28, 2017 Regulation Decision Notice.

In respect of “offset credits” (discussed in an earlier post), the MOECC indicates that it will propose further amendments requiring Ontario Cap and Trade participants to replace California offset credits where such credits are submitted for compliance purposes and later cancelled by California. This could potentially make California offset credits less attractive.

To assist with future planning, the MOECC is updating the Cap and Trade Program Regulation to set the “Caps” for 2021 to 2030. The new Caps are said to be set at a level that will allow Ontario to meet its 2030 GHG emissions reduction target. As set out in the November 28, 2017 Regulation Decision Notice, the proposed Caps will decline each year at an average annual rate of 2.9%, which is below the 4.17 % rate of decline during the current 2017-2020 compliance period. The actual numbers are set out in the Regulation Decision Notice.