On May 27, 2009, the Government of Ontario introduced legislation to enable the creation of a "cap-and-trade" system in the province. If passed, Bill 185 - the full name of which is the Environmental Protection Amendment Act (Greenhouse Gas Emissions Trading), 2009 - would amend existing legislation to establish a system with hard caps on the absolute level of permitted emissions. This is expected to help the province meet its commitment to reduce greenhouse gas (GHG) emissions to 6% below 1990 levels by 2015 and 15% by 2020.
In developing Bill 185, the Government has consulted with environmental groups, as well as with nine industrial sectors expected to be involved in cap-and-trade that collectively represent approximately 40% of Ontario's total 2007 emissions1. While the Bill sketches the broad outlines of the province's commitment to cap-and-trade as a strategy in the fight against climate change, much of the detail of the province's plan is still to be worked out in forthcoming regulations. To this end, the Government has produced a discussion paper that presents design issues and options for the key elements of a cap-and-trade system. It is seeking stakeholder comments to be used in the development of the proposed regulations. The discussion paper has been posted on the Environmental Registry for a 60-day public comment period ending July 26, 2009.
Key elements of Bill 185
Ontario's Environmental Protection Act (EPA) provides the Government with broad authority to implement emissions trading systems for contaminants (authority that has previously been used to establish cap-and-trade programs for nitrogen oxides and sulphur dioxide). In providing for the development of a GHG cap-and-trade system, Bill 185 deals with a number of key issues, including:
- Greenhouse gases: the Bill adds a definition of GHGs to the EPA, adding within its purview of contaminants gases including carbon dioxide, methane, and nitrous oxide.
- Market-based approaches: the Bill sets forth regulation-making powers with respect to establishing the scope of a cap-and-trade system, the persons and facilities to which such system would apply as well as monitoring and reporting requirements.
- Allowances and credits: the Bill includes regulation-making power with respect to the establishment of allowances and offset credits and well as the distribution, use, trading and retirement of such credits.
- Regional linkages: the Bill explicitly contemplates integration with other cap-and-trade systems, and further notes in its preamble that such linkages can provide emissions reductions at a lower cost, while improving the pace of innovation and allowing for larger trading volumes and improved liquidity. Significant action on this front has already been taken. In June 2008, the Governments of Ontario and Quebec signed a Memorandum of Understanding to collaborate on a GHG cap-and-trade initiative, while in July 2008, Ontario joined the Western Climate Initiative (WCI), a multi-sector trading program which includes British Columbia, Quebec and Manitoba and seven U.S. states. As noted below, it is also possible that Ontario would link to a future North America-wide trading system if and when such a system is developed.
Bill 185 leaves numerous regulatory details to be determined, including whether allowances will be auctioned, sold or distributed free of charge, as well as the exact nature of the emission caps and to whom the legislation would apply. As noted above, the province has posted a discussion paper which incorporates feedback received from stakeholders to date, and is seeking further public comment until July 26, 2009 as it develops proposed regulations.
Ontario would be the third province to adopt a GHG cap-and-trade system, after British Columbia and Quebec. On May 12, 2009, Quebec introduced Bill 42 to create a cap-and-trade system in the province. Ontario Premier McGuinty recently commented that Ontario and Quebec have a responsibility to "put in place a carbon-exchange register" that will "serve as kind of a pilot project" in other jurisdictions. The manner in which these two jurisdictions plan to harmonize their approaches is something else to look out for in the coming months.
Finally, the province anticipates that a North American cap-and-trade plan could be in place as early as 2012 - another development that will undoubtedly be the subject of future updates.