Cap and trade program design options


On April 15,the Ontario government signed an agreement with Quebec to create a joint cap-and-trade system to reduce GHG emissions.

The cap-and-trade program will be the primary tool for Ontario seeking to achieve its targets of emissions being 15 per cent below emission levels. For further background on the proposed cap-and-trade scheme, please see our April Blakes Bulletin: The document, which is summarized in cap and trade program design options Bulletin, seeks input on various elements of the program including the timing; scope of the program, setting the caps on GHGs, allowance distribution, price stability mechanisms and enforcement.

A draft regulatory proposal is scheduled for early with a view cap and trade program design options the cap-and-trade system beginning on January 1, The first auction of emission allowances is scheduled for March This start date means that the cap needs to decline by 3. The location of the measurement of the emissions will vary depending on the nature of the sector. Two types of emissions will be covered — combustion emissions and fixed process emissions. Sectors covered by the program will be the following:.

New facilities that begin operating after January 1, will have a compliance obligation starting in their third year of operation.

However, existing facilities that expand and whose emissions exceed the 25, tonnes per year threshold would have a compliance obligation starting in the first year that the threshold is met. Facilities that are obliged to report emissions under the Greenhouse Gas Emissions Reporting Program are permitted to voluntarily opt into the program, but once an entity opts in, it cannot opt cap and trade program design options of the program.

Each year caps will be set that limit the amount of allowable GHG emissions, measured in tonnes of carbon dioxide equivalent. Sector level targets are being considered. The market will include registration requirements, auction rules, trade rules, market rules including limits on the allowances entities can acquire in an auction and the amount they can hold and strategic reserve allowances sales.

The market will be designed to balance flexibility with predictability. This will be achieved by setting a minimum price level at auction and a strategic reserve of allowances will be maintained.

It is proposed that five per cent of allowances from the cap year would be set aside as a strategic reserve — price tiers will be set for these allowances. Carbon leakage occurs when the production of a facility shifts to a jurisdiction with a less stringent carbon pricing policy.

There may be specific sectors that are emissions-intensive and trade-exposed. Mechanisms to reduce this risk could include:.

The new program notes that some entities will have already made investments to reduce emissions and these should be acknowledged. These can be recognized by basing the number of allowances that an entity receives on product output benchmarks — these are based on average emissions of a sector and therefore facilities that are more efficient than cap and trade program design options sector benchmark will receive more allowances than their emissions and be in credit.

The cap and trade program design options could also issue early reduction allowances to reward actions that meet specific requirements. Entities with a compliance obligation would be required to true-up for per cent of their emissions by November 1 of the year following the end of the compliance period. Partial true-up may take place in the first compliance period. Enforcement action will be taken if excess emissions are made i.

Penalties could include requiring triple allowances, suspension of the holding account, revocation of registration or administrative monetary penalties.

The types of offset projects that are being considered and included are: Other potential offset projects include organic waste digestion, afforestation, and grassland projects.

Program Scope The location of the measurement of the emissions will vary depending on the nature of the sector. Sectors covered by the program will be the following: Opting cap and trade program design options Facilities that are obliged to report emissions under the Greenhouse Gas Emissions Reporting Program are permitted to voluntarily opt into the program, but once an entity opts in, it cannot opt out of cap and trade program design options program.

The Caps Each year caps will be set that limit the amount of allowable GHG emissions, measured in tonnes of carbon dioxide equivalent. Market Rules The market will include registration requirements, auction rules, trade rules, market rules including limits on the allowances entities can acquire in an auction and the amount they can hold and strategic reserve allowances sales.

Price Stability The market will be designed to balance flexibility with predictability. Carbon Leakage Carbon leakage occurs when the production of a facility shifts to a cap and trade program design options with a less stringent carbon pricing policy.

Mechanisms to reduce this risk could include: The inclusion of a market design feature to provide compliance flexibility for certain entities to plan and implement compliance strategies that work best for them. Allowing the use of offset credits as a compliance instrument that can help reduce compliance costs and may produce co-benefits including health, social and benefits. The use of offsets shall be limited to eight per cent of the total compliance obligation.

Applying border carbon adjustments for electricity and fuels to level the playing field for traded goods and reduce leakage. Early Reductions The new program notes that some entities will have already made investments to reduce emissions and these should be acknowledged. Enforcement and Penalties Enforcement action will be taken if excess emissions are made i.

Offsets The types of offset projects that are being considered and included are: For further information, please contact: