Oct. 03, 2019 - Chapter 2 of Davies Governance Insights 2019
Carbon Pricing: Provincial Action Ahead of the Paris Climate Conference
With only a week before the start of the 2015 Paris Climate Conference (COP21), Ontario has released its policy paper regarding the design options for its promised cap-and-trade system and Alberta has announced its Climate Leadership Plan. Combined with Québec’s established carbon market, British Columbia’s launch of its Climate Leadership Plan and the new federal government’s commitment to put a price on carbon, Canada appears to be gaining momentum in the reduction of greenhouse gas emissions.
Today, Ontario released its Climate Change Strategy, setting out the steps the government intends to take with respect to climate change, including releasing a detailed five-year action plan in 2016 and the introduction of legislation that would make the Ontario cap-and-trade system law.
On November 16, 2015, the Ontario Ministry of the Environment and Climate Change (MOECC) released, for consultation, its policy paper titled “Cap and Trade Design Options”. The paper outlines Ontario’s proposed approach to adopting a cap-and-trade system that would come into force on January 1, 2017, and that would eventually link with the Québec–California carbon market. As in Québec, the electricity (including imported electricity for consumption in Ontario), industrial and large commercial, institutional, fuel transportation and natural gas distribution sectors would be subject to Ontario’s cap-and-trade system.
Ontario’s cap-and-trade system would closely follow the model set out by the Western Climate Initiative so that Ontario could easily and efficiently link its system with those of Québec and California. The system would require regulated emitters to cover their greenhouse gas emissions with emissions allowances, and participants would be required to register.
For the purpose of promoting market stability, limits would be placed on holding and purchasing allowances. Auctions (at first Ontario only, expanding eventually to Québec-California-Ontario auctions) would be held quarterly with a floor price set for each auction. The system (like that of Québec’s) would also provide for a strategic reserve of 5% of total allowances, which would then be available for purchase from the government at fixed prices aligned with the Québec–California market. The combination of floor prices at auctions and ceiling prices at reserve sales is intended to prevent undue market manipulation.
In addition, Ontario would address the risk of carbon leakage (the risk that certain industries would move their operations to jurisdictions where there is no price on carbon) by allocating a certain limited number of free allowances to sectors that are considered to be emissions-intensive and trade-exposed.
Participants would also be able to opt in to the cap-and-trade system even if they would not otherwise be caught by the regulation. These voluntary participants would be able to create offset credits that could then be sold to regulated emitters for compliance purposes. Only projects using recognized protocols (e.g., mine methane, landfill gas and ozone destruction) would be able to produce recognized offset credits.
Alberta’s Climate Leadership Plan, announced on November 22, 2015, seeks to implement a greenhouse gas emissions-reduction strategy that includes a tax on greenhouse gas emissions of $30/tonne by January 2018. Revenues will remain in Alberta and be neutralized through investment in clean energy and infrastructure.
A forward-looking cap of 100 megatonnes will be imposed on greenhouse gas emissions from the oil sands sector with the intent of promoting innovation to achieve reductions as growth in the sector continues. Coal-fired electricity generation is to be eliminated by 2030 (from 38% of all generation) and be replaced with renewables and natural gas. A methane-reduction strategy focused on the oil and gas industry aims to reduce such emissions by 45% from current levels.
The first draft of British Columbia’s Climate Leadership Plan has been promised ahead of COP21. Although British Columbia has had a carbon tax since 2008, the Climate Leadership Plan will re-examine British Columbia’s climate change policies. It is expected that an opportunity to comment on the Climate Leadership Plan will be available in December 2015.
Emitters subject to Québec’s Regulation respecting a cap-and-trade system for greenhouse gas emissions allowances had until November 2, 2015, to cover their greenhouse gas emissions for the first compliance period, which ended on December 31, 2014, with a sufficient number of emissions allowances. The results of the first compliance period show that all of the emitters subject to the Québec regulation fulfilled their compliance obligations. Sanctions for non-compliance with the Québec Regulation include the obligation to cover greenhouse gas emissions with emissions allowances at a 3 to 1 ratio.
A “mix-and-match” approach to a national carbon plan was discussed at the first ministers’ meeting yesterday in Ottawa, suggesting that the federal government will recognize the ongoing efforts of the provinces to reduce greenhouse gas emissions. However, provincial action to date will not be enough to achieve Canada’s commitment to reduce carbon emissions by 30% below 2005 levels by 2030, and much more remains to be seen from the federal government following COP21.
Oct. 03, 2019 - Davies Governance Insights 2019 is a comprehensive report that analyzes the governance trends and issues most important to Canadian public companies. Now in its ninth edition, Governance Insights is designed to be a playbook for navigating the diverse and complex challenges facing...