Ontario starts to consider carbon trading plan

The ministry released a discussion paper this week designed to kick off a dialogue on what could be key elements of a program to cut GHG emissions.

Ontario is looking at a variety of compliance options, including reducing emissions by investing in new technology, switching to lower-carbon fuels, or the purchase of offsets or allowances. It plans to set an absolute cap on emissions, unlike the Canadian federal government's intensity-based approach to reducing GHGs.

Ontario is a member of the Western Climate Initiative, a group of Canadian provinces and California, which seeks to reduce GHGs through a multi-sector cap-and-trade program.

So far, only California and Quebec have passed regulations to implement cap-and-trade. It is unclear how Ontario's plan would affect its membership to the Western Climate Initiative. The Ministry of Environment did not respond to requests for comment.

Ontario aims to reduce GHGs 15pc below 1990 levels by 2020. It has a number of existing initiatives to achieve 60pc of the reductions needed to meet the 2020 target. These include the phase-out of coal-fired generation by 2014, mandatory electricity conservation targets for local distribution companies, and a feed-in-tariff program for renewable energy projects.

The ministry said the proposed GHG program will not completely close the gap in reductions needed to reach the 2020 target, but will go a long way to achieving that goal.

Sectors that are proposed for coverage in the program include electricity generation. The target would take into account the low emissions from the sector expected in the early years, and the anticipated rise in emissions when nuclear plants close for refurbishment and economic growth.

It is also proposing reducing emissions from the industrial sector by 5pc over five years. This would include large emitters from the petroleum refining, chemicals, steel, cement and pulp and paper sectors.

Emissions from residential heating fuels and transportation, which represents a large portion of the province's overall GHG output, would not be included.

The discussion paper highlights emissions trading as an important economic option for reducing GHG emissions. “Experience from other jurisdictions has shown that trading can bring cost savings compared to conventional regulatory approaches,” it says.

Ontario is developing offset protocols for use in the program in coordination with the Canadian federal government and the Western Climate Initiative. Protocols under consideration include nitrous oxide reductions from fertilizer management, emission reductions from dairy cattle, destruction of ozone depleting substances from foam insulation, and the destruction of methane from landfills.

California and Quebec have established offset protocols that allow regulated emitters to use offsets from both jurisdictions. They plan to hold a joint auction of emission allowances in August this year.

Ontario will seek an equivalency agreement with the Canadian federal government to avoid duplicating environmental regulations. Under such an agreement, federal regulations would not apply when Ontario regulations achieve the same or better environmental outcomes.

The Canadian government's intensity-based approach seeks to reduce GHG emissions on a pe-metric-tonne of product produced basis. This could allow overall emissions to increase as production grows. Its first set of regulations covers the coal-fired generation sector. It is also planning to include oil and gas, fertilizer manufacturing, steel and cement to the program.

Ontario proposes implementing its scheme one year before the federal regulation of industrial GHGs. This would give the province time to negotiate an equivalency agreement with the federal government.

Stakeholders have until 21 April 2013 to comment on the discussion paper proposals.

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