On May 19, 2016, two regulations that form the backbone of the cap and trade program became law – the Cap and Trade Program Regulation (O. Reg. 144/16) which took effect July 1, 2016 and the Quantification, Reporting and Verification of Greenhouse Gas Emissions Regulation (O. Reg. 143/16) which takes effect January 1, 2017.
The ministry is now proposing amendments to clarify policy, technical and administrative requirements of the program. The amendments include changes to the:
- Cap and Trade Program Regulation
- Methodology for Distribution of Ontario Emission Allowances Free of Charge (See proposed changes in the draft revised Methodology)
- Quantification, Reporting and Verification of Greenhouse Gas Emissions Regulation (See proposed changes described below.)
- Guideline for Greenhouse Gas Emissions Reporting (See proposed changes in the draft revised Guideline.)
Proposed Regulatory Amendments to the Cap and Trade Program Regulation (O. Reg. 144/16)
The proposed changes to the cap and trade regulation include:
- Providing allowances free of charge for emissions resulting from indirect useful thermal energy (IUTE) imported by voluntary and mandatory participants. An example of IUTE includes steam that is produced at one facility and used at another facility. This policy is to ensure that emitters receive equivalent treatment in the program regardless of whether IUTE is generated on the site or imported for use.
- Emissions related to IUTE would count towards the 10,000 tonne emissions threshold for qualifying as a voluntary participant.
- To be eligible to receive allowances for IUTE, eligible voluntary and mandatory participants would be required to report and verify their on-site and IUTE emissions.
- Those eligible to receive allowances free of charge for IUTE emissions would not have to submit allowances for these emissions as the compliance obligation for these emissions will still remain with the facility supplying the IUTE.
- Eligible emitters would begin receiving allowances starting in 2018.
- Ensuring emissions resulting from electricity generation using fuel other than natural gas or petroleum products (e.g., process fuel) has a compliance obligation in the program. An electricity generator that meets the criteria in section 21 in the cap and trade program regulation and uses fuel that is not natural gas or petroleum product (e.g., process gas) to generate electricity will have a direct compliance obligation for the resulting emissions.
- Clarifying that the new owner or operator of a facility with emissions covered by the program bears the obligation to submit compliance instruments for all greenhouse gas emissions for the entire compliance period. Proposed changes include the ability for the previous owner or operator to request the Minister transfer allowances from their compliance account to the compliance account of the new owner or operator.
- Allowing for the registration of clearing houses as market participants to give them the ability to provide clearing services to other registered participants in the program:
- To be eligible, clearing houses would need to be recognized by the Ontario Securities Commission as a clearing agency under section 21.2 of the Securities Act.
- Clearing houses would need to register as a market participant and submit supporting documentation of their recognition by the Ontario Securities Commission.
- Upon successful registration, an eligible clearing house would receive a clearing house account in which they would be able to temporarily hold allowances and credits to provide clearing services to other registered participants.
- The holding account of a clearing house would be exempt from the holding limit and from the prohibition of holding allowances and credits owned by another person under section 28(2) of the Act.
- Allowances and credits may only be transferred into the clearing house account by a registered participant (i.e., potential seller) for the purpose of transferring control of them to the clearing house, and may only be transferred out of the account to the registered participant receiving the allowances (i.e., buyer) pursuant to the transaction being cleared.
- Clearing houses would only be able to hold allowances and credits for a maximum of five days before they must be transferred to a buyer or returned to the seller.
- Requests to transfer compliance instruments to or from a clearing house account would not require confirmation from an account representative of the destination holding account.
- Providing an exception to the prohibition on sharing information related to auction participation between related persons defined in subsection 2(2) of O. Reg. 144/16, e.g., to facilitate a participant obtaining necessary approvals from parent corporations on financial assurance needed in order to participate in an auction.
- Clarifying that market participants must be Canadian residents or corporations incorporated in Canada.
- Clarifying that price does not need to be reported for transfer requests of allowances or credits that were sold under a bilateral trading agreement that combines emissions allowances or credits and other products without pricing information.
- Clarifying administration rules of auctions to ensure the process is consistent with the auctioning services platform.
- Further aligning reporting of business relationships with requirements in California and Quebec including:
- Clarifying the requirement to report subsidiaries and parents of non-corporation partnerships
- Requiring the disclosure of consultants and advisors on bidding strategies at auctions
- Clarifying which years’ allowances can be used for the submission of additional allowances and offsets resulting from under-reported emissions in a previous compliance period. Options include allowing the use of future vintage allowances or restricting the vintage to years up to the current calendar year.
- Collecting personal information from persons approved by Quebec and California and who are being designated as account agents by participants registering in Ontario. Information includes name, mailing address, employer, declaration of no criminal history, consent on sharing of information between the approving jurisdiction and Ontario as needed for administration and enforcement of the program.
Proposed Regulatory Amendments to the Quantification, Reporting and Verification of Greenhouse Gas Emissions Regulation (O. Reg. 143/16)
Changes being considered to the reporting regulation include:
- Clarifying which petroleum product suppliers have the compliance obligation for inter-refiner transfers of fuel between companies. Proposal is to align with the approach to inter-refiner transfers in the Greener Diesel - Renewable Fuel Content Requirements for Petroleum Diesel Fuel regulation (O. Reg. 97/14)
- Complementary changes needed to support changes to the cap and trade program, for example, to support distribution of allowances free of charge for indirect useful thermal energy imported by a voluntary or mandatory participant.
Proposed Amendments to the Methodology for Distribution of Ontario Emission Allowances Free of Charge
- Miscellaneous technical clarifications and corrections as identified in the draft revised methodology
Proposed Amendments to the Guideline for Greenhouse Gas Emissions Reporting
- Clarifying reporting requirements for imports of specified electricity, including the provision of additional documentation, and the use of the appropriate default emissions factor in cases where electricity is transmitted through another jurisdiction before it arrives in Ontario.
- Miscellaneous technical clarifications and corrections as identified in the draft revised guideline