(Updated to include additional details, comments from Quebec Premier Couillard and IETA)

The Ontario government has released a draft climate change law that would ensure manufacturers get all their allowances for free for at least four years under the emissions trading scheme the Canadian province plans to launch next year.

Provincial Environment and Climate Change Minister Glen Murray on Wednesday released the draft law, which will provide the legal foundation for Ontario’s plan to launch a carbon market next January and join California and Quebec in the Western Climate Initiative cap-and-trade system.

The move was praised by Quebec Premier Philippe Couillard, who said “Ontario is taking a leadership position in the fight against climate change and in positioning itself for the 21st century economy that will be based on innovation and decarbonisation.”

The draft included a provision to hand out CO2 permits for free until the scheme is reviewed in 2020.

The law would “allow for transitional allowances to large industrial emitters which would be phased out over a period of time”, a government statement said.

Murray told national media that industry would need time to adjust as well as protection against competition from regions that don’t price carbon.

But the provincial opposition slammed the provision, calling it ‘unfair’.

“When we see the first things government is doing is going to impact everyday folks, and yet big polluters get to take a bit of a vacation in terms of their participation, that’s very sad,” said Ontario New Democratic Party Leader Andrea Horwath, according to the Globe and Mail newspaper.

GREEN FUND

The ETS will be Ontario’s main tool to meet its long-term ambition of cutting GHG emissions to 37% below 1990 levels by 2030 and 80% by mid-century.

The draft law stated that government revenue from CO2 allowance auctions would be funnelled into a C$325 million ($237 million) Green Investment Fund that will, amongst other things, help fund emission cuts for businesses, energy efficiency measures in homes, and electric vehicle charging stations across Ontario.

“This proposed legislation ensures that all money raised by putting a price on carbon will be reinvested in a transparent way to the benefit all Ontarians,” Murray said.

As transportation makes up the largest share of Ontario’s emissions and the power sector accounting for less than a 10% share, much of the scheme’s forecast revenues will likely come from consumers via the pump.

The Ontario government estimated that the cost of the programme will add an average 4.3 cents per litre to the price of gasoline in the province.

Emissions from commercial and residential buildings ranks as the third largest source at around 20%, meaning consumers and companies could also face increased costs on their gas heating bills of around C$5/month.

Ontario Premier Kathleen Wynne said revenue from the carbon allowances auctions will be used to “protect” consumers from electricity rate hikes and could even lead to rates going down, The Canadian Press reported.

DESIGN

Ontario has yet to finalise the rules of its emissions market, but according to a draft released in November the scheme would set CO2 caps for the power sector (including imported electricity), industry, institutions, transportation, natural gas distribution and waste-to-energy facilities.

That November paper also suggested that installation-level allocations could take into account product-output benchmarks or early reduction credits.

The plan is to launch the market on Jan. 1, with the first allowance auction to be held in March that year.

Due to technical and regulatory reasons, 2018 would be the earliest possible time for Ontario to join the California-Quebec cap-and-trade programme.

The proposal estimated the annual CO2 cap would need to reduce by 3.7% annually to meet the 2020 target, though it said some sectors and types of emissions could face different rates of decline.

Ontario’s provincial neighbour to the west Manitoba is also slated to join the WCI after it launches its own ETS.

“The growing provincial leadership is impressive, and the momentum on carbon pricing across Canada is undeniable,” said Katie Sullivan, director of North America for emissions trading lobby IETA.

“Linking these markets brings increased flexibility for business so that high environmental achievements are possible while keeping costs in check.”

By Stian Reklev and Mike Szabo – stian@carbon-pulse.com

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