Ontario is hoping to publish a draft design for its new carbon market within days, a key step towards the Canadian province passing the required legislation by next May and launching the scheme in 2017, Ontario’s environment and climate change minister told Carbon Pulse.

Since announcing its plan earlier this year to feature a market-based mechanism as the centrepiece of its plan to cut GHG emissions by 37% below 1990 levels by 2030, the province has been holding consultations with stakeholders as it draws up a white paper to be opened up for further discussion.

“(The white paper will be out) very soon. Not months, probably not weeks, hopefully days,” Glen Murray said on the sidelines of a Canadian carbon market conference in Toronto organised by EUCI.

“We’re tracking to have the legislative regulatory pieces in place by May of next year, (but) we have a lot more consulting and engagement to do … particularly, and most importantly, with heavy-emitting industry and industry associations.”

Transportation, heavy industry, and buildings are Ontario’s largest sources of GHGs, respectively representing 35%, 28% and 19% shares of emissions output, making them a priority for inclusion in the government’s planning process.

In contrast, the power sector’s share has fallen by around two thirds to around 7% after Ontario phased out coal-fired power in the past decade, leaving the province reliant mainly on low-carbon sources including hydro and nuclear.

Ontario is aiming to link its carbon market to those in Quebec and California, which have been connected under the WCI programme since 2014.

Ontario joined the WCI back in 2008, a year after it was founded by five US states, but the province’s participation and efforts to launch a carbon market have been restricted by factors including the recession and a Liberal minority government between 2011 and 2014.

“A lot of things happened four or five years ago that created a lot of difficulty for Ontario, so we’re looking at catching up,” Murray said.

The Liberals, under the leadership of Kathleen Wynne, last year regained majority control of the province’s legislature, vaulting Murray, formerly Ontario transportation minister and mayor of Winnipeg, into his current position and opening the door to the introduction of an Ontario carbon pricing plan ahead of this year’s UN climate summit in Paris.

COMPLIANCE

Murray confirmed that Ontario wants to launch its emissions trading scheme in early 2017, with a view to holding its first carbon allowance auction in Q1 of that year.

He added that the province hopes to be a part of the joint auctions held by Quebec and California later that year, but warned that Ontario would likely join WCI’s third compliance phase (2018-2020), putting into question whether the province’s emitters would be able to surrender Quebec or California allowances in the Ontario market’s inaugural year.

“We’re looking at different options … We will probably sync ourselves not into having a one-year compliance period but joining them in the next cycle, so we’d probably do a four-year compliance period or something along those lines,” he said, adding that Ontario’s two future WCI trading partners seemed amenable to that.

The deadline for emitters in Quebec and California regulated under the WCI recently completed their compliance period for the programme’s first phase (2013-2014), with the market ballooning in size in the second phase (2015-2017) due to the addition of the transportation and natural gas sectors.

STEMMING OUTFLOWS

Concerns have been raised that with Ontario’s coal plant closures, cheap abatement options may be harder to come by, meaning the province could have to rely heavily on importing carbon allowances from California, which is currently sitting on a surplus of more than 30 million.

But Murray noted that even in the absence of a provincial carbon-cutting framework, Ontario’s heavy industry was managing to cut its emissions by at least a few million tonnes annually.

He added that introducing policies to complement Ontario’s carbon market and investing allowance auction revenues early on into key areas including residential energy efficiency, industrial innovations, and other green technologies would be important to reduce the province’s emissions and subsequently allowance demand.

“All your money has to go back to things that really reduce GHG emissions at a sufficient rate to attract capital and innovation … (like) using (allowance sale) revenues to match private sector investment in innovation, higher productivity facilities, in fuel-switching and investing in people’s homes to help them reduce their emissions,”

“If we do that, that’s the secret.”

OFFSETS

Another variable that could help influence the future cost of compliance to Ontario’s emitters is how carbon offsets factor into the province’s ETS plans.

Under WCI’s current rules, emitters in Quebec and California are allowed to use offsets from protocols approved by their respective provincial and state governments to cover 8% of their emissions.

Ontario, however, may seek a higher limit for its companies.

“Is it an option or consideration? Yes,” Murray said.

Ontario and Quebec in September agreed to increase collaboration in carbon trading, including harmonising rules and developing common offset protocols that would increase the current number of methodologies beyond Quebec’s current three.

Murray said the pair had since issued a request for proposals, adding that the first areas of focus under the partnership could be agriculture, forestry and other land-use based activities.

“One of the things that greatly concerns us is the loss of carbon sinks and the damage being done to critical ecosystems,” Murray said, adding that it was aiming to also involve conservation campaigners Ducks Unlimited and Canadian First Nations in any related offset protocol development process.

“We would never meet our targets if we lost our carbon sinks.”

Quebec and California already have forests in their crosshairs.

California has approved two types of forestry-related protocols, and last month published a white paper that could allow for the importing of REDD-based offsets into the state’s market from 2018.

And according to experts, through a quirk in the WCI’s rules, Quebec and Ontario would also be forced to accept those units.

Meanwhile, Quebec has commenced work on a new forestation and reforestation protocol to be applicable on the province’s private forest lands, and anticipates opening it up for feedback later this year.

Murray said he expects the results of Ontario and Quebec’s RFP to be compiled in the next 6-12 months, which would generate a solution that the pair must “make sure is compatible and interactive” with California’s system.

“We’re hoping that what we do also encourages other states and provinces, and that this plus our partnership with Mexico (announced at the Climate Summit of the Americas earlier this year) helps create a continental system for offsets and markets,” he added.

By Mike Szabo – mike@carbon-pulse.com