Emissions Trading in Ontario

The Ontario Ministry of the Environment (MOE) operates an emissions registry to control pollution from 7 industrial sectors – electricity, iron and steel, cement, petroleum refining, pulp and paper, glass and carbon black. Emissions trading is one of many tools used in Ontario to help reduce smog-causing emissions from coal and fossil-fuel fired electricity generators, in a flexible, least costly way. Ontario’s emissions trading system covers NOx and SO2 (ref: Ontario MOE, May 11, 2005).

How does it work?

  • The Ontario government sets a goal for emissions reduction called emissions targets, with specific caps on emissions for key industrial sectors.
  • The total emissions allowed under the cap are divided into allowances, with each allowance equal to one tonne of emissions. Each capped emitter is allocated allowances - the amount of pollutants the emitter is allowed to release into the atmosphere in a given year.
  • Each capped emitter is required to monitor its actual emissions and report annually. At the end of the year, if actual emissions are equal to the allowances, the capped emitter has achieved compliance and does not have to take further action.
  • If actual emissions are greater than the allowances, the capped emitter can “buy” allowances from another capped emitter that has excess allowances.
  • If actual emissions are less than the allowances, the capped emitter can “sell” its allowances to another capped emitter which exceeded its allowances, or “bank” them to meet its own reduction commitments in future years.

This process allows a company with high environmental performance to gain financially, while a company with lower environmental performance must pay for its higher emissions.

The Ontario MOE system provides economic incentives for those who reduce emissions, and higher costs for those who must buy allowances. Overall, total emissions stay within the emissions target set by government (reference: www.ene.gov.on.ca).

Emissions reduction credits can be traded. Each credit represents one tonne of approved emission reductions, and are created by non-capped emitters that take action to reduce emissions at their site. Credits are subject to MOE approval before they can be sold to capped emitters.

Advantages of MOE Carbon Credits

  • Improves economic efficiency by allowing participating parties to apply emission reduction strategies where it is most cost-effective to do so for their specific facility. 
  • Participants that can reduce emissions at lower costs achieve larger reductions.
  • Flexibility in choosing reduction strategies creates an incentive for participants to develop and implement new lower-cost emission reduction practices or technologies.

Ontario Emissions Trading Registry

The Ontario Emissions Trading Registry tracks the creation, transfer and use of allowances and emission-reduction credits issued under Ontario’s Emissions Trading Regulation (O. Reg. 397/01). It provides the primary mechanism for public notification and comment on these transactions.