A Québec-Regulated Carbon Market Around the Corner!

Beginning in 2013, air releases of greenhouse gases (GHG) could be expensive for large industries in Québec. Indeed, on July 7, 2011, the Québec government released a draft regulation respecting a cap-and-trade system for greenhouse gas emission allowances (Draft GHG Regulation), which proposes a system requiring large emitters of greenhouse gases to register and cover each of their GHG emissions through emission allowances including those purchased from the Québec government and from other covered emitters or participants in the system (the "cap-and-trade system"). As of 2013, the proposed system targets major emitters from specific sectors including mining extraction, electric power generation and manufacturing, and expands to refineries and fuel importers as of 2015.

Context

The Draft GHG Regulation arises from Québec's participation in the Western Climate Initiative (WCI), a group of 11 Canadian provinces and U.S. states that have chosen to develop common guidelines to create a regulated regional carbon market, without waiting for the implementation of a system at the federal level. Five members of the WCI (Québec, Ontario, British Columbia, Manitoba and California) have actively worked towards setting up their cap-and-trade system by January 1, 2012. However, Manitoba and Ontario postponed the implementation of their systems to an undetermined date, while Québec and California recently announced that their systems would formally come into force on January 1, 2013.

The global target of the WCI is to reduce GHG emissions by 15 per cent compared to the 2005 level by 2020. For its part, Québec announced in November 2009 a more ambitious target of 20 per cent compared to the 1990 level, by 2020, or a reduction of 17 megatons (Mt) CO2 equivalent. The latest available Québec GHG inventory reveals how challenging it will be to reach this target considering that Québec emitted in 2008 only 1 Mt of GHG emissions below the 1990 level, a decrease partly due to the improvement in energy efficiency and fuel substitution in the industry but resulting as well from the shutdown of industrial facilities.1

The Draft GHG Regulation

Pursuant to the Draft GHG Regulation, as of January 1, 2013, the sectors of (i) mining, quarrying and oil and natural gas extraction; (ii) electric power generation, transmission and distribution; (iii) natural gas distribution; iv) steam and air-conditioning supply; (v) manufacturing; and (vi) pipeline transportation of...