What is the Ontario Cap and Trade Program?

With cap and trade programs making an increasing appearance in news headlines, Ontario businesses should be aware of the carbon tax regulations that are coming into effect.

Ontario’s Cap and Trade regulation went into force on July 1, 2016 and will officially launch on January 1, 2017, which businesses should look at closely, as energy-based operating costs will be impacted significantly whether your business chooses to opt into the program or not.

The Ontario Cap and Trade Program will affect each business differently. In fact, large emitters may receive a significant portion of their carbon credit/allowance free of charge in order to protect them from trade-exposed industries.

Voluntarily Participate in The Ontario Cap and Trade Program

Although businesses will need to pay for their carbon emissions whether they are part of the program or not, Ontario businesses that choose to voluntarily participate in the Ontario Cap and Trade Program could save up to $450,000 per year due to Free Allowances.

Ontario businesses must apply to be a Voluntary Participant by September 1, 2016.

Voluntary Participants must operate mid-sized facilities and emit between 10,000 and 25,000 tCO₂e annually and savings could represent $150,000 to $450,000 in the same time period. Voluntary Participants must also consume at least 5 million m³ of natural gas per year, have a combined floor area of at least 1 million square feet, have no less than 500 kW of combined heat and power (CHP), and fall into a covered industrial activity in the Ontario GHG Reporting Regulation.

Should you Participate in The Ontario Cap and Trade Program?

All emitters will participate in the program one way or another. Large emitters will participate directly in the program, meaning that they will receive free carbon emission allowances and will be taxed on additional emissions. However, end consumers of fuel that are not direct participants in the program will also pay carbon tax credits in the form of increased fuel prices. It is expected that 2017 fuel prices will increase by $0.033/m³ for natural gas and $0.05/L for diesel fuel.

So, should you participate? Well, depending on your annual emissions, you may or may not have a choice:

• Mandatory Participation: Facilities with annual emissions of 25,000 tCO₂e or more.
• Voluntary Participation: Opt-in for facilities with annual emissions of 10,000 tCO₂e or more, yet below 25,000 tCO₂e.
• Fuel Distributors: Covered on behalf of their customers’ emissions, and are expected to pass down the carbon cost on fuel bills.

Businesses who directly participate in the program could receive free allowance, while end users will pay higher fuel prices, however businesses eligible for Voluntary Participation should conduct a proper assessment of each option to ensure they are selecting the most cost-effective option.

Next Steps for the Ontario Cap and Trade Program

Businesses interested in participating in the Ontario Cap and Trade Program should prepare as soon as possible.

Voluntary Participation and Free Allowance Allocation

Facilities that are interested in applying as a Voluntary Participant and participants applying for free allowance allocations must apply by September 1, 2016. All participants must also prepare verification statements, including 2015 emissions reports, which should be prepared as soon as possible, as it is a required component of receiving free allowances.

Register for the Compliance Instrument Tracking System Service (CITSS)

Participants must register and participate in CITSS in order to be a participant in The Ontario Cap and Trade Program. Registration opened on August 8, 2016 and mandatory participants must complete the registration process by November 30, 2016. Voluntary Participants must register when they are approved as a Voluntary Participant. In fact, if the participant has not registered by February 1, 2017, they may not receive their allowance.

Alternative Greenhouse Gas Reduction Funding

Ontario manufacturers not participating in the Ontario Cap and Trade Program may be eligible for an alternative program launching in October 2016 called the CME SMART Green Program. This program is only for non-participants of The Ontario Cap and Trade Program and covers up to 50% of projects that will reduce greenhouse gas (GHG) emissions, such as implementing more energy efficient or cleaner capital equipment, processes, or end products. CME SMART Green will provide up to $200,000 in funding per facility up to five facilities per applicant, but no more than $500,000 per applicant.

We will be covering this program as we get closer to the October 18, 2016 launch date, so make sure to subscribe to our funding newsletter to stay up-to-date.