The Carbon Market
Allocation of Emission Units Without Charge
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Quantity of Emission Units Allocated Without Charge and consigned and List of Beneficiary Emitters (French, January 15 2024 Presentation on the 2024-2030 Free Allocation Rules ( Presentation on consignment and the Québec industrial sector decarbonization assistance measure (MADI) (French, Free allowance calculation tool for 2024-2030 (French, Québec industrial sector decarbonization assistance measure (MADI) (French) |
Excel, 1.2 MB)
PDF, 1,5 MB) - June 2022 Public ConsultationIn view of the potential impact of the C&T system on their limited ability to pass on the cost of carbon pricing to their customers, “emissions-intensive trade-exposed (EITE) emitters” such as aluminum smelters, steel mills, cement plants, and pulp and paper plants are considered to be more vulnerable than others to “carbon leakage”.
To help maintain the competitiveness of these companies and foster innovation in these sectors, the Québec government introduced a mechanism directly into the C&T system to reduce the risk of carbon leakage, as did other governments: the allocation of free emission units.
| Emitters eligible for the allocation of free emission units are those that operate an establishment subject to the Cap-and-Trade System for greenhouse gas emission allowances (C&T system) or that voluntarily opt into the system and engage in an activity referred to in Table A Part I in Schedule C of the Regulation respecting a Cap-and-Trade System for greenhouse gas emission allowances. |
Companies subject to the regulation that are not exposed to national or international competition, or that can transfer the cost of carbon to their customers, are not considered to be at risk of carbon leakage. They are therefore not entitled to free allocations. This is especially the case for electricity producers and fuel distributors. These companies must therefore purchase all the emission allowances needed to comply with their regulatory obligations.
EITE companies can use the free emission units allocated to them to cover part or all of their GHG emissions. This reduces the number of emission allowances that they must purchase on the market, which in turn reduces the impact of carbon pricing on their operating costs.
The amount of emission units allocated annually to most EITE emitters is calculated on the basis of the production and intensity of their GHG emissions.
On one hand, this approach does not penalize a company that increases its production. On the other hand, it avoids allocating too many free emission units to a company that might reduce its production or fail to improve its environmental performance.
The free allocation rate per unit produced declines each year in order to gradually increase the importance of carbon cost in business decisions and broaden its internalization by businesses.
New free allocation rules will apply starting in 2024
As of 2024, a portion of the emission units (proportional to the level of reduction of the free allocation) will be consigned for businesses, and subsequently sold at auctions. The funds that the sale of the units generate will be paid to businesses conditional on compliance with certain criteria established by the government. The businesses must use the funds to conduct a study of the technical and economic potential of GHG emission reduction, invest them in greenhouse gas emission reduction projects in their establishments or in research and development projects aimed at reducing greenhouse gas emissions.
To ascertain which projects are eligible for payment from the consigned funds and to find out the procedure to submit a project to the MELCCFP, please consult the page devoted to the projects eligible for payment from consigned funds.
