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The Carbon Market, a Green Economy Growth Tool!

100% Compliance

On November 1st, 2018, all emitters that were required to cover their greenhouse gas emissions for the second compliance period met their regulatory obligations. This score shows that companies in Québec and California are utilizing the carbon market as an economic tool for fighting climate change.

See the Report on the 2015-2017 Compliance Period of the Québec Cap-and-Trade System for Greenhouse Gas Emission Allowances.

Putting a price on carbon in the economy so that everyone’s decisions take into account greenhouse gas (GHG) emissions and their impacts is an essential measure for meeting the climate change challenge.

In 2013, Québec set up a cap-and-trade system for greenhouse gas emission allowances (C&T system) to fight climate change. Its primary objective is to encourage businesses and citizens to innovate and change their behaviour in order to reduce GHG emissions.

In 2014, Québec linked its system to California’s as part of the Western Climate Initiative, thereby creating the largest carbon market in North America and the first to be designed and managed by sub-national governments in different countries. This market expanded again with the signing of an agreement with Ontario in September 2017, making the link between the Québec, California and Ontario markets official on January 1, 2018. Despite Ontario’s withdrawal when it repealed its cap-and-trade regulation on July 3, 2018, Québec and California are continuing their excellent collaboration and are committed to maintaining and further developing their regional carbon market.

Québec has chosen to pay all proceeds from carbon market auctions into the Green Fund to finance the implementation of the 2013-2020 Climate Change Action Plan (2013-2020 CCAP). Under the Plan, support is provided to companies, municipalities and private citizens for reducing GHG emissions and adapting to the impacts of climate change, as well as for continuing the transition to a robust, innovative and increasingly lower-carbon economy.

Who participates in the carbon market?

The carbon market is intended for the following companies (the emitters):

  • Industrial establishments that emit 25,000 metric tons of CO2 equivalent (t CO2 eq.) or more annually (aluminum smelters, cement plants, chemical plants, steel mills, mines, etc.);
  • Electricity producers and importers that emit 25,000 metric tons of CO2 equivalent or more annually;
  • Distributors of fossil fuels used in Québec (gasoline, diesel fuel, propane, natural gas, and heating oil).
    • Distributors are required to cover the GHG emissions resulting from the products they distribute.

Requiring these companies to be subject to the C&T system ensures coverage of approximately 80% of GHGs emitted in Québec.

Since 2019, industrial establishments that declare annual emissions of more than 10,000 t CO2 eq. but less than the reporting threshold of 25,000 t CO2 eq. can voluntarily register to the carbon market to become emitters subject to the C&T system.

The carbon market is also accessible to natural and legal persons who wish to participate (the participants) even if they do not have a regulatory obligation to fulfill (investors, brokers, consultants, etc.).

See the list of emitters and participants registered to the carbon market.

How does the carbon market work?

  • Emitters must obtain an emission allowance (a term that refers to both emission units and offset credits) for each ton of GHGs they release into the atmosphere and surrender them to the government at the end of each three-year compliance period.
  • The government establishes the annual GHG emission unit caps (maximum emission limit). These caps are progressively lowered over time in order to generate GHG emission reductions.
  • The government sells emission units at auction four times a year. Only emitters and participants registered to the market can participate in these auctions.
  • Emitters that are exposed to national and international competition receive GHG emission units at no charge. The number of free units allocated drops progressively over time to encourage emitters to make additional efforts to reduce their GHG emissions. The allocation of free emission units is a C&T system mechanism designed to help maintain the competitiveness of companies and limit “carbon leakage.”
  • Emitters that are able to reduce their GHG emissions below the number of units allocated at no charge (for example, by improving their production efficiency or integrating cleaner green technologies) can sell the surplus emission units on the carbon market to other emitters whose GHG emissions have exceeded their allocation.
  • The government also allows emitters to compensate for a part of their GHG emissions by using offset credits.

The carbon market is therefore a green fiscal tool that simultaneously allows for reducing GHG emissions and developing an entire strategic sector for the Québec economy (clean technology, energy efficiency, transportation electrification, etc.).

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