The Carbon Market

Sales by Mutual Agreement by the Minister

Under the cap-and-trade system for greenhouse gas emission allowances (C&T System), the Minister of the Environment and the Fight against Climate Change may hold an emission units sale by mutual agreement by the Minister up to four times per year. There is no pre-set date for these sales and it is at the Minister’s discretion as to whether to hold them. If applicable, a notice is published at least 60 days before the scheduled date of a sale by mutual agreement by the Minister. The notice outlines the rules and conditions pertaining to the sale. Unlike an auction, GHG emission units are offered at a set price.

The Minister’s reserve account

GHG emission units made available to emitters during a sale by mutual agreement by the Minister come from the Minister’s reserve, which was created when the cap-and-trade system was implemented. To accomplish this, 1% was removed from the 2013 and 2014 emission unit budgets, 4% from the 2015, 2016 and 2017 emission unit budgets and 7% from the 2018, 2019 and 2020 emission unit budgets. When the reserve was created, the GHG emission units made available to emitters were also equally divided into three categories (A, B and C).

Settlement price of GHG emission units sold during a sale by mutual agreement by the Minister

The price of emission units sold during a sale by mutual agreement by the Minister in 2013 was pre-set: $40 for category A units, $45 for category B units and $50 for category C units. These prices were increased by 5% plus inflation annually from 2014 to 2020. Following the adoption of the Regulation to amend the Regulation respecting a cap-and-trade system for greenhouse gas emission allowances, these prices were set at $41.40 for category A units, $53.20 for category B units and $65 for category C units. The prices are increased annually by 5% plus inflation as of 2021. However, if California, as a partner entity, has set higher prices per emission unit for corresponding categories, the emission units are sold at the highest of the prices set by those entities, based on the daily average exchange rate of the Bank of Canada published on its website, in force on the day preceding the sale by mutual agreement.

Procedure of sales by mutual agreement by the Minister

During a sale by mutual agreement by the Minister, an emitter cannot submit more than one bid indicating the number of units requested and the category corresponding to the maximum price per unit it is willing to pay for the units. This bid must be consistent with the amount covered by the bidder’s financial guarantee, and the bidder’s quantity of emission units required to meet the purchaser’s coverage obligation. All bids remain confidential. At the close of the sale by mutual agreement, the emission units from categories A, B and C are allocated in that order. Thus, if for example there are enough category A units to satisfy all bids received, all bidders whose bids meet their financial guarantee and emission unit requirements will receive units from category A, even if their bid was for category B or C units.

Winners are notified of the number of emission units they have been awarded and of the amount they owe. Winners must complete financial settlement within the prescribed time period, failing which their financial guarantee will be used.

Note that sales by mutual agreement by the Minister are not joint sales and that the units put up for sale come from Québec’s reserve account.

Registering for sales by mutual agreement by the Minister

Participation in sales by mutual agreement by the Minister is reserved for emitters whose general accounts do not have enough GHG emission units that can be used to cover emissions for the current compliance period.

To participate in a sale by mutual agreement by the Minister, emitters must first open an account in the GHG emissions allowance Compliance Instrument Tracking System Service (CITSS). However, participation in sales by mutual agreement by the Minister is not automatic. Once the account has been opened, one of the emitter’s account representatives must indicate the emitter’s intention to participate in a government sale (auction or sale by mutual agreement by the Minister) at least 31 days before the event. To do so, the representative must click on the “Initiate Event Participation” button under the “Auction” tab in the CITSS system. This button only appears if registration is open for an upcoming event and enables the emitter’s representative to submit a new registration application for an event or submit the registration information once again as confirmation of the emitter’s intention to participate in the event.

The sale by mutual agreement administrator

Under the Regulation respecting the delegation of management of certain parts of a cap-and-trade system for greenhouse gas emission allowances, some support services for the system’s implementation, including the administration of auctions and sales by mutual agreement by the Minister, have been delegated to the non-profit organization Western Climate Initiative, Inc.

The financial services administrator

Western Climate Initiative, Inc. signed a contract with Deutsche Bank, which provides financial and transactional services for auctions and sales by mutual agreement by the Minister carried out by the participating governments.

The financial services administrator provides the following services:

• Before the sale by mutual agreement by the Minister:
  • Process financial eligibility applications;
  • Opening and maintaining bank accounts for the deposit of financial guarantees;
  • Administering financial guarantees;
• After the sale by mutual agreement by the Minister:
  • Payments;
  • Returning unused financial guarantees.