The Carbon Market, a Green Economy Growth Tool!

In 2013, Québec set up a Cap-and-Trade System for greenhouse gas emission allowances (C&T system), more commonly known as the “carbon market,” in order to effectively fight climate change. In 2014, Québec linked its system to California’s, thereby creating the largest carbon market in North America.

The carbon market effectively invests its revenues in sectors that grow Québec’s economy. Transportation electrification, conversion to bioenergy, energy-efficient innovation: the carbon market accelerates Québec’s climate and energy transition.

The carbon market is a lever that promotes GHG reductions at lower cost for businesses and strengthens our ability to adapt to climate change. It is an economic growth tool that makes it possible to carry out many high-impact, job-creating projects.

All proceeds from the carbon market are invested in the Electrification and Climate Change Fund (FECC) (French), which funds government climate action through the 2030 Plan for a Green Economy. The carbon market:

• Concretely reduces Québec households’ energy bills through programs that subsidize the purchase of charging stations for electric vehicles, the installation of heat pumps, energy-efficient residential renovations and construction, and conversion to electricity.
• Supports municipalities in implementing their adaptation plan and helps strengthen communities’ resilience to the effects of climate change and mitigate risks to infrastructure.
• Fosters the development of an economy focused on innovation, efficiency and the energy transition by creating jobs in future-oriented sectors.
• Encourages the implementation of promising industrial projects that enable a significant reduction in GHGs.

Links:

• Auction Proceeds
• Initiatives to fight climate change
• Progress of government climate action (In French only)

For more details on how the carbon market works:

• The actors involved in the C&T system
• How the C&T system works
  • Caps
  • Compliance
  • Acquiring emission allowances
• Enforcement
• The value of an emission allowance
• The contribution of the carbon market to meeting GHG emission reduction targets
• Learn more

The actors involved in the C&T system

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

• Industrial establishments that emit 25,000 metric tons of CO₂ equivalent (mt CO₂ eq.) or more annually (aluminum smelters, cement plants, refineries, chemical plants, steel mills, mines, etc.).
• Electricity producers and importers, for which the GHG emissions associated to the production of electricity equal or exceed 25,000 metric tons of CO₂ equivalent annually.
• Distributors of fuels used in Québec (gasoline, diesel fuel, propane, butane, kerosene, coal coke, petroleum coke, coal, distillation gas, ethanol, biodiesel, biomethane, natural gas, and heating oil).
• Industrial establishments that emit 10,000 mt CO₂ eq. or more annually, but less than 25,000 mt CO₂ eq. and that wish to become emitters subject to the C&T system (called “opt-in emitter”).

Subjecting these companies represents approximately 80% of GHGs emitted in Québec.

The carbon market is also accessible to natural and legal persons who wish to participate (the participants) such as investors, brokers, consultants, offset credits promoters, etc.

Links:

• List of emitters and participants registered to the carbon market
• Types of participants in the C&T system
• C&T system registration
• Opt-in

How the C&T system works

The C&T system consists of several components. Here are the main ones:

Caps

The government sets annual emission caps, that is, the maximum quantities of GHGs that may be released into the atmosphere by all emitters subject to the C&T system. Each year, the government puts into circulation a number of emission units equivalent to the annual cap (maximum permitted). The caps are gradually reduced over time, which encourages emission reductions.

Links:

• Caps for the 2013-2020 period - Order in Council 1185-2012 (PDF, 149 KB)
• Caps for the 2021-2030 period - Order in Council 1126-2017 (PDF, 57 KB)

Compliance

At the end of each compliance period, emitters must surrender one emission allowance for each ton of GHGs they release into the atmosphere.

Links:

• Compliance
• Mandatory Reporting

Acquiring emission allowances

• The government holds emission units auctions four times a year.
• Emitters that are exposed to national and international competition receive a certain amount of GHG emission units without charge to maintain their competitiveness and avoid the risk of “carbon leakage” (relocation of businesses). The number of free units allocated decreases progressively over time to encourage them to make additional efforts to reduce their emissions.
• The government also allows emitters to cover a part of their GHG emissions by using offset credits.
• In addition to auctions, the government may also hold a sale by mutual agreement by the Minister. These sales are reserved for Québec emitters who do not hold enough emission allowances to cover their emissions.
• Emitters also have the option of purchasing emission allowances from other participating companies or on the derivatives market.

Links:

• Auctions
• Sale by mutual agreement by the Minister
• Allocation of emission units without charge
• Offset credits
• Emission allowance transfer

Enforcement

Various measures are put in place to ensure compliance with the Regulation respecting a cap-and-trade system for greenhouse gas emission allowances. Notices of non-compliance may result in fines and legal proceedings. Administrative measures may also be applied, such as a penalty on emission units, a suspension of free allocation or a prohibition on participating in auctions.

Links:

• Monetary administrative penalties (in French only)

The value of an emission allowance

Determining a precise value for an emission allowance is impossible, as it is influenced by supply and demand on the carbon market. However, certain parameters enable to estimate a price range for these allowances.

• First, there is the annual auction minimum price. This minimum price establishes a limit below which emission allowances cannot be sold at auctions.
• On the other hand, there is also a maximum price which corresponds to the price of Category C units, the category with the highest prices during a sale by mutual agreement by the Minister.

The carbon cost has a slight impact on the prices of fuels and combustibles sold in Québec. This impact can be estimated using the following equations and emission factors.

In the case of a blend, the estimate must be carried out by taking into account the proportion of each constituent and its respective emission factor. For example, the following equation will be used for gasoline containing 12% ethanol.

For example, at a price of $40 per emission unit, the impact on major fuels would be as follows:

• Automotive gasoline (containing 12% ethanol): 8.4 ȼ/litre
• Diesel fuels (containing 5% biodiesel): 11. ȼ/litre
• Light oil: 10.9 ȼ/litre
• Heavy oil: 12.6 ȼ/litre
• Propane: 6.2 ȼ/m³
• Natural gas: 7.6 ȼ/m³

The following calculation tool allows you to calculate the carbon cost attributable to a selected emission unit price on gasoline and diesel fuel.
calculateur-cout-carbone-en.xlsx (Excel, 26 KB)

For comparison, according to the Kalibrate website, the price of gasoline in Montreal on December 31, 2025 was 1.464 $ per liter, broken down into the following components:

These costs are calculated using the emission factors shown in Table 30-1 of the Regulation respecting mandatory reporting of certain emissions of contaminants into the atmosphere. These emission factors indicate the quantity of CO₂ emitted when a given fuel is burned.

Links:

• Auction Price History (PDF, 294 KB)
• Auctions
• Sale by mutual agreement by the Minister

The contribution of the carbon market to meeting GHG emission reduction targets

To assess achievement of a target, it is necessary to calculate the net balance of GHG emissions based on two components:

• The level of GHG emissions in Québec in 2020, as recorded in the Québec GHG emissions inventory.
• The annualized net flow for 2020 of purchases and sales of emission allowances between Québec and California as part of the joint carbon market.

The purchase of emission allowances issued by a partner jurisdiction (e.g., California) by emitters covered by the Québec’s C&T system enables Quebec to acquire the reductions corresponding to those allowances and subtract them from the inventory’s level of GHG emissions to demonstrate achievement of its target. The reverse is also true for allowances issued by Quebec and used by emitters of a partner government. Net purchases and sales (called “net flow”) are therefore accounted for, in combination with the GHG emissions inventory, to assess achievement of Québec’s target.

In order to determine their respective share of the emissions reductions achieved in the joint carbon market, Québec and California developed a methodology for calculating the net flow of emissions trades between their territories. This accounting prevents double counting of GHG emission reductions.

Links:

• Accounting of Compliance Instruments Traded among WCI Linked Jurisdictions
• Report on achievement of Québec’s GHG emissions reduction target for 2020 (PDF, 1.8 MB)

Learn more

Documentation

• Publication, forms, regulations

Links

• Québec partnerships within international organizations
• Western Climate Initiative, inc. (WCI, Inc.)
• International Carbon Action Partnership (ICAP)
• Carbon Pricing in the Americas
• World Bank:
  • Carbon Pricing Leadership Coalition (CPLC)
  • Partnership for Market Implementation (PMI)