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Greenhouse gas emissions trading schemes: A global perspective

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An overview of rules and developments in major jurisdictions globally, including the US, Canada, Mexico, Japan, the UK and the EU.

Navigating greenhouse gas emissions schemes worldwide

As global emissions trading systems undergo fundamental changes, understanding the policies and rules around them can alert you to opportunities as well as challenges.

The impacts of greenhouse gas (GHG) emissions continue to be of great concern globally. Innovations have occurred in market-based solutions, technology development and international law, and there are 17 GHG emissions trading schemes that have been established globally, operating in 35 countries, 12 states and seven cities.

These trading schemes present a market-based approach to controlling GHG emissions and mitigating the effects of climate change by limiting the quantity of industrial discharges of GHGs, either through the allocation or purchase of emissions allowances from a central authority or the purchase of emissions credits from market participants. For example, a company that emits more GHGs than its permits allow can buy credits from others willing to sell them. GHG emissions credit units are often known as carbon credits or GHG emission-reduction credits.

With the 2013 – 2020 Kyoto Protocol compliance period coming to an end, meeting intended nationally determined contributions under the Paris Agreement has opened up new challenges, and the resulting changes are confronting GHG emissions trading globally. These changes include economic dynamics, which have lowered the value of emission-reduction credits and have affected the marketplace, potential political opposition to the policies underlying GHG emissions trading and the rise of cost-effective innovations in fnancing GHG emissions reductions.

This report offers readers an overview of the status of GHG emissions trading schemes in major jurisdictions globally, including the United States, Canada, Mexico, Japan, the United Kingdom and the European Union. It illustrates the current status of global GHG emissions trading systems and also offers insights into where the global GHG emissions trading system is headed, alerting readers to potential opportunities and challenges.

 

United States

Individual states are expected to take the lead in regulating greenhouse gas emissions.

California Coast and Pacific Ocean

Canada

Ontario and Québec lead the way in developing trading schemes.

aerial view of Toronto, Canada

Mexico

Implementation of a cap-and-trade program and compliance market is expected by 2021.

Monarch butterflies

United Kingdom

EU's trading scheme framework dominates, but Brexit brings uncertainty.

Wind Electricity

European Union

The world’s biggest trading scheme sees proposals intended to stabilize the market and links to Switzerland.

Offshore Wind Platform

Japan

Tokyo Metropolitan Government's and Saitama Prefecture's schemes are connected as Japan considers a national scheme.

Japanese bamboo

The global future

Regional trading systems are expected to expand and increase their connections with one another.

Greenhouse gas emissions

Global auction statistics

Mapping emissions trading globally

aerial view of Toronto, Canada

Canada: Greenhouse gas emissions trading schemes

Insight
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4 min read

Ontario and Québec lead the way in developing trading schemes

Canada's federal government recently entered into an agreement with eight Canadian provinces and three Canadian territories that is likely to accelerate the development of provincial and territorial greenhouse gas (GHG) trading systems. The December 2016 Pan-Canadian Framework on Clean Growth and Climate Change Framework outlines a federal benchmark for carbon pricing in Canada. Signatory jurisdictions can implement either (1) an explicit price-based system like a carbon tax or (2) a GHG cap-and-trade system similar to the Québec-California connection, as discussed on page 3. Ontario is following Québec's lead with the development of its own GHG emissions trading scheme.

 

QUÉBEC

The Province of Québec's GHG emissions trading scheme is more similar to the California system than it is to the RGGI cap-and-trade initiative. As a result, the Québec scheme has been harmonized with the California system since 2014.

What is covered

Following an expansion in 2015, Québec's cap-and-trade system now applies to power plants, industrial facilities and fuel distributors. While fuel distributors are subject to a lower threshold, power plants and industrial facilities that emit 25,000 metric tons or more of carbon dioxide (CO2)-equivalent are subject to the provincial regime.

What is required

The Québec system covers the same broad suite of GHGs that the California system covers. Covered entities must surrender equivalent allowances to their emissions. Generally, power plants and fuel distributors have to buy 100 percent of their allowances at auction or on the secondary market. Allowances are auctioned jointly with California through the California Cap-and-Trade Program and the Québec Cap-and-Trade System Joint Auction of Greenhouse Gas Allowances. Certain industrial sectors subject to international competition—such as aluminum, cement, chemical, petrochemicals, mining, pulp and paper, and refning—receive some free allowances. However, this allocation of free allowances will continue to diminish over time. Offsets are allowed, subject to quantitative and qualitative limitations. Examples of Québec program offsets include landfll gas collection and destruction of ozone-depleting substances in insulating foam or used as refrigerants removed from refrigeration, freezer and air-conditioning appliances.

Future outlook

By 2020, Québec's system is intended to support a 20 percent provincial reduction in GHG emissions from 1990 levels.

Connections

Offsets issued by California, and any jurisdiction connected with Québec in the future, are recognized for compliance.

 

ONTARIO

The Ontario Cap and Trade Program is relatively new, having only come into effect in January 2017.

What is covered

The Ontario GHG emissions trading scheme applies to natural gas distributors and industrial emitters that emit 25,000 metric tons or more of CO2-equivalent, fuel supplies that supply 200 liters or more of petroleum products, and electricity importers who frst import electricity into Ontario for consumption in cases where generation facilities receive fuel directly from inter-provincial or international gas pipelines.

What is required

The Ontario system covers the same broad suite of GHGs that the California and Québec systems cover. Emitters must cover their emissions in each compliance period with an equivalent number of emissions credits. These credits can be obtained through provincial allocations or auctions, or through purchases in the secondary market. Credits can be traded among emitters and other market participants. Offsets can be used to help meet part of a covered entity’s emission requirements under the cap-and-trade program.

Future outlook

The first auction of Ontario emissions allowances was in March 2017. In the first compliance period (January 1, 2017, to December 31, 2020), most large emitters will receive most of the allowances they require free of charge. Following 2017, the number of credits issued by the province will decrease over a three-year period to support a reduction of Ontario's GHG emissions to 15 percent below 1990 levels by the end of 2020.

Connections

As discussed above, Ontario intends to connect its GHG trading scheme with the California and Québec regimes by 2018. Once this connection occurs, the three jurisdictions will hold joint auctions of emissions allowances. Emitters in any of the three jurisdictions will be able to purchase credits on the secondary market from covered entities in any of the three jurisdictions.

 

 

This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.
© 2017 White & Case LLP

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