Ontario passes bill to create cap-and-trade system

Ilario D'Amato
Reading time: 2 minutes
20 May 2016

LONDON: The Canadian province of Ontario has just passed a law to set up its greenhouse gas (GHG) ‘cap-and-trade’ system, which will entry into effect in July. The government expects to generate about C$1.8-1.9 billion per year in proceeds from the mechanism, which will be invested entirely in initiatives reducing GHG emissions in the area.

The system was announced last April, when Ontario also expressed the intention of linking it to the joint Emission Trading Scheme (ETS) Québec and California launched in 2014, creating the largest regional carbon market in North America. Now, Ontario has passed a landmark legislation that will make the province more accountable and transparent.

“Ontario has taken a momentous step forward by passing landmark climate change legislation and now formally putting in place its cap and trade program to reduce harmful greenhouse gas pollution,” says Glen Murray, Ontario’s Minister of the Environment and Climate Change.

“We are proud to be among global leaders acting on this defining issue and by working with partners such as The Climate Group, we’re helping make our world a better place.”


The ‘cap-and-trade’ system is an economic mechanism to put a limit, or ‘cap’, on the carbon emissions that every company is allowed to produce in a year. Every year, companies receive free allowances relating to their needs, and they can then ‘trade’ these permits in a central market.

If a company needs to emit more pollutants, it can buy allowances from those that haven't used them at all because they have been able to reduce emissions.

The final goal is to incentivize firms to be far below this limit, so to avoid buying new allowances or selling their own. The total number of permits – which reflects the volume of pollutants every firm can emit in the air – is lowered over time, making the system a very accountable, effective market mechanism to incentivize innovation and lower carbon emissions.

    Video courtesy of Ontario's Office of the Premier


    Ontario is a member of The Climate Group’s States & Regions Alliance, which brings together subnational government leaders from around the world in a powerful network to share expertise, demonstrate impacts and influence the international climate dialogue.

    The province, which is already on track to reduce its per capita carbon footprint by 2050, is at the forefront of the fight against climate change to defend its citizens’ health and foster pioneering, sustainable businesses.

    Recently, it increased incentives to buy electric vehicles EVs by up to C$10,000 (US$7,150), in a move to increase the spread of this clean technology.

    Last July it hosted the first Climate Summit of the Americas, and in November it released a new climate change strategy to push the international climate negotiations held at COP21 – helping to shape a powerful Paris Agreement.

    The province also passed a pioneering legislation to ban coal-fired power, one of the largest GHG reduction initiatives in North America. As part of the Under2 Coalition program, Ontario already has a target of reducing emission by 80% relative to 1990 levels by 2050, with a mid-term target of 37% below 1990 levels by 2030.

    “The official launch of Ontario’s cap-and-trade in July will mark a crucial date for the whole carbon market system in North America,” underlines Libby Ferguson, States & Regions Director at The Climate Group.

    “Ontario has shown great leadership in shaping effective measures to tackle climate change and ensure the prosperity of its citizens on the low carbon pathway. Along with Québec and California, two other members of our States & Regions Alliance, these subnational governments are showing the extraordinary impact they have on tackling climate change.”

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