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Coming Soon: BC’s Cap and Trade Regulations

British Columbians are eagerly awaiting the release of the Ministry of Environment’s consultation papers on the proposed Cap and Trade Emissions Trading Regulation and the Cap and Trade Offsets Regulation, which were set to be posted on the Ministry’s website in September 2010.  Once the consultation papers are posted a 45 day consultation period will follow where the Ministry will be seeking comments from stakeholders, First Nations and the general public on the proposed regulations.

The proposed regulations will be introduced under the authority of the Greenhouse Gas Reduction (Cap and Trade) Act (the “Cap and Trade Act”) which enables the Province to put into place a cap and trade system, the details of which will be worked out in co-operation with the provincial and state Partners of the Western Climate Initiative (“WCI”).  The WCI recently released its report on the “Design for the WCI Regional Program”, which serves as a guidance document for WCI Partner jurisdictions as they implement cap and trade systems on January 1, 2012. The WCI Partners have committed to reduce regional greenhouse gas (“GHG”) emissions to 15% below 2005 levels by 2020. To achieve this goal, the WCI’s approach involves the use of a flexible, market-based, regional cap and trade program that caps GHG emissions and uses tradable permits. The program is designed to act as an incentive for WCI Partners, companies and inventors to develop renewable and clean energy technologies, as well as reduce dependence on fossil fuels, which will further allow the Province to meet its objectives set out in the Clean Energy Act.

Each WCI Partner jurisdiction will issue emission allowances to GHG emitters that add up to the total allowable emissions for the Partner jurisdiction. Pursuant to BC’s Greenhouse Gas Reductions Target Act, the Provincial Government made a legally binding commitment to reduce GHG emissions by at least 33 per cent by 2020 and 80 per cent by 2050 below the 2007 level. In 2008, BC’s total GHG emissions amounted to 68.7 megatonnes, one per cent above 2007 levels. Once BC’s cap and trade system comes into effect, a limited number of emission allowances will be issued to designated large GHG emitters. A regional cap and trade market is formed whereby allowances are recognized as tradable within the Partner jurisdictions at a price determined by market forces. As a result, Partner jurisdictions are able to meet their GHG emission reduction targets in an affordable and cost-effective manner. Emission allowances can be bought and sold in the regional market by not only the designated large GHG emitting entities that are allocated allowances but also third parties.

Those designated large GHG emitters that reduce their GHG emissions below the emission allowances they’ve been allocated can sell their surplus allowances in the regional market. The allocated emission allowances are tradable for fixed three year compliance periods. Accordingly, each designated large GHG emitter subject to the regulations will be required to surrender the number of emission allowances equal to the cap established for that emitter during each compliance period. The number of emission allowances allocated will be reduced over time for each compliance period.  Compliance units are equal to one tonne of CO2 or its equivalent. The GHG emission reduction target can also be met by retiring “emissions offsets” in a limited quantity. Those designated large GHG emitters that do not surrender the requisite number of compliance units will be subject to administrative penalties imposed by regulation.

According to the Ministry, the proposed Cap and Trade Emissions Trading Regulation will include clear rules on “how allowances are created, distributed for free or auctioned, traded, tracked and retired for compliance,” while the proposed Cap and Trade Offsets Regulation will govern the development and recognition of emissions offsets, consistent with the offset design recommendations of the WCI. For more information on cap and trade go to the Ministry of Environment’s website.