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The carbon market, a green economy growth tool!

Pricing carbon in the economy is essential for dealing with the challenge of climate change. Knowing this, Québec set up a cap-and-trade system for greenhouse gas (GHG) emission allowances in 2013. One year later, it linked its system to California’s as part of the Western Climate Initiative, instantly creating the largest carbon market in North America and the first to be designed and managed by sub-national governments in different countries. It will be expanding, since Ontario inaugurated its carbon market on January 1, 2017, and intends to link it to the Québec-California market in 2018.

Québec has chosen to pay all income from carbon market auctions to the Green Fund, to support the implementation of the 2013-2020 Climate Change Action Plan.

The Plan, which will be funded in excess of three billion dollars through 2020, enables support for companies, municipalities and private citizens in reducing GHG emissions, adapting to the impacts of climate change and shifting forward to a robust, innovative and lower-carbon economy.

Who participates in the carbon market?

The carbon market is aimed at companies in the industrial and electricity sectors that emit at least 25,000 metric tonnes of CO2 equivalent each year (aluminum refineries, cement plants, electricity producers, etc.) and who are required to cover their emissions of GHG from their activities, as well as fossil fuel distributors who are required to cover GHG emissions related to the combustion of all the products they distribute in Québec (gasoline, diesel fuel, propane, natural gas, and heating oil). The market also allows participation by other individuals and corporations even if they have no regulatory obligation to do so.

How does the carbon market work?

  • The government sets annual maximum GHG emission unit caps that are progressively lowered over time.
  • Regulated companies are required to acquire emission units for each tonne they release into the atmosphere.
  • Companies in some sectors that are exposed to national and international competition receive free GHG emission units based on the level of their production. Companies that succeed in reducing their GHG emissions below their allocated number of units (for example, by developing green technology or using less polluting processes) can sell their units on the carbon market to companies whose GHG emissions exceed their allocation.
  • The number of units allocated for free to qualifying emitters drops progressively over time so as to incentivize them to make additional efforts to reduce their GHG emissions.
  • The carbon market is therefore a green fiscal tool that simultaneously allows us to reduce our GHG emissions and develop an entire strategic sector for spurring economic development.

In 2011, Québec, California, Ontario and British Columbia created the non-profit Western Climate Initiative (WCI Inc.), which provides technical and management services to support and facilitate the implementation and linking of cap-and-trade systems both by its members and by other states and provinces that wish to join in.

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