Ontario’s First Cap and Trade Auction Brings in $472M

April 6, 2017

On March 22, 2017, Ontario held its first greenhouse gas emissions allowance auction under the cap and trade program.  The results, released earlier this week, proved a strong start to Ontario’s carbon market with 100% of current 2017 vintage allowances being sold at a price of $18.08. The auction generated $472,031,155 in proceeds, an amount consistent with previous estimates that Ontario’s cap and trade system would generate approximately $1.9 billion annually. All proceeds will be reinvested in initiatives that will help to reduce greenhouse gas emissions in Ontario.

Some quick facts about the auction:

Figure 1

Covered facilities that emit over 25,000 tonnes of CO2eq/year are covered by the emissions cap and those facilities that emit between 10,000-25,000 tonnes of CO2eq/year may elect to participate in the cap and trade system. Market participants not covered by the cap may also purchase allowances at auction. 

A total of 47 organizations participated in the auction. Some notable participants included Suncor Energy Products Partnership, Goodyear Canada, Enbridge Gas Distribution Inc, TransCanada Pipelines Limited, Greater Toronto Airports Authority, University of Guelph, Ontario Power Generation, Labatt Brewing Company Ltd, BP Canada Energy Group ULC, Royal Bank of Canada, and Shell Energy North America (Canada) Inc. The results of the auction do not contain the amount purchased by each participant to protect the “participants’ market positions”.

Ontario’s strong start is important in light of recent Quebec and California results

As Ontario’s five-year, $8.3-billion Climate Change Action Plan depends on revenues generated from quarterly cap-and-trade auctions, it was heartening to see a highly subscribed first auction, especially in light of the recent experience in Quebec and Califorlia, where recent joint auctions were undersubscribed:

Figure 2

Full results from the past four Quebec/California auctions can be found here: May,August,November,February

These results left the Quebec and California governments short on revenue projections. It has been purported that the under-subscription could be connected to political and/or legal uncertainty or merely expressions of market dynamics at work as certain levels of fluctuation are to be expected in carbon markets. One of the benefits of linking cap and trade systems is the creation of a larger, more stable market. [Update 2017-04-07: California Court of Appeal upheld cap and trade auctions as valid under California Law.]

Ontario plans to link its cap and trade program with Quebec and California under the Western Climate Initiative in 2018 and is currently in negotiations with the two jurisdictions over the details of such linkage.

The results of Ontario’s first allowance auction indicate that the Ontario carbon market is functioning smoothly, that participation from industry is high, and that the Province is on its way to achieving meaningful greenhouse gas emissions reduction. The next Ontario auction will take place on June 6, 2017.

You can find more information on carbon pricing in Canada in our recent blog.