On January 1, 2012, the Regulation respecting a cap-and-trade system for greenhouse gas emission allowances¹ came into force, establishing Québec’s Cap-and-Trade (C&T) system for regulating greenhouse gas (GHG) emission allowances. This C&T system is the result of years of work between the Government of Québec and its partners as part of the Western Climate Initiative (WCI). The WCI was subsequently incorporated as a non-profit entity (WCI Inc.) to manage the Compliance Instrument Tracking System Service (CITSS). CITSS is the platform on which emitters must register to participate in the C&T system (as a regulated emitter), and where participants can buy and sell GHG emission allowances.

The C&T system is currently overseen by Québec’s Ministère de l’Environnement, de la Lutte contre les changements climatiques, de la Faune et des Parcs (the Minister). The Minister approves applications for registration in the system, creates and distributes GHG emission allowances and may restrict an emitter’s ability to participate in transactions or impose sanctions.

There are three types of GHG emission allowances an emitter may use to meet its emission targets: early reduction credits, emission allowance units and offset credits. Each credit or unit is equivalent to one metric ton of carbon dioxide equivalent (CO2e). Early reduction credits were only issued to emitters who reduced emissions between 2008 and 2012, prior to the C&T system becoming operational. Emission allowance units are distributed by the Minister either free of charge (pursuant to the C&T Regulation), sold at auction (administered by WCI Inc.), or in sales by mutual agreement (Ministerial Reserve units that cannot be resold on the market).

Offset credits are issued by the Government of Québec or any other government that Québec has a market-linking agreement with. Since January 1, 2014, Québec has linked the CITSS carbon credit market with California (where the governing body is the California Air Resources Board), forming the largest carbon market in North America. One offset credit represents one metric ton of CO2e which was removed from the atmosphere or not emitted. They are generated from GHG emission reduction projects in sectors not governed by the C&T Regulation. However, regulated emitters may only use offset credits to satisfy up to 8% of its emission target.

An emitter (any person or municipality) becomes subject to the C&T Regulation, and must register with the C&T system, through a variety of ways: ²

• The emitter operates a facility whose annual GHG emissions are 25,000 metric tons of CO2e or greater;
• The emitter distributes electricity in Québec, but produces the electricity outside of Québec and whose annual GHG emissions are 25,000 metric tons of CO2e or greater; or
• The emitter distributes 200 litres or more of fossil fuels in Québec.

A natural person, corporation, or municipality that is not subject to the C&T Regulation, but wishes to voluntarily opt-in to participate in the purchase, hold, sale, transfer, or withdrawal of emission allowances may do so by opening an account in CITSS.³

To ensure Québec’s industrial sector remains competitive and production does not leave for jurisdictions with lower carbon prices, emitters in certain sectors receive free GHG emission allowances. Those sectors include, among others: aluminum, lime, cement, chemical and petrochemicals, petroleum refining, metallurgy, mining and pelletizing, pulp and paper, certain glass or gypsum products and certain agri-foods.⁴

Whether you are an emitter subject to the C&T Regulation or an individual that wishes to participate in the CITSS carbon market, Dentons can help you navigate the legal and regulatory landscape. Please reach out to Hazel Saffery for any questions or assistance.

We wish to thank Jack Yuan, Articling Student, for his contributions to this article.

1. Regulation respecting a cap-and-trade system for greenhouse gas emission allowances, c Q-2, r 46.1 [“C&T Regulation”], enabled by the Environment Quality Act, c Q-2. ↩
2. C&T Regulation, section 2. ↩
3. See https://www.environnement.gouv.qc.ca/changements/carbone/inscription-spede-en.htm. ↩
4. C&T Regulation, section 39. ↩