Ontario unveiled details of its cap-and-trade program, the government’s solution to cutting greenhouse gas (GHG) emissions and boosting the economy. The province has long proclaimed that putting a price on carbon and charging polluters will prompt them to create more innovative, investable, clean energy alternatives.

The program is expected to raise $1.9 billion in its first year of operation. The funds will be reinvested into emissions-reduction projects and create jobs, such as retrofitting buildings, constructing green infrastructure, research and clean technology.

Last week, Ontario also proposed the Climate Change Mitigation and Low Carbon Economy Act, which solidifies a GHG emissions reduction target of 15 per cent by 2020, 37 per cent by 2030 and 80 per cent by 2050, and will further push cap and trade towards a low carbon economy.

The long anticipated regulations will come into effect on January 1, 2017. Between the first compliance period of 2017 and 2020, the cap is expected to decline at an average rate of 4.17 per cent each year to meet Ontario’s 2020 emissions reduction target. Such declines will affect the heating and transportation fuel sector, but the specific cap for the electricity generation sector will remain unchanged from year to year,

Doug Taylor, environmental and energy lawyer at Blake Cassels and Graydon LLP (Blakes), outlined notable program provisions, following the release of both pieces of legislation last week.

While non-compliance will result in fines from $25,000 to $10 million, and up to five-years in prison for individuals, the first compliance period will incorporate temporary measures to allow for a smoother transition. The government will distribute allowances through auctioning and free-of-charge allocations, but many of these allocations will be distributed free of charge during this shift period. Meanwhile, only registered participants will be able to purchase, sell, trade or deal in the Ontario allowances and credits.

Initial steps to implementing this climate change legislation took place on April 15, 2015, when the province signed an agreement with Quebec to create a joint cap-and-trade system. The program will eventually be linked with California in what will be North America’s largest carbon market. Once the tri-lateral agreement is in place, regulation amendments will be made to recognize allowances and credits from California and Quebec. Holding and purchasing limits will be adjusted to account for the size of the linked markets, while currency adjustments related to the auction will be addressed.

Both pieces of legislation will be up for public comment as details may need to be worked out, such as a regulation for carbon offsets—credits for GHG reductions that can be purchased and used to compensate for GHG emissions. The offset regulation is expected to be released sometime this year and will outline provisions for verification and registration. The cap-and-trade program will be subject to consultation until April 10, 2016, while the Act will be open for comment until March 25.

Released alongside the cap-and-trade draft were new measures for GHG reporting that will replace the Ministry of Environment and Climate Change’s original Greenhouse Gas Emissions Reporting Regulation. Proposed changes include requirements to report production and other process related information, provisions to allow facilities with emissions between 10,000 and 25,000 tonnes to opt-in, clarifications on measurement requirements and reporting of biomass types and refinements to facilitate implementation of the regulations.