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Administrative Monetary Penalties in force for Ontario Cap and Trade Program

Effective January 1, 2018, the Administrative Penalties Regulation,O. Reg. 540/17 (“AP Regulation”) strengthened the framework for enforcement of the bulk of the provisions of Ontario’s multi-billion dollar cap and trade program. The stated purpose of this new regime is to ensure compliance with the Climate Change Mitigation and Low-carbon Economy Act (the “Act”) and to prevent parties from deriving an economic benefit from non-compliance.

Administrative penalties (“APs”) are a distinct compliance tool, and can be considered somewhere between a written warning and a prosecution measure, although the financial consequences are not insignificant. APs are imposed by governmental authorities, not through a judicial proceeding, and they can be imposed without opportunity to avoid the penalty by demonstration of due diligence. APs create a no-fault, absolute liability regime for a bulk of the contraventions under the cap and trade program. The total maximum AP that can be imposed under the Act is $1 million.

Schedule 1 to the AP Regulation provides a list of the contraventions to which the administrative penalty regime applies. These contraventions include, for example:

  • Failure to follow provisions regarding the trading of emission allowances or credits, coordinating bidding, or perpetuating fraud contrary to the Act;
  • Failure to quantify and report the amount of greenhouse gas emitted, or to use the appropriate quantification methodology, contrary to the Quantification, Reporting and Verification of Greenhouse Gas Regulation (the “Reporting Regulation”);
  • Failure to register as a mandatory participant within the time prescribed under the Cap and Trade Program Regulation; and
  • A sponsor failing to provide a reversal report, or an accredited verification body failing to provide a verification report, as required pursuant to the Ontario Offset Credits Regulation.

Failure to comply with provisions that do not fall under the AP regime may also constitute an offence. It should be noted that the imposition of an AP does not prevent the non-compliant person from also being prosecuted in respect of the same contravention.

An order for an AP under the cap and trade program may only be issued pursuant to a multi-step process. Upon receipt of a notice of intent to issue such order, the receiving person has 15 days to respond with additional information. This is the only opportunity to provide information to the Director regarding any relevant circumstances of the non-compliance. It is also the only opportunity to advocate for a penalty reduction before an order is issued.

The calculating of the final penalty amount is subject to a number of steps and considerations, which are further detailed in the draft Guideline for the Implementation of Administrative Penalties under the Climate Change Mitigation and Low-carbon Economy Act, 2016 (the “Guideline”),a policy document which is up for public comment on the Environmental Registry until February 16, 2018.

The Guideline sets out factors for increasing and decreasing applicable penalties. The base penalty may be multiplied by the duration of the violation, and increased for factors such as impact on the cap and trade program, whether the contravention was deliberate, and previous convictions under the Act or the Reporting Regulation. Factors tending to reduce penalties include actions taken in advance to prevent the contravention, and response measures. APs can be applied up to 1 year after an event occurred, or came to the province’s attention.

An AP order may be appealed to the Environmental Review Tribunal. The Tribunal may confirm, vary, or revoke the order, but it will not vary the amount of the penalty unless it considers the amount to be unreasonable.

Ontario Cap and Trade Program

The introduction of APs for violations of the Act forms part of the Province of Ontario’s cap and trade program. The program is now comprised of the Climate Change Mitigation and Low-carbon Economy Act,which came into force in January 2017, along with the Cap and Trade Program Regulation, setting out the framework for the distribution and the trading of emission allowances, and the province-wide caps applicable to each compliance period. The Reporting Regulation details the reporting requirements and methods of calculating emissions, generally applicable to facilities emitting more than 10,000 tonnes of carbon dioxide equivalent per year. The newest regulations are the Ontario Offset Credits Regulation, and the Administrative Penalties Regulation.

As Ontario’s cap and trade program enters into its second year, and its first year as a linked market with Québec and California, all participants should familiarize themselves with the requirements of the program to ensure that they are in compliance, and avoid a notice of intent to issue an AP order