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The Carbon Market

Allocation of Emission Units Without Charge

Postponement, to November 16, 2020, of the free allowance adjustment for the year 2019 – Order in Council 764-2020 of July 8 2020 (July 22, 2020 - PDF, 621 KB)

Quantity of Emission Units Allocated Without Charge for the years 2013 to 2020 and List of Beneficiary Emitters (January 14, 2020 PDF, 100 KB)

Documentation

Frequently Asked Questions (PDF, 681 KB)

User Support

In view of the potential impact of the C&T system on their limited ability to pass on the cost of carbon pricing to their customers, “emissions-intensive trade-exposed (EITE) emitters” such as aluminum smelters, steel mills, cement plants, and pulp and paper plants are considered to be more vulnerable than others to “carbon leakage”.

To help maintain the competitiveness of these companies and foster innovation in these sectors, the Québec government introduced a mechanism directly into the C&T system to reduce the risk of carbon leakage, as did other governments: the allocation of free emission units.

Emitters eligible for the allocation of free emission units are those that operate an establishment subject to the cap-and-trade system for greenhouse gas emission allowances (C&T system) or that voluntarily opt into the system and engage in an activity referred to in Table A Part I in Schedule C of the Regulation respecting a cap-and-trade system for greenhouse gas emission allowances.

Companies subject to the regulation that are not exposed to national or international competition, or that can transfer the cost of carbon to their customers, are not considered to be at risk of carbon leakage. They are therefore not entitled to free allocations. This is especially the case for electricity producers and fossil fuel distributors. These companies must therefore purchase all the emission allowances needed to comply with their regulatory obligations.

EITE companies can use the free emission units allocated to them to cover part or all of their GHG emissions. This reduces the number of emission allowances that they must purchase on the market, which in turn reduces the impact of carbon pricing on their operating costs.

The amount of emission units allocated annually to most EITE emitters is calculated on the basis of the production and intensity of their GHG emissions. Intensity targets are established by taking into account the type of GHG emissions of the companies (combustion, fixed process or other, mainly fugitive, emissions) and consequently the various reduction options available to them. To maintain the incentive for innovation and environmental performance improvement, the intensity targets are progressively reduced over time.

On one hand, this approach does not penalize a company that increases its production. On the other hand, it avoids allocating too many free emission units to a company that might reduce its production or fail to improve its environmental performance.

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