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Carbon Market

Calculation Method Used to Determine the Quantity of Emission Units Allocated Free of Charge

The quantity of free emission units allocated annually to emissions-intensive trade-exposed (EITE) emitters is calculated on the basis of the actual quantity of reference units produced or used and their GHG emission intensity target (intensity target). As a general rule, intensity targets are established based on the quantity of GHG emissions declared per reference unit during a reference period, i.e., the levels observed between 2007 and 2010 for most EITE emitters, and are expressed in tons of CO2 equivalent (t CO2 eq.) per reference unit.

Number of free emission units = AF × (Intensity target × Quantity of reference units)

A reference unit is a standard unit of measurement for production or for the raw material used. Therefore, for the vast majority of sectors, the amount of free emission units allocated is calculated based on the production level. In certain specific cases, when many products result from the production process, it is the quantity of raw materials employed that is used to determine the quantity of free emission units allocated.

This approach allows a company to increase its production without being penalized. It also avoids allocating too many free emission units to a company that reduces its production. Intensity targets were established taking into account the different types of GHGs emitted by companies (combustion, fixed process or other, primarily fugitive, emissions) and, consequently, the various reduction possibilities available to companies.

  • For most establishments, intensity targets are calculated on an individual basis. However, for the aluminum, lime and cement sectors, intensity targets are based instead on sectoral averages since it is possible to set targets based on the performance achieved by all establishments in the sector.

Intensity targets

For the first compliance period (2013-2014), intensity targets were set at 100% of historic averages for fixed process emissions and other (primarily fugitive) emissions. For combustion emissions, targets were set at 80 and 100%, depending on the fuels used.

Between 2015 and 2020, intensity targets for fixed process emissions remain at 100%, while targets for combustion emissions and other emissions decrease by 1 to 2% annually in order to encourage companies to make improvements. For the 2021-2023 period, intensity targets for fixed process emissions, combustion emissions and other emissions decrease respectively by 0.5, 1.5 and 3% annually.

Similar rules apply to new emitters and those who decide to voluntarily opt into the system, with reference years adapted based on the year in which they reach the reporting threshold or the year during which they submit a voluntary opt-in application.

Assistance factors

The number of free emission units distributed to each establishment is then adjusted according to the emitter’s assistance factor (AF), which depends on the carbon leakage risk level estimated for its sector of activity. Until 2020, the AF of all EITE emitters has been set at 100%.

For the 2021-2023 period, AFs will vary depending on the estimated carbon leakage risk. The latter varies depending on the combination of the trade exposure ratio measurement and emission intensity measurement previously described. The following chart shows the classification that was chosen. Note that for EITE emitters, the AFs vary from 90 to 100% under this classification.

An AF of 60% has been retained under certain conditions for the electricity sector, while the AF for other cases is zero (0).

Evolution of global carbon pricing

For the post-2023 period, Québec is considering the possibility of modulating the rules governing the allocation of free emission units based on the evolution of the carbon price in Québec compared to the carbon price in force elsewhere in the world, in order to ensure a balance between industrial companies in Québec and their foreign competitors.

Therefore, the quantity of free allocations that each industrial emitter would receive would depend on the evolution of the global carbon price. Additionally, the convergence of carbon pricing policies among competing jurisdictions would substantially reduce carbon leakage risks.

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