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While Ontario ponders how best to put a price on carbon pollution, the Quebec model has motorists and fuel distributors paying most the the costs through cap-and-trade program that’s done in co-operation with California.

Fred Lum/The Globe and Mail

Montreal's Biothermica Technologies Inc. clinched a deal earlier this month to sell $860,000 worth of carbon credits – generated by reducing methane emissions at a coal mine in Alabama – to an unnamed California buyer who needed them to meet the state's climate regulations.

Meanwhile, on the other side of the market, Norcan Petroleum Products GP must purchase carbon allowances in joint Quebec-California auctions in order to cover the greenhouse gas (GHG) emissions that will result when the fuel it sells in the province is consumed.

For the province's largest importer of gasoline, the system is an administrative headache and competitive challenge. The company, which is part-owned by Irving Oil Ltd., expects to spend $60-million a year to cover its emissions and – along with other fuel distributors – will pass that cost along motorists in an additional 3.6-cent-a-litre tax.

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Quebec is in the vanguard in North America when it comes to putting a price on carbon. The province is in the second year of a joint Quebec-California carbon market with a cap-and-trade system that covers 85 per cent of its emissions and creates a complex web of winners, losers and sheltered energy-intensive industries.

It's a system that Ontario's Liberal government is studying closely as it prepares to launch its own carbon pricing plan this spring, possibly in time for the provincial-territorial climate summit to be hosted by Quebec Premier Philippe Couillard in mid-April. While final decisions have not been made, Ontario Premier Kathleen Wynne is expected to unveil the province's version of a cap-and-trade system and its participation in the Quebec-California carbon market.

Ms. Wynne's announcement will not be the final word, sources say. Instead, she'll release a broad outline of a plan with key details to be completed over the course of the next year.

As Ottawa watches from the sidelines, the provinces are pursuing their own carbon pricing strategies. British Columbia has a $30-per-tonne tax, Quebec has its cap-and-trade program and Alberta Premier Jim Prentice is promising to expand a system that now imposes a $15-a-tonne levy on large emitters – coal-fired power plants and oil sands facilities – when they exceed a regulated limit.

Quebec Environment Minister David Heurtel is eager to see Ontario participate in the Western Climate Initiative, which pools allowances and provides market-based options for companies that have to meet regulated emission caps.

"Obviously we would be thrilled if Ontario took that step," Mr. Heurtel said in an interview. "What we're really excited about is that the whole conversation of carbon pricing has been taken up by the Ontario government. What we've seen is that our cap-and-trade system is not only a way to work concretely on our GHG emissions, but at the same time, it creates a leverage effect on economic development."

Quebec expects to raise $3-billion over five years by selling emission allowances, even though many of its largest, energy-intensive industries – including its two refineries and aluminum smelters – receive free emission allowances to protect their competitiveness. The money will go into a green fund, which the province then allocates to other policies aimed at reducing emissions, including support for public transit.

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The addition of Ontario would deepen a market, adding more buyers and sellers of allowances and the credits that are generated by third parties and can reduce the cost of meeting the climate targets. In the last Quebec-California auction, held in February, qualified bidders included Hydro-Québec, as well as the province's two refiners and wholesalers of gasoline products – Suncor Energy Inc. and Valero Energy Corp. Forestry company Tembec Inc. and aluminum producer Rio Tinto Group were also active in the market.

The auction settled at $12.21 (U.S.) per tonne of carbon dioxide equivalent, which equates to about 3.6 cents a litre for gasoline or 4.6 cents for diesel.

Mr. Heurtel said the system creates incentives for companies to innovate. Backed by green fund money, Quebec's E-Lion is rolling out a fleet of electric school buses that will not only cut emissions but provide a market for Hydro-Québec's electricity generation.

Biothermica president Guy Drouin said a vast market has opened up for his pollution-abatement company when it received certification under the Western Climate Initiative. Its technology captures methane that would otherwise be emitted from underground coal mines.

The company is now looking to apply the technology in Alberta's coal mines. Biothermica can install the technology free of charge to mine owners, capturing its revenue from the sale of carbon credits.

Motorists and fuel distributors in Quebec are paying most the the cost for the cap-and-trade program, though over time industry will face growing costs as the number of free allowances is reduced.

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Norcan president Garry Garcin said the province ought to have opted for a carbon tax, which would have been simpler and more transparent.

"They put it on the backs of the distributors and it is a nightmare to administer," Mr. Garcin said. The system is particularly onerous for independent distributors and gas station operators who are close to provincial borders.

"Truckers fill up outside of the province," he says. "Quebec loses out on the tax dollars but the product is consumed in the province. The emissions still occur here and we still get the wear and tear on our roads.

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