McCarthy Tétrault APGQ – Conference 2016 Panel 3: How local production meets climate change targets October 31, 2016 McCarthy Tétrault S.E.N.C.R.L., s.r.l. / mccarthy.ca

Carbon Pricing Around the World In 2016, World Bank estimated that almost 40 countries and more than 20 cities, states and provinces currently use carbon pricing mechanisms or are planning to implement them. These jurisdictions are responsible for almost 25% of global emissions; carbon pricing initiatives cover about half of emissions in these jurisdictions. Recent developments have signaled a general shift towards cap and trade as the preferred carbon pricing mechanism. McCarthy Tétrault LLP / mccarthy.ca

Carbon Pricing Initiatives Around the World By comparison – global value of voluntary carbon markets in 2015: approx. US $278 million Source: World Bank & Ecofys – Carbon Pricing Watch 2016 McCarthy Tétrault LLP / mccarthy.ca

Global Carbon Pricing – A Comparison Source: World Bank & Ecofys – Carbon Pricing Watch 2016 McCarthy Tétrault LLP / mccarthy.ca

Quebec: Cap and Trade System Quebec targets: 20% below 1990 by 2020 37.5% below 1990 by 2030 80%-95% below 1990 by 2050 2009-2013 : ↓ 5.7% [Source: 2013 Quebec GHG Inventory] ETS In force since January 1, 2013 Linked to California since January 1, 2014 Captures fuel distributors since January 1, 2015 Almost 85% of Quebec GHG emissions McCarthy Tétrault LLP / mccarthy.ca

Quebec: Cap and Trade System Targeted sectors Oil and natural gas extraction Pipeline transportation Natural gas distributors Fuel distributors Electric power generation, transmission and distribution Manufacturing Cover almost 85% of Quebec GHG emissions McCarthy Tétrault LLP / mccarthy.ca

Quebec: Cap and Trade System Fuel distribution Fuel : Automotive gasoline, diesels, propane, natural gas, heating fuel oils Exceptions: aviation fuel, biomass and hydrocarbons used as raw materials Who ever is the first in Quebec to: Sale fuels refined, manufactured, prepared or mixed in Quebec for consumption in Quebec Sale fuels from outside Quebec for consumption or sale in Quebec Import fuels into Quebec for consumption or sale in Quebec Distribute natural gas McCarthy Tétrault LLP / mccarthy.ca

Quebec: Cap and Trade System Registration obligations Registration of emitters and participants in CITSS Emission allowances owned and exchanged only within CITSS Reporting obligations Industrial and electricity sector: emits 10,000 metric tons or more of CO2e annually Fuel distributors: more than 200 litres of fuel distributed annually Covering obligations 25,000 metric tons or more of CO2e annually for all sectors Except fuel distributors: 200 litres / year McCarthy Tétrault LLP / mccarthy.ca

Quebec: Cap and Trade System Compliance periods January 1, 2013 – December 31, 2014; January 1, 2015 – December 31, 2017 and January 1, 2018 – December 31, 2020 Covering rules Submit GHG emission allowances that equal the total reported Deadline: November 1st following end of each compliance period Options to acquire emission allowances Free allowances: mitigates impact on competitiveness Unavailable to certain sectors (ex. oil and natural gas extraction) Government held auctions Offset: landfill site captured CH4, destruction of ODS… Direct sales by mutual agreement: fixed price $40-$50 – all cancelled so far McCarthy Tétrault LLP / mccarthy.ca

Quebec: Cap and Trade System Results of latest joint auction (Aug. 16, 2016) Number of qualified bidders: 53 Total 2016 allowances for sale: 86,278,410 (35% sold) Total 2019 allowances for sale: 10,078,750 (8% sold) Proportion of allowances purchased by emitters: 91.5% Sale price (CAD): Minimum price (CAD): Current vintage (2016): $16.45 Settlement price (CAD): Current vintage (2016): $16.45 Maximum price (CAD): Current vintage (2016): $61.44 McCarthy Tétrault LLP / mccarthy.ca

Quebec: Cap and Trade System Challenges Complex and expensive registration process requiring an excessive level of details; Continuous disclosure requirements are perceived as difficult to comply with in an era where companies are vast and perform frequent internal reorganizations; System creates a commercial disadvantage for smaller industries facing increased energy cost without benefiting from free allowances distributed to large emitters; McCarthy Tétrault LLP / mccarthy.ca

Quebec: Cap and Trade System Challenges Until ETS are widely implemented, disadvantage Quebec; Lack of financial assistance to implement new technologies or measures reducing GHG; Several ambiguous requirements creating confusion and lack of guidelines; Unpredictability since the rules applicable post-2020 are still in development. McCarthy Tétrault LLP / mccarthy.ca

Cindy Vaillancourt Direct: 514.397.4177 cvaillancourt@mccarthy.ca McCarthy Tétrault S.E.N.C.R.L., s.r.l. / mccarthy.ca