On 18 May 2016, Ontario passed legislation introducing a cap-and-trade system. The regulation comes into effect on 1 July 2016, with the first compliance period starting in 2017 and ending in 2020. The initial allowance cap is estimated at 142 million tCO2e and is set to decline by 4.2% per year. The key design elements are based on the draft regulation released in February 2016. The system will cover emissions from the power sector (including imported electricity and natural gas distribution), industry and petroleum product suppliers. Allowances will both be distributed freely or via quarterly auction (with a minimum price floor of CAD 12.82) and entities will be able to use offsets to meet up to 8% of their surrender obligation. The system is intended to be linked with the Californian and Québec cap-and-trade program in 2018. Legislation will need to be introduced to make the necessary adjustments for this link.

The system is part of the Climate Change Mitigation and Low-Carbon Economy Act, a much broader climate package consisting of about 80 policies (Globe and Mail). The revenue from the cap-and-trade program, an estimated CAD 1.8-1.9 billion (EUR 1.23-1.3 billion) per year, is expected to finance the broader climate package. The Act also commits Ontario to reducing its GHG emissions, compared to 1990 levels, by 15% by 2020, 37% by 2030 and 80% by 2050.