Cap-and-trade: What you need to know about emissions jargon

Smoke pours from the stacks at the Portlands Energy Centre in Toronto on Thursday January 15, 2009. (Frank Gunn/THE CANADIAN PRESS)

Quebec and Ontario are set to sign a cap-and-trade deal in an effort to reduce greenhouse gas emissions. Here is what you need to know about some key phrases:

What are greenhouse gas emissions?

Greenhouse gases are those that trap heat in the atmosphere. The main greenhouse gases include carbon dioxide, methane, and nitrous oxide. Carbon dioxide emissions from burning fossil fuels are the biggest contributor to climate change, according to the David Suzuki Foundation.

What is a cap-and-trade system?

Cap-and-trade is a market-based approach to reducing pollution. It allows governments to set an overall cap on greenhouse gas emissions from industries and businesses covered by the system. In order to comply with the program, companies that exceed the limit can purchase carbon credits, or allowances, from firms that remain below the cap.

The emissions cap is then gradually lowered over time.

One credit is typically equal to a metric ton of carbon dioxide, though there are different types of emission allowances and cap-and-trade systems around the world.

In Quebec, for example, businesses that emit 25,000 metric tons of carbon dioxide or more are subject to the cap-and-trade system. Other businesses can voluntarily join the carbon market.

What is a carbon tax?

A carbon tax imposes a fee on each tonne of greenhouse gas emissions and is usually applied on fuel purchases. In British Columbia, for example, the carbon tax rate is $30 for each tonne of CO2 emissions. Since emissions levels vary depending on the type of fuel being used, the carbon tax is highest for coal and lowest for propane and natural gas.