Ontario has reached a deal to buy hydroelectric power from Quebec in a bid to cut greenhouse gas emissions by replacing some of the province's natural gas-generated electricity.

Under the seven-year agreement, Ontario will buy two terawatt hours a year – about 1.4 per cent of the province's total demand, or enough electricity to power a city of 240,000 people, sources in both governments said.

The two provinces agreed that Ontario will also store some of its own electricity at Hydro Quebec facilities, and to extend by five years an arrangement to swap 500 megawatts of power annually.

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The deal is expected to cut Ontario's greenhouse gas emissions by one million tonnes a year, and will replace about 15 per cent of the province's natural gas-fired power with clean hydroelectric power from Quebec, an Ontario government source said.

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It is also meant to save Ontario ratepayers $70-million over the life of the agreement because storing power with Hydro Quebec is expected to be cheaper than paying U.S. states to accept Ontario's excess electricity, which is the current practice.

The pact takes effect on Jan. 1, 2017, and runs to Dec. 31, 2023.

"The Provinces restate their intention to co-operate in the following areas: Clean electricity trade; the reduction of greenhouse gas emissions; and ensuring system reliability and affordability," reads a draft of the deal obtained by The Globe and Mail.

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The final text will be approved at a joint meeting of both provincial cabinets on Friday in Toronto and signed by premiers Kathleen Wynne and Philippe Couillard.

Canada's two largest provinces have been building an increasingly close relationship. Ontario agreed last year to join Quebec's cap-and-trade system for carbon emissions.

The year before that, the provinces made the arrangement to trade 500 megawatts of electricity annually, with Ontario shipping electricity to Quebec during the winter and receiving it in the summer.

Ms. Wynne's government is trying to reduce the province's emissions to 15 per cent below 1990 levels by 2020 while grappling with voters' anger over high electricity rates.

The actual amount of greenhouse gas reductions at play in this week's deal is relatively small – a million-tonne cut is less than 1 per cent of Ontario's annual total – but environmentalists cheered the deal with Quebec as a step towards integrating electricity grids between provinces.

Further integration could lead to bigger power deals that achieve much larger cuts to greenhouse gases, said Sarah Petrevan, senior policy adviser at the think tank Clean Energy Canada.

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"It's the start of a trend we would like to see continue," she said in an interview.

"When you look at provincial governments grappling with reducing greenhouse gas emissions, one of the better ways to do that is through energy and electricity integration – putting lower-carbon options on the grid, including those outside your jurisdiction."

Ms. Petrevan said the deal could encourage other provinces to explore similar arrangements. Alberta, for instance, is trying to wean itself off coal-fired electricity and could consider importing cleaner power from other provinces to make it happen. The federal government also has a role to play, she said, in helping pay for upgrades to long-distance power lines to make it possible to move larger amounts of electricity around the country.

"These things can happen when the federal government gets involved, and when the provinces work together to address a problem," she said.

Pierre-Olivier Pineau, professor and holder of the chair in energy-sector management at the business school HEC Montréal, said all provinces could make significant gains in cost-savings and attain more efficient management of energy use with power-trading agreements of the type struck between Ontario and Quebec.

"It makes me a little more optimistic to see Ontario and Quebec beginning to reach these kinds of agreements," he said.