This past fall, the federal government announced its pan-Canadian approach to fighting climate change by implementing a price on carbon pollution. Essentially, this mandates that each province and territory will have until 2018 to either institute a cap-and-trade system, or set a carbon tax.

Background

Cap-and-Trade

In a cap-and-trade system, the government sets a limit on the level of allowable emissions from industry. It then issues permits to companies, specifying exactly how much carbon that company can burn. If a company wants to burn more than its share of carbon it must buy – through an auction – extra permits from other companies that have burned less. Québec instituted cap-and-trade in 2013, and Ontario’s cap-and-trade system officially came into effect in January 2017.

Carbon Tax

Alternately, with a carbon tax, the government sets a price per tonne on carbon, and then translates it into a tax on electricity, natural gas or oil. British Columbia implemented this system in 2008, and Alberta began in January 2017.

Cap-and-Trade in Ontario: An Overview

 In April 2015, Ontario Premier Kathleen Wynne signed a historic agreement linking Ontario with Québec in a cap-and-trade system. Highlights of the announcement included:

  • A hard ceiling on the pollution allowed in each sector of the economy;
  • Proceeds from the carbon market will be reinvested in projects that reduce emissions;
  • A process to reward companies that work to reduce greenhouse gas emission; and
  • A long-term plan to join the largest cap-and-trade market, the Western Climate Initiative, which includes Québec and California. This means that Ontario, Québec and California would be able to set up a shared system that would allow companies to trade their emissions among all three jurisdictions.
    (Reference: CBC.ca)

Increased Costs for Ontarians

Unfortunately, cap-and-trade is expected to increase certain costs for Ontarians. According to CBC, the government projects these costs will amount to $156 per year for the average Ontario household. This includes increased costs for:

  • Homeowners who heat with natural gas or furnace oil. They will see a cost increase of $5 per month on their heating bill;
  • Businesses that emit 25,000 tonnes or more of GHG per year. They will be required by law to participate in the program, and will be required to buy their own emission allowances; and
  • Motorists, who can be expected to pay 3 cents a litre more for gasoline in 2017.
    (Reference: Globalnews.ca)

Ontario’s First Carbon Auction

On March 22, 2017, Ontario held its first-ever cap-and-trade auction. According to CBC, the auction was a huge success, bringing in $472 million and selling out all current allowances.

The auction summary results report can be viewed here.

Looking Ahead

While both carbon pricing systems have similar objectives – generating revenue, imposing a compliance obligation, and encouraging a shift to a lower carbon economy and reduction of greenhouse gas emissions – not everyone in the province is in favour of cap-and-trade.

PC Leader Patrick Brown has said if he were in charge, he would “dismantle” cap-and-trade, claiming that the system makes Ontario less competitive, and doesn’t have the environment’s best interests at heart.

The province’s next cap-and-trade auction will be held on June 6, 2017.