Cap & Trade in Ontario

Yes the Wynne Government announced the Ontario 2016 budget. This should have been a big day for climate policy in the province – however, news about free college tuition for students whose parents make less than $50 thousand a year stole the media spotlight. That is big news in its own right.

But what happened with climate policy?

The Ontario government announced details related to its new cap and trade policy. The program will begin January 1, 2017. The province will set a cap on emissions (yet to be determined) and create emission allowances (permits) based on that cap. Each year, the cap will shrink by 4.17% and thereby bring down emissions each year. The goal is to reduce emissions 15% below 1990 levels by 2020.

Who will be impacted? Everyone. Gas prices will go up as a 4.3 cents a liter tax will be levied at the pump. Heating costs will also increase – somewhere in the range of $5 to $10 dollars a month for each household.

The cap and trade policy will mainly impact any company producing more than 25, 000 tonnes of GHG per year. They will all need to buy allowances to emit GHG. They will then be able to sell and trade allowances as needed (if a company buys enough permits to emit 80, 000 tonnes of GHG but only actually emits 70, 000 tonnes, then that company can sell the extra 10,000 permits to a dirtier company. However, there will never be more than a certain # of permits available each year – the cap).

The sting – and the media attention – is that some industries appear to be getting a break. Steel, cement, and auto manufacturers will be granted “free emission allowances” in the first years of the program. There is no actual list about which industries will qualify for the freebie – that is yet to be determined as well. Allowances will be otherwise “sold” as permits to polluters. For the sake of simplicity, let’s say that a cap is set a 100 tonnes of CO2 emissions. The province would create 100 allowances (permits) and sell them to anyone who needs to emit CO2. If your company plans to emit 4 tonnes, then you need 4 permits. So, in the case of steel, cement, and auto industries – they will not have to purchase the permits. The province will hand them over for free. Why? To ease the transition and help these industries adjust to a new low carbon economy. Essentially, these industries contribute jobs and resources to the Ontario economy and, therefore, the province cannot have those industries suffering (and cutting jobs) and moving to the US or other countries where profit margins might be higher.

The cap and trade policy (including the tax on gas and increased heating costs) should generate about $1.9 billion in revenue for the province. That money is earmarked for spending on further cutting GHG emissions – through public transportation and clean energy technology. This means some money should go back to the public in the form of decreased electricity costs (as technology becomes more efficient). All the money generated through cap and trade must go toward this green fund. The government will issue an annual report and account for all spending of this money. (Thus, it is not revenue neutral like BCs carbon price – which goes directly back to the consumer in the form of tax cuts – and it is not a revenue generator like Quebec – where money goes into the general government coffers. Instead, Ontario’s plan is to use the revenue from this program for further GHG emissions programs). 

Want to know more? The CBC has a good piece here. The Globe has good coverage here


2 Replies to “Cap & Trade in Ontario”

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