The Ontario Government is joining Quebec and California in a cap-and-trade system to reduce greenhouse gas emmissions.
By linking with Quebec and California, Ontario will create a carbon market of 61 million people and cover more than 60 per cent of Canada’s population.
However, the announcement revealed little about exactly who will pay for the new carbon market and how consumers can expect to be impacted relative to corporate emitters.
There was no dollar figure attached to Ontario Premier Wynne’s announcement. Nor did she say how much will be raised by the system, in which a cap is put on the level of greenhouse gas emissions in each sector of the economy.
“It would be irresponsible of us to speculate on exactly what the costs are going to be when we haven’t worked to design the mechanism yet,” Wynne said, adding that critics can call it a tax if they want “even though it is misleading.”
However, a background paper provided by the government says gasoline prices rose 2-to-3.5 cents a litre in Quebec when it adopted a cap-and-trade system — which Wynne characterized as a “small” potential increase.
Under cap and trade, government sets a limit on total emissions (the cap) in different sectors of the economy. Allowable emissions are then allocated or sold in the form of permits to the emitters. The emitters are then allowed to trade permits between themselves in a carbon market.
Emission permits can be auctioned, but are often given away, reducing government revenue by giving corporate emitters a break. California auctions only half of its permits, which raised $532 million in its first year. Total revenues from 2012-20 are projected to reach $15 billion after the expansion of the program next year. Quebec expects to generate $3 billion over the same period.
The danger in a cap and trade system is that too many permits will be given away to corporate emitters and the sectoral caps on emissions will be too high.
Ontario has chosen cap and trade over a competing model – a straight carbon tax.
In principle, both cap and trade and a carbon tax model can wind up with the same quantity of carbon emissions, at the same carbon price with similar government revenues. But how they get there can make all the difference.
According to the Canadian Manufacturers and Exporters Association (CME), the main lobby group for the manufacturing sector and a major player in the debate, the details will be critical in determining how effective the new system will be in lowering greenhouse gas emissions and sustaining investment and economic growth in both provinces.
“Cap and trade needs to encourage investment by industry in the technologies that will lead to lower GHG emissions. Otherwise it will turn out to be another tax on industry that will slow the investments that have already allowed Ontario and Quebec manufacturers to make significant strides in reducing emissions”.
“We need to ensure that doing business in Ontario and Quebec is more attractive than in competing jurisdictions or companies will relocate elsewhere — that’s not good for either provincial economy,” said Canadian Manufacturers & Exporters (CME) President and CEO Jayson Myers.
In other words, don’t make us pay – make somebody else pay.
In reality, cap and trade is an exceedingly complex system with so many moving parts that it is hard to know who is paying, and who is not paying.
So why would the government choose a bureaucratically complex scheme, with significant implementation costs, over something that can produce the same outcome but without near as much complexity or cost – like a carbon tax?
The most important reason may be that there is political cover in complexity.
Cap and trade makes it appear as though someone else – usually the big corporate polluters – will pay, and not ordinary Ontarians.
Best for Ontarians not to hold their breath on that one!