Canadian Manufacturing

Ontario lowers projections for cap-and-trade revenues

The province originally expected the program to bring in $1.9 billion in revenue each year; it's now lowered those estimates considerably



The cap-and-trade program is designed to pay for a number of Ontario cleantech initiatives. PHOTO: Premier of Ontario Photography/Flickr

TORONTO—Ontario is lowering its projections for how much money its cap-and-trade program will bring in this year and next to allow for market fluctuations.

The Liberal government estimated in last year’s budget that the program would bring in $1.9 billion per year, but this year’s budget projected $1.8 billion for this fiscal year, and $1.4 billion annually starting in 2018-19.

The system aimed at lowering greenhouse gas emissions puts caps on the amount of pollution companies in certain industries can emit and if they exceed those limits, they must buy allowances at auction or from other companies that come in under their limits.

Environment Minister Glen Murray said the $1.9 billion represented the revenue from the program if every auction was sold out, but the government is now budgeting for an 80-per-cent average of allowances sold at the auctions.

“It’s a bit of a fool’s game, but you have to put a number in the budget,” Murray said Monday.

“In four or five years we’ll have a better idea of what the norms are and what factors drive it…Right now they are, I think, relatively prudent projections, but I wouldn’t bank anything on it.”

The government has also learned that sales of allowances meant for future years must be counted in those years, Murray said. In Ontario’s first cap-and-trade auction in March, three per cent of the 26 million allowances sold were for the year 2020, so those proceeds can’t be counted in 2017-18.

The province’s budget watchdog previously raised questions about the $1.9 billion figure, saying it’s too difficult to forecast those revenues with any precision. The Financial Accountability Office warned that cap-and-trade money could be used to boost the province’s overall budget, if it went to previously planned programs. If there is new revenue but no new expenses, it would reduce a deficit or increase a surplus, the office said.

Ontario’s four-year climate change action plan is funded by cap-and-trade revenues and has planned for a range of between $5.9 billion and $8.3 billion. The money is set to go to green initiatives such as social housing retrofits, an electric vehicle incentive program and public transit.

Lower revenue wouldn’t mean any of those programs would be cancelled, it would just mean a bit less money for each, Murray said.

For example, the plan budgets for between $150 million and $225 million on cycling networks, between $380 million and $500 million to retrofit social housing, and between $400 million and $800 million to improve energy efficiency in schools and hospitals.

Both opposition parties say there isn’t enough transparency around how the money will be spent.

“If they’re not bringing in the revenue, they’re not going to be able to on the other side utilize it for the programs, but what we’re worried about is we don’t even see a path for them to disclose and be firm about where that money’s going,” NDP Leader Andrea Horwath said.

Murray insisted the cap-and-trade program has “the most transparent money in government.”

The province’s first quarterly auction in March sold out and brought in $472 million. Murray has warned, however, that the market can expect some volatility, meaning not every auction will be fully subscribed.

Ontario plans to link its cap-and-trade system with a joint Quebec-California market next year. The most recent Quebec-California joint cap-and-trade auction saw just 18 per cent of allowances sold, with previous results of 88 per cent, 35 per cent and 11 per cent. Since 2014, the linked market has sold 74 per cent of its credits at auction.

Most large emitters in Ontario are receiving allowances for free until 2020, which the government says is meant to prevent them from moving to jurisdictions without carbon pricing.

The government is looking at a regulatory change that would lead to a “small” increase in the number of free allowances that get distributed.

Since Jan. 1, cap and trade has added 4.3 cents per litre to the price of gasoline and about $80 a year to natural gas home heating costs, in addition to indirect costs that will be passed onto consumers.

The next auction is on June 6.

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