TORONTO—Ontario is preparing to introduce a cap-and-trade system in 2017 to put a price on carbon emissions and reduce greenhouse gases, and it will mean extra costs for businesses and individuals.
A document circulated to industry and business leaders this fall for comment shows the Liberal government wants to reduce Ontario’s greenhouse gas emissions to 15 per cent below 1990 levels by the year 2020.
Ontario plans to link its cap and trade plan with similar programs in Quebec and California, which the discussion paper said would “help level the international playing field by harmonizing carbon prices across jurisdictions.”
It says the cap and trade scheme will have to start by Jan. 1, 2017, and would require that the limit on emissions decline by 3.7 per cent each year to achieve the 2020 target. Quebec’s cap is scheduled to decline between 3.2 and 3.7 per cent a year between 2015 and 2020, while California’s is set to decline 3.1 to 3.5 per cent.
There are estimates the plan could generate up to $2 billion a year in revenue for the Ontario government, which Premier Kathleen Wynne pledged would be reinvested in projects to help the province get to a lower carbon economy.
Industrial and institutional sources that produce at least 25,000 tonnes of greenhouse gas emissions a year would be able to purchase carbon allowances that they can hold or trade with others if they come in under their own cap in any year.
The document shows there are a lot of rules still to be worked out, such as which sectors or companies should be covered by cap and trade, which ones should get free carbon allowances to help them adjust to the system, and who should make those decisions.
The Ontario Chamber of Commerce expressed concern about the lack of details on how much revenue will be raised, and said the government must move quickly to finalize details and educate businesses on the impacts of cap and trade if it is going to implement the plan in less than 13 months.
“It is important that the allocation of the money be transparent,” the business group said after reviewing the discussion paper. “We need more details about how it will be administered and what the government will spend it on.”
There’s also a concern in the government’s discussion paper about what the experts call “leakage,” the fear that some businesses could leave Ontario for other jurisdictions that haven’t put a price on carbon.
“A cap and trade program will promote productivity and innovation to transition Ontario households and businesses to a low-carbon economy while reducing the risk of carbon leakage,” said the paper outlining design elements for the plan.
The first auction of emission allowances for Ontario companies would be held in March 2017, and similar auctions would be held quarterly, initially just for Ontario but eventually joint sales would be held with Quebec and California.
Cap and trade could cover two types of emissions: those from the combustion of fossil fuels and fixed process emissions involving “chemical or physical reactions, other than combustion.”
A coalition of 80 business, labour, agricultural and environmental groups calling itself the Clean Economy Alliance says putting a price on carbon is the best way to combat climate change, and rejects suggestions it will harm the economy.
Environmental Defence spokesman Keith Brooks said Ontario’s cap-and-trade design options hit the mark, but the plan to give free permits to some companies goes too far.
“If so-called energy intensive and trade exposed firms don’t have to pay for any of their emissions, there’s not much incentive to reduce those emissions,” said Brooks.
The price of gasoline rose slightly in Quebec and California after they adopted cap and trade, but it’s not clear if Ontario will offer rebates or other offsets to help individuals cope with the additional costs of the new plan.
The Progressive Conservatives have called it a “tax on everything” since companies will likely pass on costs of cap and trade to consumers.
The government has promised to release its climate change strategy by the end of this year, and will release the draft regulations on cap and trade early in the new year for public comment.