Ontario cap-and-trade plan cuts big polluters some slack

TheGlobeAndMail.com
Feb. 23, 2016
Shawn Mccarthy

Ontario’s largest polluters will get a temporary reprieve, while the rest of the province foots a bill of more than $1.3-billion next year under the provincial government’s climate plan to be unveiled this week, The Globe and Mail has learned.

The Liberal government will introduce climate legislation on Wednesday, and on Thursday – also budget day – it will unveil detailed regulations for its long-promised cap-and-trade regime that aims to hit an aggressive 2020 greenhouse gas emissions target, a government source knowledgeable about the policy said on Tuesday.

Under the cap-and-trade plan, 102 large industrial emitters will get free permits to produce GHGs at roughly current levels in 2017, but they will have to reduce them each year to 2020, the source said, adding the “free allowance” approach is meant to be “transitional only” to give industry time to adjust, and would be reviewed in 2020.

Meanwhile, fuel wholesalers will have to purchase emissions allowances for every litre of gasoline or cubic metre of natural gas they sell in the province. At a minimum price of $17 a tonne of carbon dioxide, the levy would add about 4.3 cents a litre of gasoline and up to $9 a month for heating the average home, according to government estimates.

Revenue from the sale of emission permits – expected to be more than $1.3-billion a year – will be funnelled into a greenhouse gas reduction account, to be managed by the govern- ment. The fund will have an explicit list of the type of investments that can be made and will issue an annual report; all spending is meant to be in addition to what is already being allocated for transit and other environmental programs, the source said.

The Ontario move comes as Canada’s climate debate heats up. Prime Minister Justin Trudeau will meet premiers next week in Vancouver in an attempt to fashion a national climate strategy that would include a minimum price on carbon of at least $15 a tonne across the country. The floor price would be achieved either through a federal effort, or a provincial carbon tax or cap-and-trade plan.

Saskatchewan Premier Brad Wall steadfastly opposes any imposition of a minimum carbon price, as does Yukon Premier Darrell Pasloski, despite the fact their jurisdictions would keep the revenue.

At the Paris climate summit in December, Canada committed to reducing GHGs by 30 per cent from 2005 levels by 2030, a goal Environment Minister Catherine McKenna has described as a “floor.” While environmentalists decry the target as too weak, the country is not on track to meet it and Environment Canada says more effort is required.

Ontario has had a target to reduce GHG emissions by 15 per cent from 1990 levels by 2020 and, ahead of the Paris summit, Premier Kathleen Wynne announced the goal of a 37-per-cent reduction by 2030. Environment Minister Glen Murray will table the proposed legislation that will set those provincial targets in law, require the province to review its plans every five years to ensure it is on track, and set up the governance of the cap-and-trade system.

The province will be joining Quebec and California under the Western Climate Initiative, which has a joint market for tradeable emission credits.

Under Ontario’s plan, virtually all burning of fossil fuels in the province will require an emissions allowance, either in the hands of fuel wholesalers or large industrial emitters. The electricity sector will also be covered, though its allowances will be free and it will not face a declining cap in recognition of the huge costs to consumers from previous emissions-reduction policies.

The Liberal government hopes to offset the increased costs to households and small businesses by financing an array of energy-saving programs, including housing retrofits and rebates for fuel-efficient hybrids and electric vehicles.

The proposal to provide free allowances to the largest polluters has been controversial – though the government source noted that all allowances will be included under the provincewide cap, which would be lowered by 4.2 per cent a year to 2020. Individuals facilities will also see their free allowances reduced annually, and if they can’t keep up, they will have to purchase credits on the market.

Industry lobbyists argued that if Ontario manufacturers had to pay for the right to pollute, they would see their competitiveness undermined, and their production – along with the associated emissions – would migrate elsewhere.

But some experts have called those concerns overblown, except for a few specific sectors such as cement, steel and petrochemicals. In a recent report, Canada’s Ecofiscal Commission – a think tank of private-sector economists – suggested Ontario’s manufacturing sector “is mostly unexposed to competitiveness pressure from carbon pricing.”