Not even Wynne government knows real cost of cap-and-trade

torontosun.com
By Lorrie Goldstein
Jan. 07, 2017

Given that Premier Kathleen Wynne’s government imposed a cap-and-trade carbon pricing scheme on Ontarians Jan. 1, here’s something interesting you may not know.

Ontario doesn’t have an actual carbon price right now.

The initial 4.3-cent-per-litre hike in gasoline prices (which the government predicts will average $8 per month per household) is an interim rate - basically an industry/government guess of what Ontario’s carbon price will be when it has one.

Ditto what looks like a $6 to $7 increase per month in the cost of natural gas for home heating, to start, already substantially above the government’s original estimate of $5.

Similarly, the $2 billion in new revenue the Wynne government predicts Ontarians will be paying under cap-and-trade this year, along with a total of $8 billion over the first four years, is a guess.

The reason is that under cap-and-trade, while governments know, in theory, what their industrial greenhouse gas emission reductions will be since they set the targets, they don’t how much money it will generate for them.

That depends on the value of the carbon allowances they auction off to industry to achieve these reductions.

Each allowance entitles the bearer to emit one tonne of industrial carbon dioxide or its equivalent in what amounts to a highly speculative, government-run stock market trading in emission allowances.

But Ontario hasn’t started its cap-and-trade market yet. It won’t, domestically, until March, and it won’t enter the California, Quebec carbon trading market until 2018. (The government is conducting a “practice auction” this week.)

The Wynne government says that when it does start up its carbon market, the value of its carbon allowances will be about $18 per tonne.

In the Quebec, California cap-and-trade market Ontario will join next year, there have been major fluctuations in demand for carbon allowances - typical of speculative stock markets - at times undercutting the amount of money the California and Quebec governments thought they would get from them.

Unfortunately, taxpayers don’t benefit no matter what happens in a carbon market.

If the demand for allowances is strong and carbon prices are high, industries pass along these high costs to consumers hidden in the retail price of almost all goods and services.

But if there is little demand and prices are low, taxpayers have to further subsidize so-called green energy initiatives their governments told them would be paid for through cap and trade profits.

The hidden costs of cap and trade are the reason critics wanted such things as natural gas home heating bills to contain a separate line breaking out the cost of cap-and-trade, so consumers would know the actual prices.

The Ontario Energy Board, however, rejected this idea and the Wynne government said it would not overrule that decision.

A cynic would say that’s because it wants to keep Ontarians in the dark about the real costs of cap-and-trade.