January 13, 2017

Canada: Ontario Provincial Cap and Trade Plan Goes into Effect

By: Marc Z. Goldgrub, Cleantech Law Partners

            On January 1st, 2017, the Canadian province of Ontario’s cap and trade plan went into effect. Introduced by current Provincial Premier Kathleen Wynne of the Ontario Liberal Party, the plan links Ontario with Quebec and California’s cap and trade carbon market, in place now for several years. 

The plan puts a cap on the amount of carbon homes and businesses can emit, and that cap lowers over time. Parties in the three subnationals whose emissions are above and below the cap can buy and sell carbon allowances each year in auctions, the first of which, for Ontario, will be held this March.

            The plan’s launch comes at a challenging time for Premier Wynne. Her approval ratings were measured at 14% in October 2016. The disapproval is in part because the province is paying higher-than-average electricity prices, an issue Wynne has accepted responsibility for. Many voters believe these costs are due to Ontario’s push for more renewable energy use back in 2009 - and to a certain extent they are right. Ontario’s auditor general found that Ontario is paying a disproportionate amount for the 6.3% of the provincial grid supplied by renewable energy generated in the province because the provincial government offered overly generous contracts to the companies providing the energy. The high cost of electricity is not, however, because the renewable energy generation itself is outrageously expensive, as some unfortunately believe.

            The Wynne government implemented policies this month to lower electricity costs through tax cuts and other measures, but at the same time, according to a government-commissioned study, the province’s cap and trade plan will mean increased heating and gas costs. And though the plan’s launch follows closely on the heels of the federal Trudeau government’s October announcement of a pan-Canadian cost on carbon to be implemented in 2018, it follows even more closely the election of a climate denier to the office of President of the United States, creating the impression among many that Ontario’s emissions reductions will be offset by emissions increases south of the border.

              As Ontario Environment Minister Glen Murray noted, however, climate action on the subnational level will only become more important in the Trump era, and accordingly, various states, provinces and cities are continuing undeterred with their own climate action plans – including those south of the border. Ontario’s cap and trade plan will funnel its collected revenue towards transitioning Ontario to a low-carbon economy through investments in public transit, electric vehicles and housing retrofits. Furthermore, the plan is intended to spur innovation and create jobs by incentivizing companies to reduce emissions through new technologies and efficiency practices. Most importantly though, it puts a price on a social harm, meaning Ontarians who pollute less are not subsidizing those who pollute more by means of the health and wellness costs associated with harmful climate change.

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