Ontario’s carbon pricing future uncertain between cap and trade and tax
Ontario’s first year of carbon pricing brought in nearly $2 billion, but uncertainty looms over the program’s future as the province faces an election in 2018 that could see its cap-and-trade system replaced with a carbon tax.
The system, launched in 2017, is aimed at lowering greenhouse gas emissions by putting caps on the amount of pollution companies in certain industries can emit. If they exceed those limits they must buy allowances at quarterly auctions or from other companies that come in under their limits.
The cap declines about four per cent each year to 2020, and as it decreases, the government hopes companies have more incentive to cut their emissions.
Ontario made $1.9 billion this year in four cap-and-trade auctions, three of which were sellouts.
But there are concerns that once the province joins the Quebec-California carbon market on Jan. 1, the proceeds from auctions will be lower — at least in the short term — because it will be cheaper for Ontario companies to buy allowances in those jurisdictions. That would also mean that greenhouse gas emissions won’t actually be cut in Ontario, according to the province’s environmental commissioner and auditor general.
The Liberal government, however, has argued that greenhouse gases are emitted into a global atmosphere, so it doesn’t matter in what jurisdiction reductions originate.
What happens with the money the program brings in has been a bone of political contention. The government is putting that revenue toward green projects such as energy efficient improvements at hospitals, smart thermostats for homeowners, and bike lanes, which they hope will further help to reduce greenhouse gas emissions.
The NDP say that green fund is not transparent enough, and the Progressive Conservatives call it a government “cash grab.”
The PCs have promised, if they win the June election, to withdraw from cap and trade and instead implement a carbon tax, with a key difference between the plans being how to spend the revenue. The Tories propose to use it to fund an income-tax cut, which they say would make their carbon tax revenue neutral.
But the Liberals say the capand-trade system gives certainty in emission reductions at the lowest cost.
“(The PC system) is more expensive on a day-to-day basis and there’s no guarantee it will actually reduce greenhouse gas emissions,” Premier Kathleen Wynne said in a recent interview.
The price of carbon through Ontario’s 2017 auctions was roughly $18 per tonne. By 2022 the government expects that to rise to over $20, though some forecasts peg it higher.
Under the federal government’s carbon tax favoured by the PCs — Ottawa has said provinces must choose between cap and trade and a carbon tax — the price would be $50 a tonne by 2022.