Cap- and- trade scheme must not hobble economy

This week, Ontario Premier Kathleen Wynne announced her government will be implementing a cap- andtrade system as part of its strategy to reduce Ontario’s greenhouse gas emissions ( GHGs).

Will this significant policy shift have huge implications for businesses across the province? Absolutely. Thus far the government has not signalled a timing for implementation, but you can be sure the intent is to get this done quickly.

A cap- and- trade system is a market for GHGs. The goal is to provide a financial incentive for businesses to reduce their carbon footprint.

The government sets a maximum limit on the amount of GHGs that businesses can produce — the “cap.” Pollution credits are then allocated to these businesses, which stipulate how many GHG emissions each business is allowed to produce.

These credits can then be bought and sold in a newly created pollution credit market — thus the “trade.” Businesses that reduce their emissions in a given year can sell their leftover credits to those that have emitted more.

Seems to me like we are just moving the problem around while not getting to the root.

Typically, the cap is lowered gradually to reduce the total GHGs emitted by the participating jurisdiction.

We do not yet know what the emission cap will be in Ontario and if it will change over time. This uncertainty alone will present huge challenges to industry in Ontario, not to mention what it may do to our ability to attract foreign direct investments.

Also disconcerting is the fact the Ontario government has not indicated which businesses or sectors will be subject to cap and trade.

However, it has announced its intention to link the carbon market with North America’s largest capandtrade system in California and with Quebec. Quebec’s seems to working reasonably well, California’s not so much.

In Quebec, businesses that annually emit 25,000 metric tons or more of CO2 equivalent ( that is, GHGs) are subject to the cap- and- trade system. In its first year, only the industrial and electricity sectors were subject to the system. This year, fossil fuel distributors are being phased in, which will affect a more significant portion of the economy.

Ontario has also not indicated how much will be raised by the cap- and- trade system. It has signalled that it will reinvest the money into projects that reduce GHG emissions and help businesses remain competitive. Projects may include building more public transit or providing financial assistance to businesses as they move to reduce their carbon footprint.

The Ontario Chamber of Commerce recognizes urgent action is required to mitigate the existing and pending negative environmental and economic effects of climate change. In principle, it supports efforts to reduce GHGs.

However, the introduction of a cap- and- trade system must be viewed within the context of the escalating cost of doing business in Ontario. Over the past year, the government of Ontario has implemented or announced a number of initiatives that will have a direct impact on business, including a new Waste Diversion Act, a review of the Labour Relations Act, the Ontario Retirement Pension Plan, in addition to this new carbon pricing system.

The cumulative impact of these changes poses a serious threat to the future competitiveness of Ontario’s business climate. It is incumbent on the provincial government to ensure that Ontario remains among the most attractive places in the world to do business. As such, we believe government must put economic interests, along with environmental ones, at the forefront of the discussion. The following principles should be among those that shape the design of the cap- and- trade system:

Government must consider the impact that the cap- andtrade system and regulatory changes have on the economy and job creation in the province.

The cap- and- trade system must be revenue neutral and the revenue collected should be used to mitigate the impact of the plan on those businesses most affected.

Government should harmonize its efforts with Ontario’s immediate competitors for investment and trade.

In the coming months, the London Chamber and the wider business community will work with our chamber network across Ontario to advocate on behalf of our business community and communicate our position to the government. We will also seek answers to the key design questions that remain unanswered.