What cap-and-trade involves.
After years of discussion, Ontario has settled on a cap-and-trade model of carbon pricing. The province will join Quebec and California in building a North American market for the carbon credits, Premier Kathleen Wynne said Monday. More than 75 per cent of Canadians will live in a province with carbon pricing once Ontario gets its system running.
Though Ontario has chosen the type of carbon pricing it will pursue, many details remain unclear. But here are some basics. What’s carbon pricing?
Carbon pricing is the idea of charging polluters, businesses or individuals, for their greenhouse-gas emissions. It can take many forms, from regulation to direct taxes to a cap-and-trade system. The idea is put a price on such pollution, even recouping some of the costs of climate change, and decrease future emissions. What’s cap-and-trade?
It’s a system under which a government limits the amount a given industry can pollute, then allows companies to sell unused parts of their allotment. These caps can vary by industry, but once companies exceed their allotted amount they can buy more carbon credits from the government or from a company that hasn’t used up all its emissions allowance. That, in turn, creates a market for the credits. How will the change affect Ontario residents?
It’s hard to say until the details are firm, but in Quebec and California cap-and-trade added to the price of gas, estimates of how much range from two cents to 10 cents. The Ontario system could include rebates or encouragement for households to install energy saving devices, such as automatic thermostats. Wynne says climate change already costs consumers by increasing insurance rates and food prices. How much revenue will it raise and where will it go?
Estimates suggest Ontario will benefit to the tune of $1 billion to $2 billion a year. Wynne says the money will be “reinvested” in green projects and businesses, transit and other eco-friendly ideas. A government spokesman said it has not been decided whether it will flow into general revenues, which could pay for anything from salaries to new schools, or will be “siloed” away. The government says promises where that money goes and how it will be spent will be transparent. How does cap-and-trade differ from a carbon tax?
A carbon tax can be revenue-neutral as in British Columbia, which introduced such a tax in 2008. Anything the province took in, it gave back through other tax cuts or rebates. The purpose is to change behaviour, not raise revenue, though there are revenue-generating carbon taxes that do both. Are there other models?
Some jurisdictions — like Alberta — target the heaviest polluters with taxes set against how much they emit each year. When Alberta imposed its greenhouse-gas emissions regime in 2007, it was the first province to tax these emissions from large companies. Some say Alberta should go farther, but no one expects the parties in the oilrich province to suggest that in the middle of an election campaign. What is the Western Climate Initiative?
This brings together U.S. and Mexican states and Canadian provinces, including Ontario, B.C., Quebec and Manitoba, to tackle climate change. The group provides administrative support for co-ordination and helps to run the growing market for carbon credits created through cap-and-trade. What are other provinces doing?
Many are working toward carbon pricing of some kind. In addition to Manitoba, Saskatchewan has hinted it wants to adopt Alberta’s model, while Nova Scotia may follow B.C.’s example. Newfoundland and the Northwest Territories have studied cap-and-trade. What is Ottawa doing?
Federal Environment Minister Leona Aglukkaq asked the provinces to share more information on their climate change plans with Ottawa. A spokesman for Aglukkaq said the government opposes carbon taxes and any schemes that seek to raise revenue either directly or indirectly. Is cap-and-trade a tax?
The Canadian Oxford Dictionary defines a tax as “a contribution to government revenue compulsorily levied on individuals, property or businesses.” Since the plan is to raise revenues, it is, at least technically, a tax. Wynne anticipated those concerns, saying Monday, “Call it carbon pricing, cap-andtrade, a market mechanism or — I believe it’s misleading — but if you must, go ahead and call it a tax.” She said the most important thing is the province tackle climate change. “For most of us the label is not important. What’s important is that we make progress,” she continued.