Cap-and-trade could be ‘windfall’
But Ontario budget watchdog also warns of uncertainty in fight to lower greenhouse emissions
Ontario’s cap-and-trade plan to reduce greenhouse gas emissions should boost the treasury’s bottom line, but fluctuating currency and carbon prices could be a problem, warns the province’s fiscal watchdog.
In a 25-page report to the legislature published Wednesday, the Financial Accountability Office suggests the Liberals’ hopes of raising $1.9 billion a year to earmark for environmental initiatives may be a windfall.
“Some cash raised through cap-andtrade . . . will be used to acquire capital assets (e.g. building retrofits and regional express rail), resulting in the cap-andtrade program generally reducing deficits/increasing surpluses,” the study found.
“There is also the possibility that some . . . cash will be used for programs that are already planned. To the extent this occurs, the cap-and-trade program will further reduce deficits/increase surpluses,” it said.
Ontario has joined Quebec and California in a cap-and-trade system that puts a price on carbon in a bid to reduce emissions that contribute to climate change.
Under such a scheme, industries have greenhouse gas emission limits — or caps. Those who pollute less can sell or trade credits.
Over time, an industry’s overall cap will be lowered in order to cut emissions, which creates an economic incentive to reduce them.
At the same time, it is hoped the rising cost of operating carbon-intensive businesses will spur clean technology innovation. Although the government has enshrined in law that all proceeds from capand-trade must go toward environmental programs, such as making it cheaper to buy an electric car, the budget watchdog warned that “uncertainty” remains.
“Critically, the fiscal impact of cap-and- trade will come down to whether revenues will equal expenses on an annual basis. There is a risk that expenses could exceed revenues if the province chooses initiatives that are difficult to reduce or stop.”
Compounding that ambiguity are the vagaries of the carbon market — in May just 11 per cent of allowances were sold at auction and in August that rose to only 35 per cent, though this week’s was up to 88 per cent — and the value of the loonie against the U.S. dollar.
Environment Minister Glen Murray said “as with any market system, fluctuations are to be expected.”
“However, it’s important to note that, on average, over 80 per cent of total current allowances offered have been sold so far,” said Murray.
Murray then added “our plan includes strict, transparent requirements on revenue collection and cost-effective investments.
“All revenue generated through cap and trade will be deposited in a dedicated account and reinvested into green projects that fight climate change,” he said.
As part of the climate-change regime, consumers will notice higher prices right away — gasoline prices will rise 4.3 cents a litre after Jan.1 and natural gas prices will jump by about $5 a month on the average household.
It’s all part of a strategy the Liberals hope will achieve ambitious targets of slashing greenhouse gas emissions to 15 per cent below 1990 levels by 2020, then 37 per cent by 2030, and 80 per cent by 2050.
But Progressive Conservative MPP Vic Fedeli (Nipissing) said the initiative is “a cash grab” to balance the budget before the 2018 election. “The government’s flawed cap and trade plan is about raising revenues, not cutting emissions.” NDP MPP Peter Tabuns (Toronto Danforth) said it’s a “huge problem” if funds meant to curb climate change are used to pad the treasury.
“Using the money for programs that already had fund committed can undermine the goals of this climate program because it’s supposed to be spent on new and additional things.”