Carbon pricing coming soon in Ontario
This article by Environment North president Graham Saunders was originally published in the Chronicle Journal on Saturday April 4, 2015.
In mid-February, the Ontario government released the Discussion paper “Ontario’s Climate Change 2015” for comment. This paper outlines plans for a low-carbon economy and can be viewed as timely or perhaps “just in time”. More frequent storms and an increase in flooding and other severe weather have contributed to a fourfold increase in 30 years to Canadian and global insurance losses. The Discussion Paper properly notes the need for governments to take strong action to reduce global emissions within the next decade. “If left unchecked climate change threatens our communities, our farms, our health, our economy and all of the natural systems that underpin them.”
The government has consulted with the public to help develop a climate change strategy to meet Ontario’s 2020 greenhouse gas emission targets and beyond. Goals for short term “climate critical” policies include a price on carbon, taking actions in key sectors such as industry and transportation, supporting research and promoting climate adaptation.
By putting a price on carbon Ontario joins a growing movement around the world supporting carbon pricing. In this country British Columbia (BC), Quebec and Alberta have some form of carbon pricing. There are regional initiatives in the US and in China. The European Emissions trading system has been in place since 2005. Agencies such as the World Bank are saying that this is a critical time and that a price has to be put on carbon emissions.
The two main systems for carbon pricing presented in the Discussion Paper are “cap-and- trade” and “carbon tax”. Carbon taxes are simpler to implement and generally more economically efficient compared to cap-and-trade systems which take longer to set up and are complicated. “Reading between the lines” in the discussion paper suggests that the cap-and- trade system is the government favourite. It appears to be convenient for Ontario because it would mean aligning with similar systems in other jurisdictions – in this case Western Climate Initiative (which includes Quebec and California) and the European Trading System (ETS).
Designing a cap-and-trade system for Ontario will have to consider options. What types of emissions will the regime cover? The Quebec and California initiatives first applied to large electricity generators and industrial facilities and expanded in 2015 to include transportation and heating fuels. Will trading allowances be “grandfathered”? Will permits be auctioned or free for certain sectors? Too many allowances and permits can devalue the price of carbon (the ETS had trouble with this). Too few can penalize companies or sectors and cause economic damage.
Carbon price volatility under cap and trade is a concern. The economic downturn in 2008 and the recent decline in oil prices quickly decreased the economic incentive in carbon trading schemes. This, in effect, lets many polluters off the hook.
Carbon tax systems have not had the same complexities. The British Columbia carbon tax in 2008 took five months to implement and is applied to gasoline, natural gas and other fuels. It is not large; for example, the tax on gasoline is 7 cents per litre. The tax is revenue neutral and returns so far are $3 billion as business tax cuts, over $1 billion in personal tax breaks, and nearly $1 billion in low-income tax credits (to 2014). According to the BC Ministry of Finance, income tax rates in BC are now Canada’s lowest.
The impact on carbon emissions has been considerable. Per capita consumption of fossil fuels has declined by 17 per cent in BC compared to only 1.5 per cent in the rest of Canada.
Sweden has used a carbon tax since 1991. This and related policies enabled Sweden to surpass their target under the Kyoto Protocol. Carbon emissions are 13 per cent below the base year of 1990. (This compares to Canada which is 27 per cent above its agreed target; the Harper government withdrew Canada from Kyoto in 2012.)
The cry that pricing carbon “will ruin the economy” by Stephen Harper and other critics is contradicted by positive economic numbers. Sweden's economy has more than doubled since 1991. British Columbia’s economic growth has slightly outperformed the rest of Canada and the BC clean technology industry increased by 48 per cent in two years after 2008.
Environment North agrees with the Discussion Paper that this is a critical decade for action to avoid dangerous climate change. It is not the time to weather a potentially volatile pricing system. It is the time for a fee on carbon consumption that is easy to implement and is revenue neutral. Graham Saunders is president of Environment North.