For the first time, the Ontario government will price carbon pollution through a cap and trade system that links with Quebec and California. With a historic policy so close to implementation and the federal government considering a national carbon price, Ontario has the chance to show the rest of the country what a strong cap and trade system could look like.
Following months of public and stakeholder consultations, the government recently published its draft cap and trade legislation and regulation for public comment. TAF submitted recommendations on both documents.
Don’t want to weed through scores of pages of dense legalese? We’ve summed up what we see as the strongest elements of the proposal and made recommendations where we think stricter rules are needed.
Areas of Strength
The legislation, known as the Climate Change Mitigation and Low-carbon Economy Act, 2016 (the Act), recognizes some important points regarding Ontario’s transition to a low-carbon economy.
First, the Act’s preamble acknowledges that early climate action will not only protect Ontario’s communities, infrastructure, agricultural resources and ecosystems, but will also create new social and economic opportunities. By leading the low carbon transition, Ontario can spur the development of low-carbon products and services that drive job creation, improve the way people get around, and create healthier and more livable communities.
Climate targets enshrined
We were also pleased to see the government enshrine Ontario’s greenhouse gas (GHG) targets in the Act: a 15% reduction from 1990 levels by 2020; 37% by 2030 and 80% by 2050. This sends a strong signal that Ontario is serious about meeting its ambitious targets. It also holds future governments accountable for achieving these targets. In addition, the legislation leaves open the possibility of ratcheting up the ambition of these targets if appropriate.
But carbon pricing alone will not get the province to its climate targets. Ontario’s carbon price is expected to start out at about $18 per tonne – certainly a start, but nowhere near the $100 to $200 per tonne that many experts say is needed to keep global temperatures below a two-degree rise. We were therefore pleased to see the need for complementary GHG reduction measures acknowledged in the Act. TAF looks forward to seeing some strong additional policies in Ontario’s forthcoming Climate Action Plan.
Areas for Improvement
While the draft cap and trade legislation demonstrates a strong commitment to tackling climate change, here are several areas that we believe could be strengthened.
The Act grants the Minister of the Environment and Climate Change the authority to distribute free emissions allowances to some market participants. However, it does not specify how, or for how long, these free allowances will be distributed. TAF adopts Canada’s Ecofiscal Commission’s position that free allowances are only justified when they are targeted to address genuine competitiveness pressures arising directly from Ontario’s cap and trade policy, administered based on transparent criteria related to emissions intensity and trade exposure, and temporary in nature with a clear phase-out plan. This approach would ensure that Ontario’s cap and trade system protects industries that face true competitiveness pressures, while ensuring fairness and maximizing carbon revenue for further GHG-reducing initiatives.
Use of funds
Even considering the province’s plans to distribute free allowances, the recent provincial budget estimates that Ontario’s cap and trade program will generate $1.9 billion annually starting in 2017. If Ontario is to achieve its aggressive climate targets, it needs to reinvest these revenues in new projects that drive significant reductions in GHG emissions, as it previously committed to doing.
However, the program design leaves open the possibility that proceeds could be put to other uses. The province could strengthen its commitment to reducing GHGs by ensuring that proceeds are deposited in a separate, special purpose account devoted to this purpose. Furthermore, the funds could be shielded from political interference if this dedicated account were administered by a third party. One possible model to follow would be California’s, whose Air Resources Board (ARB) administers the state’s cap and trade fund. The ARB offers the expertise and political independence required to administer the fund in an effective and impartial way.
Third party oversight
Similarly, the Act should allow for an oversight role for the independent Environmental Commissioner of Ontario (ECO). The Act should explicitly give the ECO access to all program-related data, including GHG inventory verification reports and offset program data. This would allow the ECO to report on the performance of the cap and trade system, enabling greater transparency and public oversight. It could also provide greater certainty that cap and trade is achieving emissions reductions in an effective and cost-efficient way.
Transparent decision-making and reporting
Ontario could strengthen the public reporting requirements surrounding the Greenhouse Gas Reduction Account (GGRA). The Act provides that GGRA funds may not be invested unless the Ministry of the Environment and Climate Change (MOECC) reviews and provides an evaluation of a proposed initiative to Treasury Board. This provision could be strengthened by mandating the publication of the MOECC’s evaluation for each initiative under consideration – including GHG reduction potential – and by requiring Treasury Board to demonstrate how it has been incorporated into the final funding decision.
Let’s get it right the first time
TAF applauds the province’s historic shift to carbon pricing. In developing its cap and trade system, Ontario has the advantage of applying valuable lessons from Quebec, California, and other jurisdictions that have gone before it. We hope that the province makes the best use of these learnings and develops a program that is transparent, effective, and based on available evidence.
Image credit Ontario.ca