Canadians who follow environmental issues are well aware that the federal government is absent when it comes to fighting climate change. Thankfully, a number of provinces, including Ontario, are jumping in to fill the void.
Ontario is the only North American jurisdiction to have stopped burning coal to produce electricity. Thanks to the Green Energy Act, we have more wind and solar power than any other province.
On Monday, April 13, Ontario announced it will be putting a price on carbon by creating a cap-and-trade program. This is good news for the province’s economy as well as our climate. We can’t keep using the atmosphere as a free dumping ground. There are costs associated with pollution, and it’s only fair to make polluters pay some of those. That’s what carbon pricing does.
We don’t have to look far for examples of its success.
In Canada, the best known is British Columbia’s carbon tax, which imposes a levy on fossil fuels sold in BC. Increasing the price of gasoline, natural gas and other fossil fuels encourages people and companies to use less and produce less pollution. Pricing pollution also helps level the playing field, making clean energy more competitive.
BC’s carbon tax is working. It has reduced fuel consumption by 16 per cent. It has received international recognition and been called “a textbook case” of how to price pollution.
It has also clearly put the lie to Ottawa’s “job-killing carbon tax” fear-mongering. Since implementing the tax, BC’s economy has grown at a greater rate than the rest of Canada’s. BC’s employment rate is also better than the national average.
BC’s carbon tax is also revenue neutral. That means any funds collected by the tax are returned to taxpayers via corporate and personal income tax cuts. In fact, BC’s system has resulted in a net loss in government revenues because less carbon is being used but the tax breaks remain in place. So BC has less money to spend on public services and other important things like public transit.
If BC’s carbon tax weren’t revenue-neutral, it’s possible that Vancouver-area residents wouldn’t be voting on whether to raise sales taxes to pay for the region’s transit plan and would instead be building transit right now.
Unlike BC, the money generated by Quebec’s cap-and-trade pricing system goes into a green fund and is used to help finance energy efficiency retrofits, low-carbon transportation and other things that further reduce carbon pollution.
Quebec’s program is only a couple of years old, so it’s not as well known. But while it’s too early to assess its impact on emissions, the consensus is that cap-and-trade can be an effec-tive approach.
A cap-and-trade program puts a limit on the amount of pollution permitted in the economy – that’s the “cap” in cap and trade. The cap is reduced over time, cutting the total amount of pollution allowed. Companies covered under the system must either reduce their emissions or buy permits – the “trade” in cap-and-trade – from other companies that have reduced their emissions and have extra permits to sell, or in some cases purchase offsets that reduce emissions from other sources.
Quebec’s program is expected to raise more than $400 million per year for the next few years and, by 2020, contribute nearly $2.5 billion to the province’s Action Plan on Climate Change. California’s system works this way, too.
The benefit of a cap-and-trade program is that you have a good sense of what will happen to emissions. You set the cap at a certain level and then determine how the cap will come down over time.
Quebec’s cap will decrease by about 4 per cent each year between 2015 and 2020 and reduce pollution by over 10 megatonnes, equivalent to shutting down five coal-fired power plants the size of Ontario’s Nanticoke generating station, which was once North America’s biggest polluter.
With a carbon tax, on the other hand, you know what the cost of emissions are, but you don’t know what impact those costs will have on the pollution generated.
Ontario’s system could generate between $1 and $2 billion each year, depending on how it’s designed.
And as we learned on Monday, the money raised by Ontario’s program will be reinvested in a variety of environmental initiatives, doubling the environmental impact of the cap-and-trade system.
Before we break out the champagne, though, Ontario still has to figure out key design -elements and then actually implement the system. Carbon pricing is good, but design matters, and giving polluters loopholes makes it less certain that carbon pollution will be reduced.
Carbon pricing alone does not make a climate strategy. We’ll need to do other things, too, like build more renewable energy, invest in energy efficiency and reduce pollution from transportation.
But Monday’s announcement is important as a sign of progress toward a clean economy.
Keith Brooks is director of Environmental Defence’s Clean Economy Program.
