Ontario has announced it is bringing in a cap-and-trade system as part of its climate strategy. Cap-and-trade is one of the main ways governments can put a price on carbon, and it’s a really good idea.
We can’t keep using the atmosphere as a free dumping ground. But right now in Ontario, polluters can pollute for free and there’s no limit to the amount of pollution they’re allowed to spew into the atmosphere. Cap-and-trade addresses both of these issues: It puts a price and a limit (the cap) on carbon pollution. That’s why cap-and-trade is becoming increasingly common around the globe. It’s also why we support it.
Aside from the price and putting a limit on pollution, cap-and-trade has another main strength: it can generate revenue that can be used to support other solutions to climate change – solutions like wind and solar power, more energy efficiency, or electric cars. (Want cap-and-trade revenue to be re-invested into climate action initiatives? Make your voice heard here.)
In Ontario, cap-and-trade revenue is estimated to be at least $2 billion by 2020, which is why we called our new report, The $2 Billion Question. We crunched the numbers to answer the question, if invested in climate solutions, what can $2 billion do? And the short answer is, a lot.
$2 billion is enough money to:
- Install solar systems on 80,000 homes
- Conduct energy retrofits on nearly one-third of all Ontario households
- Pay for new, unfunded transit projects; or
- Build 25,000 public electric vehicle fast-charging stations across the province
The cap-and-trade program is estimated to raise $2 billion each year. This means that the impact of reinvesting the revenues is significant. The examples above illustrate the scale of impact, each year. And as permit prices go up in the years ahead, and any measures introduced to help ease companies into the system are phased out, the program will likely raise much more than $2 billion per year.
It’s important to note that we’re not actually suggesting the government should follow these examples and spend the money on 80,000 solar rooftops or 25,000 charging stations. The point of the report is to illustrate that $2 billion is a fair chunk of change and can go a long way when invested in climate solutions.
In determining how to actually allocate the proceeds from cap-and-trade, Ontario needs to develop clear criteria to guide decision-making and deliver the best value to Ontarians. Ideally, the province would set up an independent body to decide how best to disburse the funds and to report back on impact.
That the money be invested back into climate action is critical for two reasons: First, if the money isn’t invested back into the climate strategy, the province will have little hope of reaching its 2020 carbon target. Cap-and-trade, as a pricing mechanism, just isn’t enough to do it alone. Other complementary policies will be needed.
Second, if the money isn’t invested back into projects that have a clear environmental and economic benefit, the program’s credibility will be at risk.
We’ve had many conversations with folks about how they would like to see the revenue handled. To generalize, two scenarios stand out: either a revenue-neutral carbon tax, like the one in place in B.C., where the government cuts corporate and income taxes by the same amount as revenue raised by the carbon tax; or a revenue-generating system where the revenue is poured back into climate action. What Ontario residents don’t want is a system where the proceeds vanish into general revenues.
Thankfully, Ontario has committed to reinvesting revenues back into cutting carbon. And, as the report released today shows, that money can do some really good things for our environment, our economy and Ontario residents.