Ontario has taken its most significant step yet in tackling climate change and building a low-carbon economy. Meeting emission reduction targets along with a cap-and-trade program to price carbon pollution will be the law in Ontario.
On Wednesday, Ontario introduced the Climate Change Mitigation and Low-Carbon Economy Act, which commits the province to achieving its climate targets and using cap-and-trade revenues for climate action. And on Thursday, as part of the 2016 budget, Ontario released the regulation that sets out the detail of the province’s cap-and-trade program.
Bill 172, the Climate Change Mitigation and Low-Carbon Economy Act enshrines in legislation Ontario’s emissions reduction targets. Those targets—15 per cent below 1990 levels by 2020, 37 per cent by 2030, and 80 per cent by 2050—cannot be relaxed without amending the Act. They can, however, be made more stringent.
The Act also lays out the rules for implementing a cap-and-trade program. In particular, it specifies that revenue raised from cap-and-trade must be used to fund complementary policies that further cut carbon pollution.
Ontario has already reduced emissions more than any other province in Canada and succeeded in hitting its 2014 climate target. Bill 172 commits Ontario to reaching future targets too.
But that’s not the only good news for the climate to come out of Ontario this week.
Yesterday’s budget confirms Ontario’s leadership in tackling climate change and embraces the opportunities inherent in the global transition to a low-carbon economy.
Starting in 2017, emitting carbon pollution will carry a price in Ontario, estimated at $18 per tonne. The budget projects cap-and-trade revenues of nearly $500 million in fiscal year 2016-17, and $1.9 billion in 2017-18. Bill 172 ensures this money will be recycled to deliver benefits to Ontarians, including renewable energy; retrofits to improve energy efficiency in homes, buildings and businesses; public and active transportation; incentives to get more people driving electric vehicles; and other clean technologies and programs that reduce greenhouse gases while creating jobs.
It’s true that cap-and-trade will have a small impact on individuals. It might add about $13 a month to the average energy costs of Ontario households. But those costs assume that households don’t change their behaviours, which is exactly what carbon pricing is intended to do. One of the goals of putting a price on pollution is to encourage people to pollute less. They might choose to cycle or take public transit instead of drive, install a more efficient furnace, or buy an electric car.
Moreover, the complementary policies funded by cap-and-trade revenues will also help to reduce energy use which will lower energy bills. For example, programs to make homes and apartments more energy-efficient can actually result in savings for Ontarians. In the northeastern United States, where a cap-and-trade program has been in place since 2009, overall electricity bills have gone down.
Meanwhile, cap-and-trade’s impact on provincial GDP will be minimal. Without cap-and-trade, Ontario’s economy is expected to grow by 11 per cent between 2015 and 2020. Factoring in cap-and-trade, economic growth will be 10.97 per cent, a negligible 0.03 per cent difference
There is still room for improvement in Ontario’s cap-and-trade program. The system could be made fairer by distributing fewer free-of-charge cap-and-trade allowances to industry. The province has said these free permits are a transitional measure. More details on the transition are welcome. And we’d like to see a bit more tightening up of the language about the use of cap-and-trade revenues to provide more certainty that expenditures will lead to actual reducions of carbon pollution.
Putting a price on carbon pollution and a commitment to climate action is now being enshrined in provincial law. Ontario is taking the necessary steps to build a low-carbon economy. This is a good thing that will make life in this province better.
 EnviroEconomics and Navius Research. “Impact Modelling and Analysis of Ontario Cap and Trade Program.” (Feb 25, 2016).