Carbon Pricing Featured in Ontario’s New Climate Change Discussion Paper

On February 12, 2015, the Ontario Ministry of the Environment and Climate Change (MOECC) released Ontario’s Climate Change Discussion Paper: 2015. The Discussion Paper outlines Ontario’s long-term vision for transforming the province into a low-carbon economy and suggests short-term actions to accelerate that transformation. Key among these actions is to develop, by the end of 2015, a plan to price greenhouse gas emissions in the province. The ultimate purpose of the Discussion Paper is to generate feedback that will assist the provincial government in developing a comprehensive strategy (i) to reduce greenhouse gas emissions in 2020 to 15% below 1990 emission levels, (ii) to achieve an 80% reduction of 1990 emission levels by 2050, and (iii) to work toward greenhouse gas emission neutrality by the end of the century.

Long-Term Goals, Short-Term Actions

Ontario has significantly reduced its greenhouse gas emissions in recent years, having closed the province’s remaining coal-fired electricity generation units in 2014. Even so, the Discussion Paper highlights several long-term goals for further transforming Ontario into a low-carbon economy. These goals include encouraging sustainable, low-carbon economic growth; promoting innovation in low-carbon technologies; and designing communities that are built both to minimize their carbon footprint and to adapt to a changing climate.

To achieve these long-term goals, the Discussion Paper recommends four short-term actions:

• imposing a price on greenhouse gas emissions, likely by adopting a cap-and-trade system and/or carbon tax;
• improving energy conservation and energy efficiency, particularly in the transportation, electricity, manufacturing, agriculture, forestry and waste management sectors;
• funding the research and development of low-carbon technologies; and
• promoting climate change resilience, especially the ability of infrastructure to adapt to extreme weather events.

Carbon Pricing

The Discussion Paper reiterates the government’s intention, expressed publicly earlier this year, to release a plan for pricing greenhouse gas emissions at some point in 2015. What remains to be seen is whether Ontario will adopt a cap-and-trade system or a carbon tax for pricing those emissions or both.

Generally, a cap-and-trade system would limit the emissions of regulated facilities and allow them to meet their caps by either reducing their own emissions or by purchasing credits from other emitters who could achieve the reductions more cost-effectively. Ontario was previously involved in developing model cap-and-trade rules for the Western Climate Initiative, whose membership at the time included several Canadian provinces and U.S. states. Those model rules formed the basis for the integrated cap-and-trade systems that are now operational in Quebec and California. According to the Discussion Paper, ten companies with operations in Ontario have facilities that are currently regulated under Quebec’s system.

In contrast, carbon taxes typically impose a fee on each tonne of a fossil fuel that is either purchased or sold. Those fees can be imposed on the end-users of the fuels, such as the carbon tax in effect in British Columbia, or on importers or distributors of the fuels, such as that in effect in Quebec.

According to the Discussion Paper, Ontario will confirm this spring whether it intends to implement a cap-and-trade system, a carbon tax and/or some other mechanism for pricing greenhouse gas emissions. To inform that decision, the Discussion Paper invites comments on the following questions:

• What carbon pricing market mechanism or mechanisms will best achieve greenhouse gas reductions in Ontario while encouraging innovation, productivity and a transition to a low carbon economy?; and
• For those industries currently facing economic challenges, what carbon pricing mechanism or mechanisms would be most beneficial? What considerations should be taken into account when designing these mechanisms?

The MOECC is accepting comments on the Discussion Paper until March 29, 2015. Comments can be submitted online here.