Should Ontario implement a cap-and-trade system even if other jurisdictions keep putting it off? updated October 1, 2011

Going into this fall’s provincial election the leaders of the Liberal, Progressive Conservative and New Democratic Parties rejected a call from Ontario’s Environmental Commissioner to introduce a price on carbon, either through a carbon tax or a cap and trade system. All three parties argued that other jurisdictions in Canada and the US are backing away carbon pricing, and that therefore Ontario should to the same to make sure that our industries are not put at a competitive disadvantage. Only the Green Party, currently running at less than 5 per cent in opinion polls, has endorsed the idea of introducing a carbon tax in Ontario. But Pricing carbon is essential to fulfilling Ontario’s existing commitments to reduce greenhouse gas (GHG) emissions. It will help prevent what the Intergovernmental Panel on Climate Change has termed “dangerous climate change.” And it is in our economic interest as well.

The reality of climate change means that widespread introduction of carbon pricing is almost certain to happen in the next five to ten years. Introducing carbon pricing now will signal to Ontario’s industries that they need to invest in energy efficiency, low carbon technologies, and renewable energy sources that will enable them complete in the carbon constrained world to come. Industries in jurisdictions that put off introducing carbon pricing will be at a disadvantage when that reality hits.

Ontario is already committed to participating in the Western Climate Initiative (WCI) cap and trade system. This gives Ontario a seat at the table in designing the rules for cap and trade that is likely to strongly influence whatever system for controlling GHG emissions emerges in North America. This ensures Ontario industries are not unfairly impacted by whatever system is established.

Finally, while debate on a GHG emission cap and trade system is on hold in the U.S. for now, we know, based on past Congressional bills, that any national legislation the U.S. adopts will include provisions for trade penalties against any jurisdiction with less stringent GHG emission reduction systems than its own. Participating with BC, Quebec, Manitoba and the leading US States on the climate change issue in the WCI cap and trade system is one of our best guarantees of maintaining access to the US market no matter what the US Congress does.

Analyses by the National Round Table on the Environment and Economy and others suggest that only a few sectors in Ontario – cement, steel, and parts of the pulp and paper and chemical manufacturing industries - would be vulnerable to competitiveness impacts as a result of the introduction of carbon pricing. The situation of these types of energy-intensive and trade-exposed industries can be addressed in the design of a carbon tax or cap and trade system, and through other forms of transitional assistance.

While it seems most of Ontario’s political leaders would like the climate change issue to just go away, that just isn’t going to happen. Rather, Ontario’s best route to safeguarding its environmental and economic interests is to move forward with a carbon pricing system now, before its too late.