Ontario PC leader Patrick Brown’s proposal to replace the Kathleen Wynne’s cap and trade system for reducing the province’s greenhouse gas emissions with a carbon tax has set off a series of debates about the merits of these different approaches to address the challenge of climate change. Almost lost in this debate has been one of the most remarkable aspects of Mr.Brown's proposed policy - the implicit political acceptance of some form of substantial carbon pricing across the political spectrum in Ontario. The change in the Progressive Conservative party’s position on the issue represents is a major shift in the climate change conversation, relative to where it was not more than a year ago.
In terms of the specific options being offered by Ms. Wynne’s government and Mr. Brown, it is important to recognized that a central, but unspoken, feature of the government's approach is that it doesn't really rely on the carbon price generated through its cap and trade system for emissions per se as its primary mechanism for reducing GHG emissions. The carbon price being generated through the system (~$18/tonne) is far too low to have any meaningful impact on individual or corporate behaviour.
Rather the purpose of the cap and trade system, at this point, is to generate revenues, which then can be invested in low-carbon transition strategies like expanding public transit services. The granting of free emission allowances to industrial emitters, at least for the initial phases of the program, reinforces that view.
In some ways, the strategy makes sense, as Ontario’s industrial emissions of GHGs have fallen dramatically since the signing of the original United Nations Framework Convention on Climate Change in 1992. The shift has largely been a result of economic restructuring, rather than any climate change strategy. In the meantime, transportation has emerged as the key area of growth in emissions in the province.
Transportation-related emissions, particularly for passenger transportation, are very hard to address through pricing mechanisms alone. Transportation patterns are driven by embedded long-term factors like existing infrastructure (e.g. roads), urban forms that separate housing from work and other activities, and the lack of viable alternatives to automobiles, like good and reliable transit services. In that context, major investments in transit services may make good sense in Ontario as a GHG emission reduction strategy.
A key weakness in the province’s current strategy is that it hasn't provided a real mechanism to ensure that the revenues generated through the cap and trade system are invested projects that give a good return on investment in terms of GHG reductions. There is a real risk of the revenues being used on high-profile projects that are relatively ineffective in either reducing emissions or adapting to a changing climate. Linking Ontario’s system to California also runs the risk that Ontario emitters will buy emission permits from that state rather than reducing their own emissions, particularly if the California legislature approves more permits than are really needed there.
Mr. Brown proposed that we move from a cap and trade system to a carbon tax. At this point, such a shift could still be feasible given that what we have now, with the granting of free allowances to the large industrial emitters, is a de facto carbon tax on heating and transportation fuels. The distributors of those fuels are the only people actually paying for allowances under Ontario’s system. A shift in approach will get harder if industrial emitters start actually having to buy and trade credits.
A major weakness in Patrick Brown's approach is that the carbon price he proposes ($50/tonne by 2022) is still far too low to affect behaviour enough to get us anywhere near the Paris targets. Additional measures will be needed. In Ontario's case, the specific areas of focus will need to be transportation and buildings. Buildings can be partially addressed through regulatory measures like the building code and efficiency standards for heating and cooling systems, but financial incentives to help build capacity and support new technologies and practices will be needed too. Transportation, for the reasons outlined above, will require substantial investments in new infrastructure and services. Rather than doing that, Mr. Brown proposes to give away the revenues in the form of tax cuts.
As for the province’s other parties, Mike Schreiner’s Greens propose to retain the Liberals’ cap and trade system, but eliminate the free allowances for large industrial polluters. Andrea Horwath’s New Democrats also propose to keep the cap and trade system, with greater transparency, and to dedicate twenty-five percent of the revenues to communities likely to suffer disproportionate economic impacts of carbon pricing. The bottom line at this stage is that none of the province’s major parties proposed a comprehensive strategy for meeting the province's (or Ottawa's) GHG emission targets.