We know that urgent climate action is needed. That’s why 25,000 people took to the streets of Quebec City this week. And that’s why it’s good to see Ontario taking a next step towards climate action.

A few months ago, Premier Kathleen Wynne committed to putting a price on carbon. Yesterday, she told us how the province intends to do so: by implementing a cap-and-trade system.

Right now in Ontario there is nothing limiting how much pollution is put into our shared atmosphere. But we can’t keep using the atmosphere as a dumping ground. And cap and trade will help change this.

What is cap-and-trade, you ask? Simply put, a cap-and-trade system puts a limit on carbon pollution – that’s the cap. In a well designed system, the cap comes down, year over year, reducing the amount of pollution allowed.

A cap-and-trade system also puts a price on pollution. Permits are created, with the total number of permits equal to the amount of pollution allowed under the cap. Polluters must buy those permits, creating an incentive to pollute less.

There is the trading part of cap-and-trade as well, but this is less interesting. Essentially, companies that can reduce their emissions more easily can sell permits to companies that have a tougher time reducing emissions. In theory, this trading helps ensure that the lowest costs reductions are done first, thus reducing the total costs of pollution reduction.

Most if not all of the permits are auctioned off by the government, and those auctions generate revenue. In Ontario, the plan is to reinvest the revenue in things like public transit and energy efficiency programs that stimulate the economy, create jobs and further reduce emissions, doubling the environmental impact of the system.

In summary, a cap-and-trade system puts a limit on pollution and generates money for solutions, and can be a powerful tool to fight climate change.

Carbon pricing and cap-and-trade may be new to Ontario, but we’ve actually been talking about it for a long time. And while we’ve been talking, other jurisdictions have moved forward – namely Quebec, and California. B.C. has also put a price on carbon via a carbon tax. And these carbon pricing systems are working.

California’s emissions have come down while its economic growth has remained strong. Quebec’s system is cutting pollution and reinvesting in the economy. And B.C.’s carbon tax has see fuel use drop while B.C.’s economic growth outperformed the rest of Canada. So it’s great to see Ontario moving on this now. It’s been a long time coming. And it’s good to hear that Ontario plans to link its system with programs already operating in Quebec and California.

As the premier said yesterday, the announcement isn’t the end of the discussion, but the beginning. There are a lot of important design details that still need to be sorted out, such as:

 

  • How much of Ontario’s emissions will be covered under the cap? Quebec’s and California’s systems cover about 85 per cent of emissions in those jurisdictions.

 

 

  • How will the system address transportation fuels like gasoline? Quebec’s and California’s systems now handle gasoline and diesel in the cap-and-trade program, but rumours have been flying around that Ontario may opt for another approach to transportation fuels. Whatever approach is chosen, the system needs to get at those fuels, since transportation contributes about one third of the total amount of carbon pollution in Ontario.

 

 

  • When will the program be implemented, and how will the cap come down over time? Will it be enough to permit Ontario to meet our GHG reduction targets?

 

 

It’s also worth noting that, while cap-and-trade is an effective way to reduce emissions, a cap-and-trade system alone is not a complete climate strategy. We’ll need a bunch of complementary policies in other areas – to ensure our buildings and industries are energy efficient, to continue to reduce emissions from electricity, and to spur better options for low-carbon and public transit.

But yesterday’s announcement is an important step. And rest assured that we’ll be working to make sure that Ontario takes the next steps and develops a climate strategy that puts the province on track to meet or beat its carbon reduction targets and keep its promises.

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