Over $1.5 billion has been raised through Ontario’s first three Cap and Trade auctions since the program went into effect January 1, 2017, so it can be judged to have gotten off to a very good start.
The program is one that’s designed to lower greenhouse gas emissions in a way that will raise money to fund a host of other measures meant to fight the impact of climate change.
Participation is required among facilities and natural gas distributors that create more than 25,000 tonnes annually of greenhouse gas emissions. They must have a number of allowances equal to their emissions; each allowance is equal to one tonne of carbon dioxide equivalent. Allowances can be purchased at quarterly auctions, in addition there’s a secondary market where participants can buy and sell credits to each other.
Ontario has fairly ambitious targets in terms of reducing the province’s greenhouse gas production: 15 percent against 1990 levels by 2020, 37 percent by 2030 and 80 percent by 2050.
Will the Cap and Trade program work?
Many are expecting longer-term gain, though Ontarians may not be happy with the short-term pain and loss of energy savings.
It shouldn’t take that long to see gains. California put its program in place in 2012 and has seen gas emissions fall by 3 percent, while economic growth has outpaced the rest of the country’s performance. In Quebec, more than $1 billion has been raised, emissions are on the decline and the economy continues to trend up.
But, the costs of Cap and Trade are passed on to all natural gas consumers, putting pressure on electricity prices and cheap electricity rates and savings on energy. Gas bills have gone up by about 12 percent and the positive side is that it’s a major motivation to find ways to make their systems more energy efficient to reduce the bite and achieve greater overall energy savings.
The program also makes it important for businesses that use natural gas – which is still the most efficient heating option – to adopt optimal hedging strategies, so that they can manage cost increases and increase overall energy savings.
From the perspective of managing climate change, pricing carbon is an effective way to reduce emissions, and the Cap and Trade program is an effective way to price carbon.
In addition, the program is allowing Ontario to continue to lead the way on environmental goals, with funds raised earmarked for home energy retrofit programs, programs to support greater deployment of low-carbon technologies and improving our mass transit infrastructure.