Just a little over three months ago, on Wednesday, February 28th, 2018 the Ontario government announced that its first venture into the international carbon market was a success. The auction of allowances raised approximately $471 million. The monies raised from the auction are allocated to Ontario programs targeted at reducing greenhouse gas emissions.
On Friday, June 15, 2018 Premier designate Doug Ford announced that the first act of the newly formed cabinet will be to cancel Ontario’s cap-and-trade regime along with challenging the federal government’s authority to impose a carbon tax on the people of Ontario.
The announcement confirmed that the new government would be serving notice of its withdrawal from the joint agreement linking the Ontario, Quebec and California’s cap-and-trade markets and the pro-carbon tax Western Climate initiative. The new progressive conservative government also indicated that it will provide clear rules for the orderly wind down of the existing cap-and-trade program.
The program is still in its infancy, on March 22, 2017 Ontario held its first auction of greenhouse gas emission permits under its new cap-and-trade program. The Ontario government capped the amount of greenhouse gas emissions businesses can emit through the application of a cap and trade program. Ontario signed a cap and trade linking agreement with Quebec and California on September 22, 2017 that came into effect on January 1, 2018.
The linking of the Ontario, Quebec and California carbon markets meant: that Ontario will hold joint auctions of allowances with Quebec and California; and allowances and credits issued by Ontario, Quebec and California will be accepted by any of the three cap and trade programs
Ontario’s first joint auction of greenhouse gas allowances with Quebec and California occurred on February 21st, 2018 as part of Ontario’s cap-and-trade program. The auction moved forward prior to Ontario’s provincial election despite the Progressive Conservative Party committing to eliminate the Liberal’s carbon-pricing plan.
The carbon-pricing plan places a limit on the amount of carbon dioxide that can be emitted by major industries, gasoline markets and distributors of natural gas by their facilities or their products. However, companies that are unable to meet the cap can purchase allowances from the entities who can reduce emissions below their regulatory obligations.
The participants required to engage in the cap and trade program include: electricity importers; a facility or natural gas distributor that emits 25,000 tonnes or more of greenhouse gas emissions annually; and, fuel suppliers that sell more than 200 litres of fuel per year. Participation in the cap and trade program is voluntary for facilities that generate more than 10,000 but less than 25,000 tonnes of greenhouse gas emissions per year.
Ontario participants in the February cap-and-trade auction included Suncor Energy Inc., Imperial Oil Ltd, Enbridge Gas Distribution Inc., Union Gas Ltd. and Ontario Power Generation.
Quebec and Ontario implemented the cap-and-trade plan instead of the straight carbon tax that British Columbia and Alberta have adopted. While cap-and-trade may send money out of the province of Ontario the intent is to lower the cost of compliance because emitters are allowed to purchase allowances from other companies – including those in California – who are in a position to reduce their emissions more economically.
The federal government has indicated that it is preparing to introduce legislation that would result in a carbon tax being imposed on provinces that have failed to implement a program that meetings Ottawa’s standards.
The progressive conservative government also announced that it will be directing the incoming attorney general to use all of the resources available to challenge the federal government’s authority to impose a carbon tax.
The impacts of this change are yet to be seen.