Cap and trade needs stronger design

Mike Schreiner's written submission on Bill 172, Climate Change Mitigation and Low-carbon Economy Act Hearings.

Grant Crack, MPP
Standing Committee on General Government
Room 1405, Whitney Block, Queen's Park, 
Toronto, ON M7A 1A2

April 6,2016

Mr. Chairperson, members of the Committee, I appreciate the opportunity to submit written comments on Bill 172 on behalf of the Green Party of Ontario.

This is a historically significant moment--all parties at Queen’s Park now recognize the significant threat posed by climate change and support pricing carbon pollution. 

This is a first in Ontario politics. It is good news for Ontario’s environment and economy.

I’ve said for years that the debate in Ontario needs to move from “whether we should price carbon pollution” to “what is the best, most effective way to price carbon pollution.” That day has finally arrived. 

Even though I don’t believe the government has chosen the most effective carbon pricing policy, I want to acknowledge and thank Minister Glen Murray for introducing legislation to price carbon pollution. 

The GPO continues to support a carbon fee-and-dividend policy that returns money raised back to citizens to reduce their carbon footprint, as the most effective and fair way to price carbon pollution. 

The complexity of Bill 172 and the regulatory requirements to make it work reconfirm our support for a simpler, more effective approach to carbon pricing. Carbon fee-and-dividend is more predictable and less bureaucratic. And BC has shown that a similar approach works to reduce GHG emissions while improving economic performance. 

However - if it’s designed properly - we agree that a cap-and-trade system can be effective in reducing GHG emissions. 

Unfortunately, as drafted, Bill 172 has flaws that will undermine the goals of the legislation. 

In the spirit of cross party cooperation to advance action on climate change, we are pleased to offer comments to improve, not oppose, Bill 172. 

Big polluters can’t have a free ride

I am deeply concerned that Ontario’s cap-and-trade plan gives big polluters a free ride. This will make the program less efficient and effective.

For cap-and-trade to work, polluters must be required to pay to pollute. This is an essential incentive to push individuals and businesses to invest in low carbon solutions. 

Although some free permits are justified in order to avoid trade exposed industries from moving their operations to jurisdictions without carbon pricing, there must be a strong economic case before issuing free allowances.

Just 2% of Ontario’s economy is exposed to competitive pressures from carbon pricing, according to a recent report by the Ecofiscal Commission. It appears that the government is overestimating the risk, and overstating the trade exposure of most industries.

Free pollution permits should be available only to a small number of especially vulnerable sectors. As well, any free allowances should be transitional and temporary. This does not appear to be the case based on my reading of Bill 172.

Industry exemptions and free permits have weakened the effectiveness of the European Union cap-and-trade system. Limiting and quickly eliminating free permits would send a stronger price signal and create more demand for low-carbon innovation. 

I encourage the committee to re-examine this aspect of the bill, reduce the number of free permits allowed, and establish strict criteria for the determination of free allowances.

Ontario should be carbon neutral by 2050

I fear that the government’s emission reduction targets are not ambitious enough to meet our obligations in avoiding the worst consequences of the climate crisis.

The Paris Climate Summit is recommending limiting the global temperature increase to 1.5 °C. This requires more ambitious targets.

Instead of a target of 80% below 1990 GHG emissions by 2050, I recommend that Ontario establish a target to be carbon neutral by 2050.

The carbon cap should be adjusted to reflect this more aggressive target.  

Money raised from carbon pricing should be returned to the public

A revenue-neutral carbon price is the most efficient approach for the economy and will have greatest support from the public. 

People need to receive financial benefits and incentives to reduce their own carbon footprint. Those with lower incomes especially need support since they will be the most affected by the increase in fossil fuel costs. The fairest way to do this is through a carbon dividend - a cheque that returns revenue directly to people.

It’s not clear that the proposed Greenhouse Gas Reduction Account will return money to the public in a meaningful way. It is especially unclear whether the program will provide price protection for low income individuals and households.

Using carbon revenue to support programs that further reduce GHG pollution is understandable, but it is not clear that the Greenhouse Gas Reduction Account will do this. The current criteria for using money in the Greenhouse Gas Reduction Account is so broad that is appears to support almost any kind of government initiative. There is no guarantee that these expenses will reduce GHG pollution. Carbon price revenue should not be used for existing general fund expenditures. 

There needs to be more transparency, accountability and clear criteria for the Greenhouse Gas Reduction Account. 

A possible compromise position that the GPO would support is for the carbon price revenue to be recycled back to the public through targeted tax credits to reward low carbon activity. That way individuals and businesses can choose how to reduce their own carbon footprint: for example, by purchasing low carbon products and services, such as home building retrofits; or accelerated depreciation allowances on new capital expenditures for low carbon equipment; or by receiving a tax credit for public transit passes. 

They key here is for people and businesses to receive benefits from carbon pricing that make it more affordable for them to transition to low carbon practices. 

Conclusion

The time for bold action on the climate crisis is now. We are already experiencing the consequences of climate change and dealing with the costs of cleaning up the damage - like flooded roads and basements and intense storms that knock out power lines.

It is imperative for us to seize the economic opportunities that exist as the world transitions to a low carbon economy.

I urge the committee to resist pressure to weaken or delay implementation of Ontario’s carbon pricing program.

I welcome the opportunity to work with all members of the committee to fix some of the flaws in Bill 172. 

If we work together, we can create carbon pricing legislation that meets our climate obligations, satisfies the public’s demand for climate action and leaves a legacy that will make us proud.  

Sincerely,

Mike Schreiner
Leader, GPO