Canada: Ontario Releases New Climate Change Discussion Paper: Highlights Carbon Pricing Options and "Climate Critical" Priorities

Last Updated: February 18 2015
Article by Andrew Lord

On Thursday, February 12, 2015, Ontario released a discussion paper regarding Ontario's strategy for addressing climate change.  The paper is another milestone on Ontario's long road to implementing its 2007 Climate Action Plan.  Covering everything from urban planning to carbon pricing, the paper is ambitious in tone and broad in scope.  What remains to be seen is whether the Ministry can move from a general discussion to specific policy recommendations in 2015.

Let the Climate Change Consultations Begin – Again

Ontario set ambitious emissions reductions goals for itself in the 2007 Climate Action Plan.  The province was expected to achieve its first goal, reducing emissions by 6% below 1990 levels by 2014, largely as a result of the successful closure of coal-fired electricity generation in Ontario.  The Environmental Commissioner of Ontario doubts that current policies will allow the province to achieve the next goal of reducing emissions by 15% below 1990 levels by 2020.  The long term goal of reducing emissions by 80% below 1990 levels by 2050 also currently seems unachievable.

Ontario's progress on reducing emissions has not been for lack of public consultation.  A discussion paper released in 2009 was explicitly focused on designing a cap-and-trade system for Ontario.  A discussion paper released in January 2013 was somewhat more open-ended.  It never used the term "cap-and-trade", but seemed to be considering either a cap-and-trade or baseline-and-credit model.  It was explicit about one option: "a carbon tax is not an approach that is being developed in Ontario."

This week's discussion paper is even broader than either the 2009 or 2013 papers.  As discussed below, it covers not only multiple options for carbon pricing, but also a number of other measures to address and adapt to climate change.  Industry and the public is once again invited to attend public information sessions and to provide feedback by March 29, 2015.

Cap-and-Trade or Carbon Tax: Putting a Price on Carbon

While not the only topic in the paper, carbon pricing is the one that is already attracting the most attention in the media.   The paper contemplates all possibilities:

  • a cap-and-trade system, with potential linkages to jurisdictions like Quebec and California;
  • a baseline-and-credit system, similar to the approach that has been in place in Alberta since 2007;
  • a carbon tax, which has been British Columbia's main strategy since 2008; and
  • regulations and performance standards, which represent a more traditional regulatory approach than the market mechanisms listed above.

While the paper suggests that all options are on the table, it also contains clues that a cap-and-trade system may be preferred.   For example, the paper asks what "market mechanism" will best achieve the goals of "emissions reductions certainty."  The reference to market mechanisms would preclude traditional regulations and performance standards.  A carbon tax puts downward pressure on emissions, but does not offer any certainty that those emissions will actually be reduced.  Similarly, a baseline-and-credit system may drive down emissions per units of economic activity, but does not provide any certainty about the trajectory of absolute emissions in a growing economy.  The framing of the consultation question therefore suggests a preferred answer: cap-and-trade.

This conclusion may be surprising to some, given that the media's focus in recent weeks has been more on the possibility of a carbon tax.  However, the government had already begun signalling that a carbon tax was not the only option on the table.  Finance Minister Charles Sousa was clear that his spring budget would not contain a carbon tax.  Even last fall, Premier Wynne signed a joint agreement with Quebec to work together on climate change.  Quebec already has a cap-and-trade system in place that will be expanded this year.

In the coming months, the government will no doubt continue weighing the relative benefits of a carbon tax, which is simple to implement but may be hard to sell politically, and a cap-and-trade system, which is complex to implement but can create new economic opportunities.  Industry stakeholders too should consider carefully which approach makes sense for them.

Not Just About Carbon Pricing

This week's discussion paper was far-ranging in scope.  In addition to emphasizing the need to put a price on carbon, it also identified the following "climate critical" policy areas:

  • improving efficiency and productivity in the transportation, industrial, building, agricultural and waste sectors;
  • supporting science, research and technology development, including by supporting research institutions and by encouraging private sector investment and innovation; and
  • promoting climate resilience and risk management, including infrastructure planning and investments.

These specific areas of focus sit within a longer-term vision of transforming Ontario into a more productive, low-carbon economy that is resilient to the effects of climate change.  What remains to be seen is how much progress this government can make on a file that has such a broad impact on society.

In many respects, it feels like this iteration could be more fruitful than those in the past.  Oil prices have plummeted, which may make adding a price on carbon more palatable.  The Wynne government is in the early stages of its majority mandate, giving it political capital to make big changes.  The Ministry of the Environment was tellingly renamed the Ministry of the Environment and Climate Change and the Minister is a passionate advocate for the issue.  Ontario will be hosting the Climate Summit of the Americas in July 2015, which would be a perfect platform to announce transformative change.

We will continue to monitor developments in the interim and to analyze the legal issues that arise from any specific proposals that are made.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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