Peter Tabuns MPP, Toronto-Danforth

Government of Ontario

Ontario introduces legislation to kill cap-and-trade program

Published on July 26, 2018

Ontario’s new Progressive Conservative government has tabled legislation to kill the province’s cap-and-trade program, which put a price on carbon emissions, but will pay virtually no compensation to the companies that purchased $2.9-billion in emission allowances under the plan.

In a news conference Wednesday, Environment Minister Rod Phillips said most of the allowances were acquired to cover the companies’ regulatory obligations over the past two years, so there is no need for compensation. However, many firms bought additional emissions permits on the assumption that prices would rise over the next few years and have urged the government to work with them to set a fair reimbursement.

Mr. Phillips said gasoline and diesel marketers and natural gas distributors have already recouped the cost of the allowances by passing them on to their customers. As well, market traders purchased some $67-million in allowances, and the government is under no obligation to compensate “speculators,” he said. Instead, the government has earmarked $5-million to cover fuel companies that bought allowances for 2018 and have not been able to pass on the costs.

The legislation contains provisions aimed at blocking companies from suing the government over the compensation issue.

Mr. Phillips pledged that the government will adopt policies aimed at reducing greenhouse gas (GHG) emissions but insisted they will not include any kind of carbon tax or levy in a cap-and-trade plan. The legislation tabled Wednesday requires the government to set GHG reduction targets and report on the progress being made to achieve them.

Critics contend the government’s actions have made clear it has no interest in serious climate-change strategy. In addition to axing cap-and-trade, it has killed a slew of energy-efficiency programs that were funded by the carbon levy and cancelled 758 renewable-energy contracts.

Ontario Premier Doug Ford campaigned aggressively against the previous, Liberal government’s cap-and-trade program, which resulted in higher fuel costs for consumers and business – 4.3 cents a litre at the pump – and recycled the revenue into energy-efficiency and other emission-reduction programs.

“By now, the truth about the carbon tax is clear,” Mr. Phillips said. “It’s a punishing and regressive tax that forces low- and middle-income families to pay more. It’s a job-killing tax that would impose massive new costs on business and cripple our economy at a time of economic sensitivity.”

Prime Minister Justin Trudeau has vowed to impose a federal carbon tax in Ontario, starting at $20 a tonne next January and rising to $50 in 2022. The cap-and-trade program – in which companies could buy and sell allowances with counterparts in Ontario, Quebec and California – was expected to set a price of roughly $25 a tonne in 2022.

Ottawa intends to find ways to return the revenues to families and businesses in order to offset the impact of higher fuel bills, Mr. Trudeau says.

Mr. Ford and Saskatchewan Premier Scott Moe are pursuing a court action challenging the federal right to impose that tax, but premiers in Manitoba and New Brunswick said last week they do not believe the lawsuit would succeed.

Ontario NDP environment critic Peter Tabuns said the government’s actions will result in higher energy bills for families and businesses because they will trigger the federal government’s plan to impose its tax.

Mr. Tabuns said the government has shut down programs such as home-energy rebates and funding for school refurbishments even though there was still plenty of money in the fund the previous government established to finance emission-reduction plans. The cancellation of those programs belies Mr. Phillips’s assurances that the government takes climate change seriously, he said.

“He could be spending the money today on reducing emissions – the money has been collected,” Mr. Tabuns said. “If you’re not making those investments, you’re not doing what needs to be done, so you can’t be taken seriously.”

Petroleum companies and natural gas distributors faced the biggest costs because they had purchased allowances to cover the emissions of all the fuel they sold. Industrial emitters received free allowances up to a cap – which would decline each year – but had to purchase permits to cover emissions over the regulated limit.

Each company employed a different strategy for managing regulatory compliance, which covered a four-year period, said Jennifer Stewart, president of the Canadian Independent Petroleum Marketers Association, which represents gasoline retailers such as Canadian Tire and 7-Eleven.

“We do hope there will be compensation for members that had outstanding allowances and were not able to pass the costs through to customers,” Ms. Stewart said, adding however that her members opposed cap-and-trade as overly burdensome to administer.

Companies and industry associations were reviewing the legislation and were unwilling to comment until they could complete their analyses.

In a letter to the Premier this month, the Canadian Manufacturers & Exporters called on the government to establish a joint government-industry task force to analyze the impacts of winding down the cap-and-trade program. The association urged the provincial government to “provide required support to Ontario businesses that have purchased trading allowances … so that investments are kept whole and recovered appropriately."

Ontario had participated in a joint carbon market with Quebec and California under the Western Climate Initiative, and some analysts have predicted those two jurisdictions could launch their own lawsuits over the quick withdrawal. Mr. Phillips said the province is exercising a clause in the agreement that allowed any party to pull out in 30 days with no penalty.