Will Cap and Trade Limit the Success of Ontario’s Climate Action Plan?

The province of Ontario recently announced an $8.3 billion five-year climate action plan to reduce the province’s greenhouse gas emissions.

The plan addresses green infrastructure and electric vehicles, and offers incentive programs for homeowners.

But the overdependence on refurbishing nuclear power plants, the limited scope of the cap- and-trade plan, and a lack of details on certain portions of the plan have raised the concerns of some observers.

“The carbon price is quite weak. It’s not clear it’s going to necessarily achieve the kind of behavioral change that we want, particularly around transportation,” said Mark Winfield, co-chair of the Sustainable Energy Initiative at York University.

Patrick DeRochie, climate and energy program manager at Environmental Defense, said there are elements of the cap-and-trade program that create stronger incentives than similar plans.

“There’s other provinces in Canada, such as British Columbia, that’s decided to make their carbon pricing system revenue-neutral. But Ontario’s gone the course of reinvesting those revenues in further measures to reduce greenhouse gas emissions, and we think that’s the right way to go for climate action.”

Ontario will launch the cap-and-trade program on January 1, 2017. It will be linked with the cap-and-trade program already running in Quebec and California by 2018.

Both Derochie and Winfield agree that the plan is a solid beginning.

“I think the bigger question, too, though, is: is the government going to actually carry through on full implementation of the cap-and-trade regime? The large industrial emitters have been given pre- allowances, so they’re not actually paying,” said Winfield.

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Story Transcript

SHARMINI PERIES, TRNN: It’s the Real News Network. I’m Sharmini Peries, coming to you from Baltimore.

Canada’s biggest economy, the province of Ontario, is getting in on greening their economy. The newly-announced $8.3 billion dollar Ontario five-year climate action plan 2016-2020 is projected to cut greenhouse gas emissions. Here’s a clip of the premier of Ontario, Kathleen Wynne, making the announcement.

KATHLEEN WYNNE: The plan lays out the specific commitments we’re making to meet our near-term 2020 emissions reduction targets, and establishes a framework necessary to meet our targets in 2030 and 2050. Together, the climate change action plan and our cap-and-trade program form the backbone of our strategy to combat climate change, create good jobs in clean tech and construction, and generate opportunities for investment in Ontario.

PERIES: On to discuss the plan, we have two guests: Patrick DeRochie and Mark Winfield. Patrick DeRochie is a climate and energy program manager at Environmental Defense. He has worked closely on the development of the province’s cap-and-trade program, and the climate action plan we just talked about. And Mark Winfield is the co-chair of the Sustainable Energy Initiative at York University, and author of Blue-Green Province: The Environment and the Political Economy of Ontario. I thank you both for joining me today.

MARK WINFIELD: Hello.

PATRICK DEROCHIE: Thanks for having us.

PERIES: So, let’s take a look at the plan. The plan has 28 key measures to reduce greenhouse gas emissions, everything from construction industry to homes, agriculture, electricity, electrical vehicles, and so on. So let’s start with you, Mark, first. Give us a rundown on what you think are the key features in this that’s going to have a real effect on emissions.

WINFIELD: Probably the most significant part of the plan is around buildings. There’s a wide range of incentives for both residential and institutional and municipal building retrofits, upgraded building codes, those sorts of things. There’s a very strong emphasis, as well, on [electation] of passive transport, particularly cars.

Beyond that, in places things do get varying degrees of fuzziness. Some of the [inaud.] land use, for example, are probably not as strong as they could be. It really comes across very strongly as a very strong focus on building and on electric vehicles.

PERIES: So, Patrick, let me get your take on it.

DEROCHIE: Yeah, to add to what Mark said, the plan does have a focus on buildings and transportation, and that’s suitable for Ontario, because the province already has a relatively clean electricity grid. Between 2004-2014 Ontario phased out all of its coal-fired electricity plants, so Ontario gets about 80 percent of its electricity from fossil-free sources currently. So this plan really focuses on producing those greenhouse gas emissions from transportation and from buildings.

And in addition to what Mark said, there’s a lot in here for homeowners and residents themselves. So there’s going to be a program for homeowners to undertake energy efficiency retrofits, for example ground-source heat pumps, solar thermal and solar energy systems, insulation, new windows or lighting, to not only reduce greenhouse gas emissions from the individual home but also allow those residents to reduce their utility bills.

PERIES: Now, Patrick, you actually worked on this plan, and your specialty is cap-and-trade. The province is heavily relying on the cap-and-trade initiative to generate the income they need to implement the plans. How do you think that’s going to fare over time?

DEROCHIE: I should note that Environmental Defense works with the government. We were consulted by the government, and we formed a coalition called the Clean Economy Alliance to help draft this plan, but we weren’t directly involved in writing it. That was an Ontario government thing.

But for cap-and-trade, we’re encouraged that Ontario’s decided to reinvest money from the cap-and-trade program in further climate action. There’s other provinces in Canada, such as British Columbia, that’s decided to make their carbon pricing system revenue-neutral, but Ontario’s gone the course of reinvesting those revenues in further measures to reduce greenhouse gas emissions, and we think that’s the right way to go for climate action.

PERIES: And Mark, is the province relying too heavily on the income generated by cap-and-trade to implement this plan? Because ultimately we actually want the emissions to go down, so the cap-and-trade program needs to be phased out if we are going to reduce emissions, no?

WINFIELD: Well, I think we’re a long way fro that stage. The carbon price being generated through the cap-and-trade program is fairly weak compared to what you see in other jurisdictions like BC or even Alberta. So I don’t think, per se, it’s going to be enough to affect behavior significantly enough that their revenues would decline. I think the bigger question, too, though, is is the government going to actually carry through on full implementation of the cap-and-trade regime? At the moment, the large industrial emitters have been given pre-allowances, so they’re not actually paying. It’s really transportation and [inaud.] distributors who are actually paying the $18 a tonne for now.

And we’ll have to see, four years from now, if the government actually carries through on imposing an actual carbon price on the large industrial emitters, because that will have big implications in terms of the revenues being produced by the cap-and-trade system.

PERIES: And Patrick, when you were working on this cap-and-trade system, what was the plan, here? I mean, I know Mark is saying it’s a long ways down the road, and we are giving exemptions already. How did you see this in the long term paying for the renewable energies that need to be generated, developed, and implemented?

DEROCHIE: Well, Ontario’s planning to launch the cap-and-trade program on January 1, 2017, so next year. And it’s going to be linking with the cap-and-trade program already up and running in Quebec and California in 2018, and joining their compliance period, which ends in 2020. Mark mentioned that the details still need to be ironed out after 2020, and I think those three jurisdictions will work together to do that.

But in the first year, 2017, Ontario has projected revenues of $1.9 billion based on a price of $18 per tonne Canadian that we’re seeing in the Quebec and California market.

PERIES: All right. And Mark, now, we have a, the world has a serious problem on their hands. You can see that we are experiencing droughts. I mean, all the continents on earth. We’re having extreme weather conditions, that is very alarming. Do you think this particular plan, as far as Ontario is concerned, is sufficient in order to address the crisis that scientists are saying that we must address?

WINFIELD: It’s not immediately clear to me that it will actually achieve–you know, Ontario on its own, obviously, can’t deal with the global problem. It’s more or less Ontario making an appropriate contribution to the global effort, and effectively to achieve the emissions reduction targets it set for itself.

I must admit I have some doubt, given, ultimately, this relies very heavily on carrots and very few sticks, [inaud.] himself said. The carbon price is quite weak. It’s not clear it’s going to necessarily achieve the kind of behavioral change that we want, particularly around transportation. Implementation on the industrial side is uncertain. And there are also some significant areas of risk in Ontario, as well. The province is putting an awful lot of eggs in the basket of refurbishing its plate of nuclear power plants. And if that doesn’t work out, we’re going to end up burning an awful lot of natural gas for electricity purposes, and that could significantly affect our profile.

And there are some parts of the plan, too, that people have doubts about. Particularly, for example, some interpretations suggest this involves a lot of corn-based ethanol going into transportation fuels, and many people have pointed out that that’s probably actually a net loss in terms of reducing greenhouse gas emissions. You’re going to produce more emissions than you’re going to save.

So this needs some, some careful thought. I don’t think this is going to get us all the way. There are some significant gaps to, particularly around the [inaud.] between land use and transportation, and also some other areas of risk. They’re very vague, particularly around, for example, forestry. The boreal forest in Northern Ontario is a very significant carbon store and sink, and there’s only really very vague references to that, in terms of where it’s going to fit into the plan and how they want to deal with that.

So it’s certainly a very good start. The province has been commended for where it’s got to. But whether this is far enough is, I think, still an open question.

PERIES: Right. And Patrick, let me pose the same question to you. Is this plan adequate to deal with the climate crisis that scientists are saying that we must deal with?

DEROCHIE: I would agree with Mark that this is a really good start, and it’s a step in the right direction. I would just add to what Mark said, that one of the benefits of a cap-and-trade program, as opposed to a carbon tax, is that the cap-and-trade program sets actual limits on carbon pollution. And that limit’s going to decrease every year in line with Ontario’s gas emission reduction targets, which by 2020 it’s 15 percent below 1990 levels, 37 percent below that in 2030, and 80 percent by 2080.

So that cap will come down in line with this climate change action plan, and polluters will have to pay for emissions above that cap. So in theory, that cap-and-trade program does provide that emissions reduction certainty by 2020 and 2030.

PERIES: All right. And then, Patrick, let me go back to you. Is there another plan out there, either in Canada or elsewhere, that you look at as the ideal plan to tackle greenhouse gas emissions that you would like to see Ontario adopt?

DEROCHIE: Well, there’s been a lot of movement on climate action in Ontario–or in Canada, especially in the last two years. British Columbia’s had a revenue-neutral carbon tax since 2009. Quebec joined the cap-and-trade program with California in 2012. Right now, Alberta just this week passed the first part of their climate change action plan themselves, which puts a price on carbon and puts a cap on tar sands emissions.

So that’s four of Canada’s largest provinces, covering about 80-85 percent of our population, that will now be covered by a price on carbon by 2017. None of these plans are perfect, and we’re going to have this kind of patchwork of some carbon taxes and some cap-and-trade, but our federal government is also developing a climate action plan and a carbon pricing program that will hopefully bring some unison to all these provincial plans.

PERIES: All right. And Mark, some jurisdictions, or even states like Hawaii, and other countries in Europe, have adopted plans to get to zero emissions. And that kind of a target, I think, is really bold. But Ontario has not made that their goal. Why?

WINFIELD: I think there are a number of reasons. Zero is hard. Net zero maybe you could achieve if you have some sinks to help you out. Part of it is that there are certain activities that do relate to greenhouse gas emissions which are not fossil-fuel based. Industrial activities, for example, and agricultural, from which capturing all of the emissions completely would be difficult. The climate also potentially makes it difficult. We use substantial amounts of fossil fuels for space heating. Natural gas, principally. And indeed, it’s a very efficient use of natural gas. And we’re not quite there in terms of being able to, given the building [needs] and other things, even with our climate it’s hard to get to zero in terms of any demand there. There may be needs for bridging fuels in terms of the electricity and energy system as well.

Your ability to get there sometimes can be a function of things like climate and other assets. Quebec, for example, often held up as a very good example of a plan. And it certainly is, but they do have the advantage of an electricity system that is almost 100 percent hydraulic, and therefore carbon-free. So one needs to think about this in the context of the nature of the economy on the jurisdiction in question. Getting it 80 percent will be very, very significant for Ontario as it is.

PERIES: And also, Mark, a lot of news outlets, in fact, CBC itself has done a cost effectiveness, and what this is going to cost each household, and they’ve come up with that it’s going to cost roughly $13 per household. That doesn’t seem like much, unless you’re on a very low income. Are there any provisions in this plan to address that?

WINFIELD: There are some specific provisions. And principally around housing and low-income housing there are some specific programs aimed or retrofits there. There is also a fairly substantial discussion of engagement with First Nations communities, who are particularly vulnerable, both on an impact [inaud.] side, but also in terms of what can be done on the energy side, too.

So there is, there is some very explicit discussions in the plan around what you might term social justice dimensions. It’ll be interesting to see how that plays out. What we’re not doing quite yet is what BC did and some other jurisdictions have done, which is to explicitly recycle some of the revenues into income support or adjustments to the income tax system. But at this stage the carbon price is so low, it’s pretty marginal at that [kind of a] cost. But even, that said, we do have to lay the groundwork for dealing with these issues down the road. If we do move to a higher carbon price, which we’ll have to do, we’re going to have to pay more attention to the distributional impacts of that, and think in particular about how are we going to deal with the situation of low-income communities, especially in situations where they–you know, a lot of this involves turnover of capital, equipment, vehicles, buildings, things like that. And if you’re not in a high-income situation you may simply not have the capital to be able to retrofit your house or change your car or change, engage in other sorts of investments that you need to move in a low-carbon direction.

So we need to make sure we’re making provisions to assist households and individuals who are in those kinds of situations.

PERIES: All right. And Patrick, let me give you the last word. Are there any complaints about this plan? I’m sure groups that you’re dealing with are saying, some of them are saying, that this is tough enough. What are the, what is the biggest resistance to this plan?

DEROCHIE: Well, this is a really good plan, and I think Ontario should, the Ontario government should be applauded for this plan.

But there are a few things that we could take them to task for. For example, implementation. There’s not a whole lot of detail in this plan. It’s fairly high-level at this point. A lot of the programs and details still need to be ironed out. And as with anything, the devil is in those details. So we’re going to be working hard over the next little while to ensure that we get these programs right and this action plan is executed properly to ensure that people across the province benefit from it.

The other thing I would say, and Mark already touched on this, is that industry, large industry in Ontario, are getting about $1 billion in recycled revenues to do various low-carbon energy or energy-efficiency retrofits. And this is in addition to those biggest polluters already getting four years of free cap-and-trade permits. So we just want to make sure that when they design those programs for industry they’re going to small businesses that actually need the capital and the help to reduce their carbon footprints. And that’s, you know, retrofits or improvements in the carbon footprint that large businesses can make cost-effectively and economically without support from the government should be done without support from this climate change action plan.

PERIES: All right. Patrick DeRochie and Mark Winfield, thank you both for joining us today.

WINFIELD: Thank you.

DEROCHIE: Thank you, Sharmini.

PERIES: And thank you for joining us on the Real News Network.

End

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