Cap and Trade for Ontario - the Good News and the Bad News

The good news is that Ontario along with Quebec, British Columbia, Manitoba, Prince Edward Island and Alberta now have some form of a carbon emission policy. While it would be even better if there was over-arching federal participation in reducing the emissions of carbon, it is a good first step. It perhaps is even great news that Ontario is joining with Quebec to create a Cap and Trade system for the two most industrialized provinces. It demonstrates how member provinces within a confederation are suppose to work together. While there will be thousands of provincial conservatives howling at their Tory gods that this is just another tax grab - the fact is that one is more likely to see maple syrup flowing downhill in January in either of those two provinces than to see industries reducing their emissions on their own.

The bad news is that it may not work unless the various provincial governments are really serious about reducing carbon emission and are prepared to suffer the "slings and arrows" of an outraged and whinny electorate. The price of some products will increase. But the environment is not going to get clean by itself. Things will not change any time in the perceivable future if we wait for industries to do it on their own.

The Cap and Trade system is a two step process. The "Cap" part of the name refers to a process by which a government sets a limit or a Cap on the amount of carbon emission an industry can spew into the air. If, for example GM exceeds that limit they will be either fined or they can buy a "certain number of pollution permits that they can trade among themselves" (Washington Post). That is, if Ford is less polluting than GM, Ford can sell (trade for money) its unused pollution permits to competitors who are polluting. Theoretically as the government initial sets both the limits in terms of carbon emissions and the price and number of permits, the "natural" market forces will force companies to be more efficient and less polluting. Capitalists would argue that the market will always force companies to be more efficient. Some of us are less sure that that is true.

Europe has established a Cap and Trade program and it appears to be a dismal failure. It is not working at least in part because (1) the limits as to how much carbon an industry could emit was far too high and (2) the price of the permits was far too low. There is no incentive for companies to reduce emissions when the cost of exceeding their limit is cheaper than the cost of utilization of new technologies to reduce emissions. Ontario and Quebec (who are joining the trading marking established by California) will need to ensure that the limits they establish will encourage (force) companies to reduce their carbon emissions. The cost to purchase permits to exceed their limits must be high enough to discourage them from doing so. Those companies will scream loudly. They will also fund other political parties to scream even louder. It will take political courage to make this work.

While it may be great that Ontario and Quebec are working together, without a national Cap and Trade program, a province with a different set of limits (perhaps higher limits for carbon emissions) might attract industries from a province than was more committed to reducing carbon emissions. There needs to be a national standard of what is the allowable amount of carbon emissions for all industries.

In other jurisdictions where Cap and Trade programs have been established, companies have been allowed to purchase large tracts of forested land and to "earn" credits/permits that they can either sell or that they can use to off-set their emissions elsewhere. This is absurd.  Lands acting as carbon sinks belong to us all. Companies should not get bonus points for buying them. The whole point of Cap and Trade programs is to reduce the amount of carbon emissions into the atmosphere. The trading of a forest's capacity to absorb carbon in exchange for increase pollution from and industry at best maintains the status quo. That is not good enough.

So three cheers for the premiers who are trying to do the right thing. We need to get onside with them and make sure that the limits they set are going to be effective. Mother Earth needs our help.