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Ontario Faces Uncertain Future with Carbon Tax

Ontario’s carbon pricing system, which went into effect last year, was designed to lower greenhouse gas emissions by putting caps on the amount of pollution companies in certain industries can emit. Any company exceeding those limits must purchase allowances, either during quarterly auctions or from other companies which are well under their limits. The cap is set to decrease by four per cent each year until 2020, which the government hopes will incentivize companies to reduce their emissions. The system has worked well during its first year, bringing in nearly $2 billion.

However, the program’s future is uncertain as the province faces an election in 2018, one which threatens to replace the cap-and-trade system with a carbon tax. Concerns loomed over the province joining the Quebec-California carbon market, which would reduce the proceeds from auctions, as allowances purchased in those jurisdictions would be cheaper.

 

 

Ontario’s environmental commissioner and auditor general stated that the merger would also defeat the purpose of the system, as greenhouse gas emissions would not actually be cut in Ontario. The liberal government, however, argued that the origin of the reductions is unimportant, as the greenhouse gases are emitted into a global atmosphere.

Further debate has mounted over the monetary gains provided through the program. The government is using the revenue to fund green projects around the province. Some of these projects include the following:

  • Energy-efficient improvements at hospitals
  • Smart thermostats for homeowners
  • Bike lanes and other improvements designed to further reduce greenhouse gas emissions

 

The progressive conservatives insist that the project lacks transparency and is nothing more than a government cash grab. They also have promised that a win for the progressive conservatives in the June election will replace the cap and trade with a carbon tax, with the revenue used to fund an income tax cut that will make the carbon tax revenue neutral.

Premier Kathleen Wynne is not so sure that such implementations would be the best move for the province, stating that the progressive conservatives’ proposed system “is more expensive on a day-to-day basis, and there’s no guarantee it will actually reduce greenhouse gas emissions.”

 

 

In Ontario’s 2017 auctions, carbon prices amounted to approximately $18 per tonne, with projected prices hitting $20 or more per tonne by 2022. The carbon tax system would raise the price to $50 per tonne by 2022. Despite the higher price, some insist that it is more predictable than the cap and trade program. In addition to the income tax cuts, the PC government plans to implement a small business tax cut, although businesses currently covered by cap and trade still face higher prices under the carbon tax. Those businesses, according to the progressive conservatives, would have an equivalent value of cap-and-trade credits honoured in a carbon tax system, as well as free credits for companies in sensitive industries, which will hopefully prevent them from moving to jurisdictions without carbon pricing.

Linking to the joint carbon market is not expected to have a dramatic effect on consumers, who are currently paying 4.3 cents per litre for gasoline and $80 per year for natural gas home heating. However, they do face other indirect cost that are passed on to them from businesses. These amount to roughly $80-85 per year with a $20 per tonne carbon price and $200 per year with a $50 carbon price.

 

 

According to University of Calgary economics professor Trevor Tombe, that holds true for the cap-and-trade system as well as the carbon tax. “The relevant metric here for household cost is what the price on carbon is, not what specific system was used to implement that price.” Tombe also stated that the higher price for the carbon tax system means that it would likely result in greater greenhouse gas emission than the cap-and-trade system, adding that it provides an incentive for households, businesses, and individuals to change their behaviour.

An analysis published by EnviroEconomics agreed that the federal carbon price would result in greater emissions reductions domestically due to the higher price, although the cap-and-trade system requires a certain level of reductions and provides more options for meeting those requirements.

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