Ontario’s new emission trading scheme should start by 2017, cover a minimum 85% of the economy, and feature a price corridor and purchase limits for allowances, as well as a very low level of free allocations for industry that declines annually.
That’s according to the Clean Economy Alliance, a group of more than 80 organisations that include heavy industry, green groups, cleantech firms, charities, trade associations and unions.
In a report titled “Getting it Right” published on Thursday, the alliance makes a number of recommendations to Ontario’s government, which is in the midst of designing a cap-and-trade scheme to link with those in Quebec and California under the WCI programme.
Ontario has pledged to use emissions trading to help meet its goal to cut greenhouse gas emissions by 37% below 1990 levels by 2030.
The province also has an interim target to cut GHGs by 15% below 1990 by 2020, and a long-term target to cut by 80% by 2050.
Below is a summary of the Clean Economy Alliance’s recommendations:
- Coverage should be aligned with Quebec and California at a minimum of 85% of Ontario’s economy, including electricity, buildings, transportation and industry.
- Transport and other fossil fuels should be included in Ontario’s system from the outset, and no exemptions should be given.
- Ontario should connect its market to those in the WCI by 2018, when Quebec and California’s third compliance periods begin.
- The scheme should start by 2017 and the emissions cap should decline linearly by around five million tonnes annually, on a clear and transparent schedule to provide businesses certainty. (This is under the assumption that Ontario’s emissions should be a maximum of 150 million tonnes in 2020, down from 165 million in 2017 and 167 million in 2012)
- The cap needs to decline commensurate with Ontario’s 2020 and 2030 targets.
- Ontario should establish an allowance price floor in the form of an auction reserve price, which, similar to Quebec and California, increases by 5% per year plus inflation.
- It should establish a price ceiling in the form of a stability reserve, which would manage allowance supply levels by adding or removing units from the market based on pre-determined rules.
- Ontario should also establish an allowance purchase limit to prevent companies from “purchasing unnecessary allowances and artificially raising the price”.
- The programme should feature an offset usage limit of 8% of an entity’s total compliance obligation, consistent with California and Quebec.
- Offsets should be subject to high standards in terms of verification, to show that they are additional and permanent. (Ontario and Quebec last month signed an agreement to work more closely to harmonise their market rules and collaborate in the development of common offset protocols)
- Any process for assessing and addressing competitiveness impacts must be rigorous, transparent and based on sound economic analysis.
- If any allowances are allocated for free, they should only be granted to a very small set of industries where there is compelling evidence that there will be competitiveness challenges and leakage. (The report notes research forecasting that the competitive of Ontario’s industry will be little impacted by a carbon price of $40/tonne or less, due in part to the province’s efforts to decarbonise its power sector)
- Any free allocations must decrease consistently over time and in keeping with emissions intensity targets that also decrease consistently over time.
- Free allocations should also be seen as a transitional measure until key the province’s key trading partners put similar policies in place or until such time as Ontario introduces border carbon adjustments, also known as carbon tariffs.
PROGRAM OVERSIGHT AND REVENUE ALLOCATION
- The report notes estimates that Ontario’s allowance auctions could raise between $1-2 billion annually.
- Any revenues should be channelled to a low-carbon fund and disbursed to efforts including but not limited to:
- Mitigation of climate impacts on low-income and otherwise marginalized communities;
- Monitoring, reporting, verification, oversight and governance, similar to the allocation of $45 million for “coordination, monitoring and accountability” in Quebec’s Climate Change Action Plan; and
- Development and deployment of low-carbon technologies, such as renewables, clean technology, energy efficiency and conservation, public transit, and infrastructure for active transit, such as walking and cycling.
- The fund should be administered transparently by a third party.
- The determination of which projects receive funding should include a per dollar assessment of the GHG reduction potential of the initiative, economic analysis to ensure the proceeds deliver the greatest impact possible, and consideration of when an initiative will begin delivering emissions reductions.
LINKAGE WITH QUEBEC AND CALIFORNIA
- Ontario should design its market similar to those in California and Quebec to facilitate linkage, while making minor improvements that ensure its system is just as or more stringent, equitable and effective while accommodating its unique economic and environmental circumstances.
By Mike Szabo – firstname.lastname@example.org