Fate of Ontario cap-and-trade becomes a two-horse race

Published 10:53 on June 4, 2018  /  Last updated at 22:53 on June 4, 2018  /  Americas, Canada, US

**This article is available to non-subscribers** - The future of Ontario’s carbon market has effectively become a two-horse race after the leader of the ruling Liberal party conceded defeat over the weekend.

The future of Ontario’s carbon market has effectively become a two-horse race after the leader of the ruling Liberal party conceded defeat over the weekend.

While provincial Premier Kathleen Wynne’s party had already fallen into a distant third place behind the poll-leading but wavering Progressive Conservatives and the surging NDP, her unexpected announcement that she’s all but lost the June 7 election confirms the fate of Ontario cap-and-trade could come down to which of the two leading parties – neck and neck in the latest polls – is victorious.

Participants in the North American WCI programme, which links Ontario’s ETS to those of California and Quebec, are watching the race closely, with some saying the anti-carbon pricing rhetoric coming predominantly from the Conservatives has already had a negative impact on allowance demand.

NDP leader Andrea Horwath has pledged to keep the Liberals’ cap-and-trade programme if elected, but to modify it to make it more equitable for disadvantaged residents by directing 25% of revenues to lower-income, rural, and northern Ontario households.

The Tories on the other hand, led by former city counsellor Doug Ford, released an updated party platform late last week, reiterating that they would cancel the scheme and withdraw from the WCI programme.

Ford, the biggest populist of the main party leaders, has also said he would challenge in court the imposition of the federal ‘backstop’ carbon pricing scheme on Ontario, though constitutional law experts put high odds on his chance of success in a legal battle against Ottawa.

In place of a carbon price, the PCs said in their updated manifesto they would “set up an emissions-reduction fund” to invest in new technologies within the province and increase “policing of major polluters”, though they offered no specific details.

“Any companies that decide to pollute, we’re going to come down heavy on them, we’re going to come down really heavy on them. We’re going to make sure that we’re all environmentally friendly,” Ford told reporters on Saturday, according to the National Observer.

While critics have slammed the “empty” PC platform for not being fully costed, the party said all its environmental spending plans, which also include protecting Ontario’s waterways, reducing garbage in neighbourhoods and parks, and hiring more conservation officers, come with a grand budget of C$125 million ($96.9 mln) per year for four years.

That’s roughly equivalent to 6% of the C$2 billion raised by the province’s carbon market last year – cash that has mostly been earmarked by the Liberals for low-carbon initiatives.

Ford has pledged to replace any lost revenue, which will also result from his promise to cut the province’s gasoline taxes and electricity rates, by cutting government spending through bringing in auditors and finding C$6 billion in “inefficiencies”.

He’s also vowed to cancel many of Ontario environmental programmes, including those that support renewable energy, building retrofits, cleantech innovation, and the increase in electric vehicle charging stations.


Many stakeholders believe that under the Conservatives, Ontario is unlikely to abandon its cap-and-trade programme due to the multiple economic and legal headaches that would be involved, though some are still concerned as the issue is a major plank in Ford’s campaign.

Any attempt to leave is seen as taking at least a year or two and could coincide with the end of the current trading phase (2018-20).

And any divorce is predicted to be “messy” as Ontario emitters that bought tens of millions in WCI allowances sold at auction over the past 18 months would need to be compensated somehow.

That comes on top of the lost revenue from Ontario’s participation in the quarterly allowance auctions, which is poised to increase as permit prices rise in value.

In any case, the province’s departure from WCI – if successfully executed – is not seen as having a lasting effect on the market, with experts predicting disruption for at most three-to-six months.


Wynne’s acknowledgement also came with a plea to voters to support Liberal candidates in order to prevent either the Tories or the NDP from claiming a majority government.

The latest polls were already increasingly pointing to a hung parliament, which could work to preserve Ontario’s carbon market at least in the medium-term should a coalition government emerge once the election dust settles, though both the PCs and NDP have ruled out a governing partnership.

At this point, the Liberals are the most likely to be made kingmakers in any alliance, which ironically would allow them to hold onto a fair amount of power despite their predicted poor election outcome, though an absolutely dismal showing could pose an existential threat to the party.

Many political experts expect Wynne’s announcement to shake things up in the already unpredictable election’s final days.

Few expect her to stay on beyond the election, which could mean that Liberal supporters who dislike her as leader may take comfort in knowing that casting a vote for the party is not a vote for her to continue as premier.

That could aid the PCs by further splitting the left, though Wynne’s announcement could also work in the NDP’s favour, as Liberal voters may shift allegiances as a strategy to stop Ford and in light of both parties being left-of-centre and sharing similar policies.

Regardless of what happens on Thursday, many market participants and emitters, especially those investing in decarbonisation of their activities, are yearning for more certainty in the years to come through the depoliticisation of the scheme – namely by not making it a recurring election issue but rather ingraining it in the more widespread view that all levels of governments need to act on climate change and carbon pricing is integral to that.

By Mike Szabo – mike@carbon-pulse.com