Ontario’s Environmental Plan: Throwing the Baby out with the Bathwater
- Khalil Zahr
- Jan 15, 2019
- 5 min read
Courtesy of pc.gc.ca
On November 29, 2018, the Government of Ontario published its “Made-in-Ontario Environment Plan”, which it claimed to be a “clean break from the status quo” for the province. The break with the status quo refers to the scrapping of the cap-and-trade program, formerly in place to control carbon dioxide (a global warming gas) emissions. Aside from this drastic action, the rest of the Plan on climate change mitigation and adaptation, is mostly composed of policies and programs that substitute for the abolished cap-and-trade program.
According to the plan, the Ontario government intends to address climate change by helping families and communities adapt to the changing climate. It also intends to mitigate global warming (reduce Greenhouse Gases emissions) by adopting policies considered sufficient to meet the commitments under the Paris Climate Agreement.
The proposed mitigation policies entail implementation of the following broad measures:
Making polluters accountable by “setting clear rules and strong enforcement.” This is to be achieved by regulating large emitters. This system however, “will recognize the unique situation of Canada’s manufacturing and industrial sector” and consequently allow “across-the –board exemptions for industries of particular concerns”, such as their trade exposure and competitiveness, among others.
Activating the private sector through the establishment of The Ontario Carbon Trust to “encourage private investment in clean technology solutions.” The Trust, according to the Plan, “will use innovative financing techniques and market development tools in partnership with the private sector to speed up the deployment of low-carbon solutions. It will use public funds to leverage private investment in clean technologies that are commercially viable and will have a widespread presence.”
Encouraging private investments in clean technologies and green infrastructure by granting Accelerated Capital Cost Allowance for investments in green energy generation and energy conservation. It also proposes to issue Green Bonds to “address environmental challenges, and “consider tax policy options to encourage the creation of clean technology manufacturing jobs”.
Using energy and resources wisely. Several measures were proposed aimed at energy conservation in homes and buildings including increasing the availability and accessibility of information on energy consumption, reviewing the Building Code, increasing the ethanol content requirement in gasoline to 15%, and supporting the integration of emerging smart grid technologies and distributed resources to harness Ontario’s clean electricity, among others.
Insuring government leadership via “investments in future renovations of government buildings to maximize energy cost savings, minimizing the carbon footprint of government office space, greening the government’s fleet of vehicles, and “work with federal and municipal governments to invest up to $7 billion in federal, provincial and municipal funding over the next 10 years for projects that lower greenhouse gas emissions, reduce pollution, and help make community infrastructure more resilient”.
Given that we are already experiencing the early effects of global warming, the plan’s emphasis on adaptation is commendable. Also notable is the comprehensive coverage of the various dimensions of the climate change challenge. Notwithstanding the abolishment of the cap-and-trade system which was put in place by the former Liberal government, the plan’s objective recognition of the latter’s notable achievements on the environmental front are commendable and a credit to the present PC Administration.
The PC Made-in-Ontario Environment Plan however, by abandoning the market-based policy instruments that the Cap-And-Trade Program or a carbon tax offer, has to rely on regulations and command and control type policies to meet its objectives. Such policies are obviously less effective than a market-based system. They also entail high administrative and enforcement costs and are more susceptible to evasion and other forms of illegal behavior. Consequently, their chances of achieving their objectives, in the absence of market-based incentives, are considered low.
Furthermore, the absence of carbon pricing weakens almost all the other (non-regulatory) policies proposed by the new plan. This stems from the need for sufficient economic incentives to be in place in order for them to succeed. Programs aiming at encouraging private sector investment in clean technology, energy conservation, or other similar endeavours, need to be economically viable. Such viability will be weak or non-existent, in the absence of proper pricing of pollutants such as carbon or the provision of government subsidy. Carbon pricing will enhance the return on investment on all private sector and government endeavours which is a pre-requisite for successful outcomes in climate change mitigation.
If pricing carbon is so important for successfully adapting to and mitigating global warming, why is the PC government so anxious to discard the cap-and-trade program and to dismiss a carbon tax?
The answer given by the Honorable Minister of the Environment, Conservation and Parks Rod Philips is because “a cap-and-trade program or carbon tax that seeks to punish people for heating their home or driving their cars remains unacceptable to the people of Ontario”. He goes on to say: “When the government does invest in environmental programs, taxpayers should not have to watch their hard-earned dollars be diverted towards expensive, ineffective policies and programs that do not deliver results.”
Fair enough if the Minister’s assertions are true. However, placing a price on the carbon content of fossil fuels, though raising their relative cost to green alternatives, ought not necessarily reduce the disposable income of consumers, whether families or businesses. This can be achieved by making the cap-and-trade-system or a carbon tax system revenue neutral as it should be. The sole purpose of these market-based systems is making fossil energy comparatively more expensive than the green alternatives, and not to bolster government revenues. Consequently, the reduction in income caused by the increase in energy prices must be offset by an equal reduction in existing individual and business taxes, to achieve revenue neutrality.
The main issue with the former Liberal administration’s climate policy was not the cap-and -trade system but the use of its proceeds to bolster government revenues, rather than offsetting the increase in household and business expenses resulting from higher energy bills. Using the additional proceeds of the cap-and-trade or carbon tax systems by government for financing the administration of climate change related regulations is not a sufficient justification for retaining such proceeds. As a matter of fact, market-based climate policies should substitute for and not complement regulations. Mixing the two instruments is a primary driver of escalating costs of climate related programs, and the main reason behind public apprehension and skepticism.
Finally, the Minister of Environment’s judgement of the former Liberal administration’s policies and programs as “ineffective”, clearly contradicts his Plan’s admission of the laudable progress that Ontario has made in greening the energy sector and protecting the environment. The Plan goes so far to claim that the Ontario energy system is sufficiently clean that it meets the Paris Agreement commitments, which attests to the efficacy of the former market-based system. This being said however, the Paris commitments are national and not provincial. In order for Canada to meet its present and future commitments under the Paris Agreement, it needs a national market-based system, whether a cap-and-trade or a carbon tax, through which the various provinces need to work together in a cooperative spirit given the diversity in their natural endowments, and the unity of their purpose.
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