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Ontario’s proposed cap-and-trade plan gives too much away, fails vulnerable communities

Responding to climate change is the defining challenge of the twenty-first century. Ontario, like all jurisdictions, needs to cut its greenhouse gas (GHG) emissions drastically, starting yesterday. This will be difficult, but we are left with no choice: the environmental and ethical consequences of climate change are already apparent in this province. Ontarians are looking to the provincial government for climate leadership that curtails our GHG emissions and softens the negative impacts for vulnerable communities. The Province’s draft cap-and-trade Bill, Bill 172, Climate Change Mitigation and Low-carbon Economy Act, 2016, recently released for public comment, falls short of the mark.

The ethical dimensions of climate change sometimes require explanation. Marginalized individuals in our society, whether because of poverty, race, age, disability, geography, or a combination of factors, are most directly and severely impacted by climate change. For example, heat waves are most dangerous for low-income urban neighbourhoods that lack cooling green space, and the elderly and those with health problems. Climate change is also expected to stress fresh water sources – this will disproportionately impact the several hundred First Nations whose drinking water is already stressed or compromised.

Marginalized individuals and communities are vulnerable to climate change itself, but they are also vulnerable to the price-related side effects of GHG reduction policies. CELA strongly supports putting a price on GHG emissions as an essential piece of any strategy to combat climate change. But any price on carbon will be passed along to consumers through increased electricity, home heating, food, and gasoline costs. Low-income families already spend a large share of their income on these necessities, so a price on carbon has the potential to push them deeper into poverty.

Carbon pricing systems can be designed to counter their regressive effects.(1) California’s cap-and-trade legislation states that twenty-five per cent of the revenues from the auction of carbon credits must go to initiatives that help disadvantaged communities mitigate their GHG emissions or adapt to climate changes impacts. British Columbia partly counters the regressive effects of its carbon tax by providing a low-income tax credit. Alberta is considering a similar approach for its proposed carbon tax.

Ontario, by contrast, makes no move to help low-income communities in its cap-and-trade Bill. Schedule 1 of the Bill lists three pages of programs that are eligible to use auction revenue funds, and does not even mention low-income communities or programs for First Nations. The auction of carbon credits is expected to raise approximately $2 billion for the Provincial government. How is it that none of that money is set aside for those most impacted by climate change and carbon pricing?

While the cap-and-trade Bill does not include any measures that would alleviate the impact of energy price increases on low-income Ontarians, it is highly attentive to any problem, real or imagined, that the cap-and-trade system could cause for industry. Under the draft cap-and-trade regulation, the Province plans to give away free allowances to assist industry in transitioning to doing business under the cap-and-trade system. Free allowances are essentially a subsidy: where an emitter would have to either cut GHG emissions or purchase an allowance at auction, the Province gives the allowance for free. Only two sectors – fuel distribution and energy production – are not set to receive free allowances, and they can easily pass the costs on to the individual consumer.

The Province should not give away any free allowances. Free allowances skew the carbon trading market by keeping the price artificially low, thus lowering the incentive to reduce emissions. Ontario committed to putting a price on carbon back in 2009, making the cap-and-trade proposal an expected adjustment for industry. Furthermore, giving away allowances for free means less revenue raised by the cap-and-trade program that could help vulnerable communities cope with the impacts of climate change and carbon pricing.

The scale and complexity of the climate change problem make the ten-year Dust Bowl look like a cakewalk. We do not have time for half-measures or gifts to industry. It is essential that the cap-and-trade system reduces GHG emissions deeply and rapidly, as it is meant to, and that it doesn’t push more Ontarians into poverty in the process.

Note 1: A regressive pricing tool is one that takes a larger percentage from low-income people than from high-income people.

For further information, please see CELA’s previous publications on carbon pricing:
Fair and Equitable Carbon Pricing: Comments on Ontario’s Cap and Trade Program
Submissions on Cap and Trade Program Design Options: EBR 012-5666
Climate Change Discussion Paper (EBR Registry #012-3452 )