Economists Urge Ontario to get Cap-and-Trade Details Right

New recommendations from Canada’s Ecofiscal Commission outline four principles of policy design that will determine the success of Ontario’s cap-and-trade system.

Experts from the “front line” of cap-and-trade in California, Massachusetts, and Quebec to discuss recommendations and implications for business at Toronto event.

Toronto, June 3, 2015—Cap-and-trade can work effectively in Ontario to meaningfully and cost-effectively reduce greenhouse gas emissions, but only if government gets the details of policy right, advises Canada’s Ecofiscal Commission in a set of recommendations released today. While directed at government, the Commission’s new paper, The Way Forward for Ontario, also aims to engage and help inform Ontario industries and businesses—many of which are grappling to understand the impacts of cap-and-trade on their operations and bottom-line.

In April, the Ontario government announced its commitment to join Quebec and California in a cap-and-trade system designed to reduce emissions by putting a price on carbon. Following that announcement, there has been significant public discussion about the effectiveness of cap-and-trade as a policy approach. The government has yet to announce specific details of the system.

Written by the Commission’s director of research, Dale Beugin, and four of its prominent economists—Mel Cappe, former Clerk of the Privy Council; Glen Hodgson, Senior Economist at the Conference Board of Canada; Paul Lanoie, Professor of Economics at HEC, Montreal; and Chris Ragan, Chair of the Ecofiscal Commission—the recommendations for Ontario’s government center around four basic principles:

Stringency (i.e. the carbon price established by the “cap”) should drive meaningful reductions beginning now and rise gradually and predictably over time.
The policy should be broad, covering emitters (and emissions) across the whole economy.
Aim to auction most permits. Free permit allocations can reduce adverse competitiveness impacts, but should be used narrowly, based on clear, transparent rules and for a limited period of time.
Encourage other provinces and jurisdictions to join the linked system, increasing cost-effectiveness and advancing the path to broad harmonization across North America and beyond.

“The theme that runs through all of these recommendations is transparency and credibility,” says Ragan. “Ontarians—everyday consumers, small business owners and large emitters alike—must see the system as clear, fair, and immune from political interference.”

From an economic and business perspective, certainty, predictability, and confidence that decisions will be made based on data, not discretion, are critical factors, Ragan emphasizes. “Competitiveness is a real issue, but only for a small fraction of firms—those that are especially carbon-intensive and trade-exposed. We need to help those firms transition, and we need to do so in a way that does not undermine either the fairness or effectiveness of the policy.”

On June 3^rd, at 5pm, the Ecofiscal Commission and the Martin Prosperity Institute are partnering to host a panel discussion—framed by these recommendations—on “The Competitiveness Question: Business Opportunities and Challenges in a Cap-and-Trade Environment.” The event will take place at the Rotman School of Management (Desautels Hall, University of Toronto), and by webcast (for details visit: http://ecofiscal.ca/events/opportunities-ontario-cap-and-trade).
Speakers include:

Dominic Barton, Global Managing Director, McKinsey & Company
Guy Drouin, President and CEO, Biothermica
Michael Gibbs, Assistant Executive Officer, California Air Resources Board
Faith Goodman, Climate Change Consultant – Oil and Gas Industry
Ken Kimmel, President, Union of Concerned Scientists, former Massachusetts Environment Commissioner and former Chair of the Multi-State Regional Greenhouse Gas Initiative

Quotes:

“Ontario has the unique opportunity to get cap-and-trade right, straight out of the gate, by learning from the successes and failures of other systems. The Canadian fuels sector wants to be a part of this discussion and help move it forward.”
— Faith Goodman, Climate Change Consultant – Oil and Gas Industry

“My experience with the Regional Greenhouse Gas Initiative proved to me that cap-and-trade works. Using market forces to lower carbon emissions is cost effective and helps grow a clean energy economy, and it works particularly well as a partnership across jurisdictions. Ontario has a wealth of successful models to draw on in designing its policy.”
–Ken Kimmel, former Chair of the Multi-State Regional Greenhouse Gas Initiative

“There is a movement across many countries towards pricing carbon and cap-and-trade systems in particular. There is a huge opportunity for Ontario, Quebec and California to establish a best-practice template that could accelerate the linking of different carbon markets together, supporting the transition to a low-carbon economy.”
–Dominic Barton, Global Managing Director, McKinsey & Company

For more information about the Ecofiscal Commission and to download its recommendations for Ontario’s cap-and-trade policy, visit: www.ecofiscal.ca.

To schedule an interview with Chris Ragan, Chair of the Ecofiscal Commission, or select members of the panel, contact:

Jenn Wesanko
jkwcommunications@gmail.com
(604) 347 – 5988

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