dismantling cap and trade

Costs of dismantling cap and trade queried

Friday, July 6, 2018

Ontario-based participants in the Western Climate Initiative were locked out of their carbon trading accounts immediately after the new Ontario government revoked the provincial cap and trade regulation July 3. A notice from Ontario’s newly forged Ministry of the Environment, Conservation and Parks (MOECP) informed designated and voluntary market players that they can no longer acquire emission allowances and credits nor deal what they’ve accumulated since Ontario joined the trading platform with California and Quebec last year.

“The status of the general account in the Compliance Instrument Tracking System Service (CITSS) belonging to each participant registered in Ontario’s cap and trade program will be changed to: Restricted: Cannot Transfer or Receive,” it states. “The Province is committed to an orderly wind down of the cap and trade program. In the coming weeks, more details will be shared to support the orderly wind down.”

Several prominent business leaders and professionals are expressing disappointment in that decision, and projecting billions of dollars in direct losses and forgone economic development. A joint statement from 73 sustainability champions underscores the potential costs of dismantling cap and trade and, along with it, the many associated greenhouse gas (GHG) reduction programs funded with cap and trade revenues.

“Ontario committed to the cap and trade program with California and Quebec until 2020. Reneging on that agreement will have significant consequences that will be economically and environmentally harmful to Ontarians, and damaging to Ontario’s reputation as a reliable business partner,” assert the signatories, who are all recipients of the Clean50 award to recognize their outstanding contribution to clean capitalism.

Wary number crunchers foresee a direct financial hit to reimburse the nearly $3 billion that market participants have sunk into investments they will now be forced to abandon, as well as the required surrender of $420 million in federal funding upon Ontario’s withdrawal from the pan-Canadian framework to address climate change. Indirect financial hurt is envisioned as incentive programs with job creation potential are cancelled and spending in the nascent green economy is stunted. Meanwhile, costs related to climate change could continue to climb.

The sustainability proponents lament the cancellation of programs to promote energy efficiency, renewable energy and related clean technologies that were underwritten with cap and trade revenues. These were promised in the former government’s circa 2016 Climate Action Plan and rolled out last year through the newly established Green Ontario Fund.

“Those incentives are already providing countless Ontarians with significant monthly energy savings while supporting thousands of good-paying jobs, such as solar energy installers and roles with clean tech manufacturers,” they observe.

Longer standing conservation programs under the Save on Energy banner remain in place as the Independent Electricity System Operator (IESO) and Ontario’s approximately 70 local distribution companies continue to push toward a target of 7 terawatt-hours (7 billion kilowatt-hours) of energy savings by 2020. Thus far, there have been no announcements related to that obligation, which is entrenched in the plan that has been guiding the provincial energy strategy.

“It makes a great deal of sense to continue or even increase the amount of these consumer-centric energy efficiency programs in the market,” maintains Andrew Pride, an engineer and consultant specializing in energy management and strategic conservation planning. “Save on Energy has been measurably delivering the most cost-effective energy to consumers for nearly a decade. At its current effective rate of two to four cents per kilowatt-hour, it keeps bills lower for all consumers.”

Nevertheless, conservation advocates are keenly aware of the new government’s recent campaign promise to reduce electricity rates, in part by transferring the cost of conservation programs to the general tax base.

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