Ontario contemplates carbon pricing

Consultation seeks feedback on tax, cap-and-trade and improving building performance
Thursday, March 5, 2015
By Barbara Carss

Carbon pricing likely figures in Ontario’s future, but the implications for real estate could vary significantly depending on the chosen measure. A carbon tax, as in British Columbia, would be a direct add-on to heating, electricity and domestic hot water costs in most buildings, while a cap-and-trade model like Quebec’s would be felt more incrementally in pass-through cost increases from targeted greenhouse gas (GHG) emitters in the electricity, natural gas and manufacturing sectors.

Possible approaches for carbon pricing have been presented as part of the Ontario government’s in-progress consultation on climate change. An associated discussion paper identifies buildings as one of six prime targets for emissions reduction, along with electricity, industry, transportation, waste and agriculture. Climate change mitigation and adaptation strategies — via science, research, technology, resilience and risk management — are also prioritized as responses with economic potential.

“Climate change presents a great risk to our future, but at the same time, there is no single issue that offers such promise for job growth and new investments,” Glen Murray, Ontario’s minister of the environment and climate change, asserted as he launched the consultation process in late February. “Hearing from people across Ontario will be crucial as we develop a new climate strategy.”

The provincial targets are ambitious: a 15 per cent reduction in emissions compared to 1990 levels by 2020; and an 80 per cent reduction by 2050.

Real estate industry groups like the Building Owners and Managers Association (BOMA) of Greater Toronto, the Federation of Rental-housing Providers of Ontario (FRPO) and the Real Property Association of Canada (REALpac) are among those preparing to respond. The timing is also aligned with the looming federal election, in which Liberal party leader Justin Trudeau’s pledge to introduce carbon pricing will no doubt draw attention.

“We have the commercial real estate context to offer very informed advice to government,” affirms Michael Brooks, chief executive officer of REALpac, which counts most of Canada’s large institutional investors and owners among its members. “We have developed a trans-national analysis as a backgrounder on carbon tax and cap-and-trade regimes, and we plan to use it to inform and poll members over the next few weeks. We hope to have a global best practice position paper ready by the end of March.”

Of the carbon pricing options suggested in Ontario’s discussion paper, businesses and individuals are most likely to directly feel the financial impact of a carbon tax. In B.C. for example, a levy of $1.49 per gigajoule (GJ) shows up as a line item on gas bills. Designated public sector entities, including schools, postsecondary education and health care facilities, pay an additional annual carbon offset charge of $25 per tonne for their calculated GHG emissions, which equates to about an extra $1.25/GJ for natural gas consumption.

Other provinces are more selective. Quebec’s embryonic cap-and-trade system and Alberta’s longer-standing baseline-and-credit regime apply to a relatively small number of players obligated to either keep carbon outputs within a set limit or absorb the cost of exceeding that limit.

In Quebec, which is now in the second stage of a multi-year phase-in, industrial facilities and fossil fuel distributors emitting more than 25,000 tonnes of carbon dioxide (CO2) equivalent annually must purchase GHG emission allowances through a market designed and regulated for that purpose. Commercial enterprises that hit the benchmark of 25,000+ tonnes will come into the scheme in 2018.

In provinces like Ontario, a cap-and-trade market could potentially provide the opportunity for real estate operators to create and sell GHG offsets through energy-efficiency and/or renewable energy installations. In Quebec, however, that’s implausible because the power supply is predominantly from low-GHG hydroelectric sources.

Looking west, Alberta mandates facilities emitting more than 100,000 tonnes of GHG annually to reduce emissions intensity by 12 per cent or, failing that, to purchase offsets or pay $15 per tonne for emissions exceeding the reduction target. Money paid in lieu of meeting the target goes into a provincial research and development fund. Alternatively, designated facilities that surpass their reduction target can trade the surplus to another company or bank it for future use.

Quebec’s most recent carbon market auction on Feb. 18 yielded a price of $15.14 per tonne (US $12.21) for 2015 allowances. That’s considerably higher than Alberta’s levy, which analysts with the Pembina Institute calculate at about $1.80 per tonne given that the $15/tonne fee applies to just 12 per cent of a participant’s emissions. Nevertheless, policy analysts point to the complexity of forging any kind of offset trading mechanism.

“A carbon tax is more comprehensive and more administratively feasible,” observes Mark Winfield, an associate professor and co-chair of the Sustainable Energy Initiative at York University’s Faculty of Environmental Studies. “The flipside is that a cap-and-trade system is more politically appealing as the costs are invisible to consumers — they are ultimately buried in the price of goods — whereas a carbon tax is very visible.”

Visible, inescapable and particularly onerous for rental housing landlords, industry advocates maintain.

“For us, it is going to be a user fee on utilities,” says Mike Chopowick, FRPO’s vice president, government and industry relations. “We are large consumers of natural gas for heating, and in a cold winter like this one, it would be a big hit.”

Beyond seeking opinions on carbon pricing, Ontario’s climate change consultation paper asks for input on improving building performance. It elicits advice on: renewable energy and net-zero-energy development; reducing emissions in existing building stock; and upgrading operational skills. Yet, the most interesting question for the real estate industry is perhaps: “What more could be done to ensure more Ontarians have the capacity to invest in low-carbon buildings and technologies?”

Obviously, carbon pricing will generate a new pot of revenue — ranging from modest to impressive, depending on the chosen measure. Reinvesting some of it in the building sector could be an effective way to support climate change mitigation and adaptation.

“We do have FRPO members looking at things like geothermal systems and solar panel installations. That could expedite the move to reliance on renewable sources of energy,” Chopowick says.

Comments on Ontario’s climate change discussion paper will be accepted until March 29, 2015.

Barbara Carss is editor-in-chief of Building Strategies & Sustainability and Canadian Property Management

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