Wynne’s New Year’s gift

It feels vaguely ill-fitting, so close to Christmas and all, to use this page to illuminate yet another ill-conceived energy scheme concocted by the provincial government and set to be inflicted on Ontario residents beginning on January 1. (If uplifting is what you’re looking for, however, may I recommend you turn to page 12, where Robin Baranyai has prepared a wonderful piece on the lives of folks who fled Syria and the community that welcomed them a year ago.)

I have put this topic off for a while now, partly because it’s depressing and partly because I expect most folks don’t know a whole lot about cap and trade, and may not care to know. But then I spoke to Bob Greer at Greer’s Propane. He figures Ontario’s new carbon tax will add at least $150,000 to his cost of fuel each year. It’s a cost he must pass along to customers—some of whom are already struggling to stay warm each winter. It’s not just propane. In the new year, a lot of things will be more expensive as a result of Wynne’s cap and trade plan.

So here goes. Ontario, like many jurisdictions, has decided to put a price on carbon, but rather than a simple tax, as in BC, the Wynne government has chosen a more convoluted scheme.

Under cap and trade systems, large carbon emission producers must pay the government for the pollution they put into the atmosphere. Unlike a carbon tax, Ontario polluters are subject to an emission limit each year—a total amount they are permitted to release. The first year won’t be too hard to reach—but the plan is to ratchet this limit, or cap, down over time—thus lowering overall emissions.

For a variety of circumstances and reasons, some businesses will find it difficult to operate under the cap; others will find it easier. So, under this regime, polluters will be allowed to trade credits among each other for dollars. The notion is that those who manage to reduce emissions will be rewarded by selling their credits to those struggling to squeeze under the limit. This avoids being forced to shut down to meet government emission targets. Simultaneously, as the cap is lowered, the market should make these credits more expensive—providing a built-in incentive for industry to change the way they operate and invest, triggered by market signals rather than government dictate.

The Wynne government elected to join an existing cap and trade market with Quebec and California, rather than create its own. The idea was to join a larger, and therefore more efficient and fluid market to exchange credits.

It all sounds good on paper. Such schemes always do. Sadly, however, cap and trade regimes tend not to work very well in other places—other than as a political placebo. This seems not to have troubled the Wynne government—but we’ll get to that.

I first considered writing about cap and trade when it was adopted earlier this year. I was planning to use the cement plant in Picton as the centerpiece of the story—about how this new tax was likely to make this plant instantly uncompetitive with other cement makers on the American side of the Great Lakes and overseas. I was going to explain how this hidden tax was likely to cost jobs at this plant and others across the province. But then I learned that cement plants and other large carbon emitters are exempt from Ontario’s cap and trade scheme. In fact, more than 100 organizations including petrochemicals, steel and mining companies will receive free allowances as “transitional assistance” for the next four years.

For sure, it would have been ruinous policy to put a new tax on businesses that compete on thin margins internationally—particularly with the looming prospect of a new president keen to protect American jobs at the cost of global trade— but the good news for these large emitters is bad news for Ontario consumers and small businesses who will carry this burden in their stead. But it gets worse.

Ontario’s Auditor General Bonnie Lysyk examined the new cap and trade scheme about to be unleashed on consumers. Her audit, released last month, found that the cap and trade system, set to begin rolling out next month, was poorly planned, compiled no evidence it would work and “did limited analysis of alterna tive approaches prior to selecting a cap-and-trade system linked to Quebec and California in 2008 as a means of reducing emissions in Ontario.”

The AG calculated Ontario businesses and households will pay $8 billion more to the government over the next three years as a direct result of Wynne’s cap and trade scheme. Just as troubling, Lysyk found that most of the money Ontarians will pay for this new tax will be used to reduce emissions of California and Quebec polluters.

“The remaining 80 per cent—about 14.9 Mt—is actually forecast to be reduced in California and Quebec, yet Ontario plans to take credit for both its own 20 per cent (3.8 Mt) reduction and this 80 per cent (14.9 Mt) reduction,” reported Lysyk in her audit available by clicking here.

She is also critical of the Ontario Energy Board, which is barring natural gas suppliers from showing the cost of cap and trade on its customer’s bill.

Lysyk’s conclusion is that the cap on emissions set by the Ontario government consequently does not actually control Ontario emissions. It fails at its primary purpose. It will, however, make us poorer.

But we’ve seen this before from this government on the energy file—ill-considered plans, hastily rolled out, poorly executed and ultimately resulting in disastrous outcomes for consumers. Last year, Lysyk reported that Ontario consumers paid $37 billion extra for its electricity between 2006 and 2014 due to overpriced green energy, poor government planning and shoddy service from Hydro One.

I expect Kathleen Wynne will apologize for all this before the election. In the meantime, brace yourself. Life is about to get much more expensive for you and your neighbours.

rick@wellingtontimes.ca