Ontario’s Cap and Trade program sounded promising when it was legislated, but looking at it more closely, it doesn’t have the legs to support the new economy for the 21st century, unless some major changes are made.
The C&T (Cap and Trade) program has two sources of revenue for the province: emission allowances sold to mandatory participant facilities that exceed their capped limits, and a carbon tax (user-fee) collected from electricity, natural gas, and petroleum consumers. Both of these sources of revenues have severe limitations, and they won’t reduce ghg emissions as much as they should.
In the program, a facility that emits 25,000 metric tonnes, or more of ghg (greenhouse gas) is a mandatory participant. Mandatory participants that are for electricity, natural gas, and petroleum do not receive emission allowances because their facilities are not capped, and their emissions are passed on as a carbon tax to their consumers who are homeowners, and businesses. This means there is no incentive for the facilities, most of which are decades old, to reduce their own ghg emissions because they are not paying for it so their owners are not affected, which is good for shareholders. Most of these three energy commodities are exported out of the country, so the companies themselves are taxed very little. This is the reason why the oil companies are supportive of a carbon tax: it hardly affects them at all. It is not because they’ve suddenly gained an environmental conscience.
Yes, consumers will consume less energy, and change their behaviour with higher prices, which will reduce ghg emissions. We saw this happen in 2008 when the price of oil was almost $150/barrel. Putting the carbon tax into green infrastructure will offer options to consumers that weren’t there in 2008.
How much revenue is expected from the mandatory participant facilities in the C&T program? Looking at the 2014 ghg emissions in Ontario, the most recent data available, there were a total of 151 facilities with total ghg emissions of 45,250,842 metric tonnes. A potential value of $859,765,998 at $19/tonnes; however, this potential windfall deserves more scrutiny.
Of the 151 facilities, 39% are not capped. They are nuclear, petroleum, natural gas, ethanol, biomass, and landfill facilities. The highest emitting non-capped facility was Imperial Oil’s Sarnia refinery plant at 1,869,973 tonnes.
The balance of the 151 are capped emitters. Although 61% is a large pool for a source of revenue, 11 of them are institutions like universities (highest emitter was 86,762 tonnes), and an airport (61,068 tonnes), leaving 81 industrial capped facilities. These are mainly in automotive, steel, chemical, food, pulp and paper, cement, mining, and plastics. They are considered the economic engine of the province. What is worrisome is that 72% of them are foreign owned by global companies that have the capability to move their production out of Ontario to another facility in the world. These global companies are from the U.S., France, Switzerland, India, Denmark, Germany, Brazil, Cayman Islands, and Japan. The highest emitter in this category is Arcelor Mittal Dofasco at 5,118,326 tonnes.
The remainder of the capped emitters are 23 Canadians owned facilities in pulp and paper, food, and cement. The highest emitter is Domtar at 920,156 tonnes.
These numbers show the C&T program won’t generate the projected revenue that the province is counting on. Facility closures would be good for the reduction of ghg emissions, but it means there won’t be the anticipated revenue.
How will C&T affect the small businesses? Badly. They will have a significant disadvantage because they will be absorbing the C&T charges for the electricity, heating, and gasoline they use, and they will have to pass these charges along to their customers, reducing their competitiveness in a global economy. Yes, the province offers rebates to help pay for more energy efficient appliances, but the rebate covers less than 10% of the cost, and it does not cover the labour. The rebates don’t go far enough, or quickly enough to help small businesses reduce their carbon footprint in order to be competitive.
The C&T program is new. There should be the opportunity to tailor the program to meet the needs of Ontarians and reduce ghg emissions so that it is sustainable as it matures.
Sharolyn Mathieu Vettese
President
SMV Energy Solutions
www.smvholdings.com