Ontario Sees Carbon Caps System as Best Way to Cut Emissions

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Ontario is betting on a carbon market as the best way to cut emissions from cars, power plants and factories in Canada’s most populated province.

Ontario will set CO2 limits for each industry, as well as a price for the global-warming gas, and will eventually link its market with Quebec and California, Premier Kathleen Wynne said Monday in Toronto.

“Climate change is not a distant threat,” Wynne said at a press conference. “We’re talking about something that is upon us.”

With carbon emissions restricted in Ontario, Canada stands a better chance of reaching a goal set by Prime Minister Stephen Harper to lower greenhouse-gas output 17 percent by 2020. Current regulation makes it unlikely for Canada to meet the goal, let alone commit to stricter limits ahead of a United Nations meeting in Paris in December to create a new international climate agreement, according to the Pembina Institute, a Canadian environmental group.

“Pricing carbon is crucial to reduce emissions and address climate change,” said Cherise Burda, Ontario director at the Pembina Institute.

Ontario emits about 170 million metric tons of carbon pollution annually, with about a third of that coming from transportation. That’s similar to the Netherlands’ greenhouse-gas output.

Funding for public transit would also be a “critical step forward,” especially in Toronto, one of the fastest-growing large cities in North America, she said.

European System

Carbon markets have been criticized as complicated to set up. The European Union manages the world’s largest one and is currently trying to fix a system that has allowed carbon prices to slump in recent years, discouraging emitters to invest in abatement technology.

Permits to emit one metric ton of carbon dioxide fell to less than 3 euros ($3.17) in 2013 from more than 18 euros in 2011 amid a surplus of credits that countries allocated to industries across the region. Permits have averaged 6.36 euros on the ICE Futures Europe exchange in London in the past 12 months.

Prices for carbon need to be higher than they are today in Europe and North America to force companies to begin adopting equipment that significantly reduces emissions, policy groups including the Pembina Institute have said.

Joint Market

Meanwhile, California and Quebec have established a joint market that regulates more than 180 million metric tons of greenhouse-gas emissions from industrial plants including power generators, oil refineries and cement factories.

Under that cap-and-trade system, allowances permitting the release of a ton of carbon dioxide are issued through free allocations and auctions. The pool of allowances shrinks over time to cut pollution, which unlike a carbon tax creates certainty over emissions reductions.

“This is a bold move from the province of Ontario, and the challenge we face demands further action from other states and provinces around the world,” California Governor Jerry Brown said. “There’s a human cost to the billions of tons of carbon spewing into our atmosphere and there must be a price on it.”

California’s air resources board will need to ensure that the program Ontario develops is compatible with the state’s before considering linking markets, Stanley Young, a spokesman for the board in Sacramento, said by e-mail on Monday.

California Rules

California law requires the state Air Resources Board to notify the governor of a potential carbon market link with another jurisdiction. It also requires the governor to determine the proposal won’t compromise the state’s own program.

December futures for California carbon allowances that can be used as soon as this year climbed 1 cent a metric ton on Monday to close at $12.66 on the Intercontinental Exchange, Brookly McLaughlin, a spokeswoman for the Atlanta-based exchange, said by e-mail.

Other Canadian provinces have regulated greenhouse-gas emissions with taxes and levies. In British Columbia, fossil fuel consumption fell 19 percent per capita in the four years between 2008 and 2012, helped by a tax. Alberta, home to Canada’s oil industry, requires large industrial emitters to pay a levy of C$15 a ton for emissions that exceed limits.

“Putting a price on carbon pollution is one of the most powerful government incentives to encourage companies and communities to pollute less,” said Ian Bruce, science and policy manager for the David Suzuki Foundation.

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