Ontario’s Cap-and-Trade Regime Seen Raising C$2 Billion a Year

A carbon cap-and-trade system in Canada’s most populous province is projected to raise as much as C$2 billion ($1.6 billion) annually, early government and third-party estimates show.

It’s not yet clear which industries will be left paying the most, and details of Ontario’s plan, including a timeframe for its deployment, are still being worked out. The province announced last week it would join Quebec’s cap-and-trade system.

Early internal government estimates suggest an Ontario system comparable to Quebec’s would raise between C$1.5 billion and C$2 billion a year, a government official said, speaking on condition of anonymity because the plan isn’t final. That’s in line with an analysis from an economist who projects Ontario could raise $2 billion annually by 2020.

Ontario government revenue from the auction of what are essentially pollution permits will be in the “ballpark” of Quebec’s cap-and-trade program, Premier Kathleen Wynne said in an April 14 interview.

“We haven’t done those metrics yet, but if we look at Quebec, look at the jurisdiction, then that’s the ballpark that we have to expect,” Wynne said. “We’re now in the process of working with businesses and with the community to nail down exactly what the design is going to look like.”

Quebec’s government says it will raise C$3 billion in total between 2013 and 2020 from its program. Ontario’s total emissions are more than double those of Quebec, suggesting it could expect $6.4 billion by 2022 under a similar plan. Wynne has said she will use cap-and-trade revenue to fund public transit and other infrastructure.

Preliminary Estimates

Wynne spoke to Bloomberg in Quebec City during a climate summit that saw 11 of Canada’s 13 provincial and territorial premiers agree to do more to curb emissions. The pact stopped short of a broad agreement to put a price on carbon.

Ontario’s preliminary estimates are in line with forecasts by Dave Sawyer, an Ottawa-based economist and consultant who studies carbon pricing. Sawyer projects Ontario’s program could raise C$2 billion in annual revenue by 2020, depending how quickly it’s rolled out, how stringent early emissions caps are and what industries receive free emission credits.

The province can start by applying the program narrowly to high-emitting industries, or more broadly, Sawyer said.

‘Broad Coverage’

If government is estimating revenue of at least C$1.5 billion, “that suggests very broad coverage, which is aligned with where Quebec and California are now,” Sawyer, president of EnviroEconomics, said in a telephone interview.

Wynne said the rules under Ontario’s cap-and-trade system will vary by industry. It’s unclear which industries will pay the most -- either to buy credits or overhaul their operations to reduce emissions.

The ability to tailor the program industry by industry appealed to Wynne.

“It’s less of a blunt instrument than a carbon tax,” she said, declining to elaborate on what industries may face different standards. “I’m not going to weigh in on that level of detail, but we are taking a sector-by-sector approach.”

Ontario’s three largest single sources of emissions are steel plants, according to the Environment Canada data from 2012, the latest available. Those include ArcelorMittal Dofasco Inc.’s plant in Hamilton, US Steel Canada Inc.’s Lake Erie Works site, and Essar Steel Algoma Inc.’s facility in Sault Ste. Marie.

‘Remains Competitive’

Ron Watkins, president of the Canadian Steel Producers Association, said in an e-mail the group hasn’t yet discussed with the province the design of its cap-and-trade program.

The steel industry’s emissions are already 20 percent below 1990 levels, the group said in an April 14 statement, calling for cap-and-trade to strike an “appropriate balance” so that “Ontario remains competitive as a major steel-producing jurisdiction.”

Trevor Harris, a spokesman for US Steel Canada, said the company looked forward to working with government in “developing a cap-and-trade program that is balanced and allows both our business and the environment to thrive,” but said accommodations will be needed for the steel industry.

“The steel industry has specific challenges and features that must be addressed in a policy that recognizes economic and technological factors, as well as international trade implications and further environmental performance improvement,” Harris said, adding the company has reduced its emissions already by 40 percent since 1990.

Nova Chemicals Corp., whose Corunna, Ontario, facility is also among the province’s top-10 emitters, has already reduced its emissions over the past decade.

“We expect to further reduce our environmental footprint,” Nova spokesman Pace Markowitz said in an e-mail.

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