Ontario budget 2016: Liberals' cap-and-trade plan expected to generate $1.9B annually

The average household could pay about $13 per month more in energy and fuel costs by 2017 under Ontario's new cap-and-trade plan, but the Liberal government is banking on that additional money going a long way toward creating green infrastructure in the province.

Ontario announced new details about its cap-and-trade plan in its 2016 budget on Thursday, saying it will bring in $1.9 billion per year starting in 2017, making it by far the province's largest new revenue generator. 

That money, the government has promised, will be spent on initiatives to cut greenhouse gases (GHG), including investments in public transit, clean technology and making homes and businesses more energy efficient.

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That reinvestment includes money that will go back to households. The budget claims electricity bills, for example, will go down by $2 per month, though government officials say how that will be accomplished has yet to be determined. 

Meanwhile, gas prices are set to go up by 4.3 cents per litre, while monthly heating costs for the average home are projected to climb by $5 — estimates that are based on the current price of carbon. 

"Ontario is investing in the global low-carbon economy and we will reap the economic and jobs benefits," Finance Minister Charles Sousa said at Queen's Park. 

Sousa was pressed by reporters about the effect the plan will have on middle-class Ontarians who will have to pay more every month. 

"You didn't read the budget," Sousa fired back at one reporter, adding the additional costs will be offset with government reinvestment.

Program begins in 2017

The program, which will begin on Jan. 1, 2017, will affect everyone, but it has the most impact on industries, institutions and electricity generators and distributors that produce over 25,000 tonnes of greenhouse gases per year. They will be required to buy allowances for their emissions.

The province will place a cap on greenhouse gas emissions and create limited emissions allowances (one tonne of GHG will equal one allowance) for a given period based on the cap. 

Those who reduce their emissions can benefit by selling any excess allowances in the carbon market.  

Ontario emitted about 171 million tonnes of GHG in 2013, the most recent year provided by staff. 

The emissions cap will then continue to shrink by 4.17 per cent per year until at least 2020 for the heating and transportation fuel sector industries, though the electricity generation sector won't face a smaller cap due to the significant cut to emissions resulting from the elimination of coal-fired plants. 

Ontario is counting on cap and trade plan to help it reach its 2020 target of getting GHG emissions to 15 per cent below 1990 levels.

Some industries get a break

Industries such as cement and steel businesses, as well as auto manufacturers, will get free allowances from the government for the first years of the program to provide certainty around how cap-and-trade operates. 

Ontario didn't release a full list of those qualifying for the free allowances in its budget, but said the move is intended to stop "carbon leakage" — when companies just uproot in search of another location with fewer environmental regulations. 

The list of companies getting free allowances will be reviewed in 2020.

The government also released detailed draft legislation that lays out the rules surrounding how the allowances will be auctioned, traded and enforced. 

Officials said the program will be enforced by government spot audits and also requiring companies to provide their own emissions reporting. 

Companies that break the rules risk monetary or allowance-based penalties. 

Opposition attacks plan

The NDP and PC leaders both criticized the new cap-and-trade plan, though their attacks had nothing to do with the environment.

"Life is getting harder for folks," Horwath said, accusing the government of forgetting about those who pay high heating costs in northern Ontario and will be stung by the new costs.

Horwath also said the province's "big polluters" get a free pass in the new program. 

PC Leader Patrick Brown called the cap-and-trade plan a "cash grab" and said he fears the Liberals are taking advantage of people's desires to stop climate change to raise money for pet projects.

The way the system is set up, Brown said, there's nothing to stop the Liberals from spending the billions generated from cap-and-trade on whatever they like. 

What will the province get in return?

The government's cap-and-trade program is at the centre of a future it envisions featuring electric vehicles, energy-efficient geothermal homes and a more robust public transit system. 

In total, the government said 82 per cent of Ontario's GHG emissions will be covered by cap-and-trade, with the remaining 18 per cent coming from individuals and small emitters.

And, the budget says, once the government rolls out its new plan, 75 per cent of Canadians will live in a province with some form of carbon pricing. 

The government also said Ontarians will benefit from cap-and-trade by getting support with purchasing electric vehicles or modernizing homes. 

The budget also features a section aiming to bust "myths" surrounding cap-and-trade, including the idea that carbon pricing will kill jobs, or won't be effective.

"Broad consensus that carbon pricing is the best tool for reducing greenhouse gas emissions," the budget said.