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Rapid Policy Update: Ontario Introducing Cap and Trade System

Earlier today, Ontario Premier Kathleen Wynne announced that her government will be implementing a cap and trade system as part of its strategy to reduce Ontario’s greenhouse gas emissions (GHGs). Globally, rising GHG levels are the main contributor to climate change.

This represents a significant policy shift that will have implications for Ontario’s business community. This Rapid Policy Update provides you with an overview of what you need to know as government moves forward with a cap and trade system.

When will the system take effect?

No details have been shared on implementation timelines.

How does cap and trade work?

A cap and trade system is a market for GHGs. The goal of the system is to provide a financial incentive for businesses to reduce their carbon footprint.

Under this system, the government sets a maximum limit on the amount of GHGs that applicable businesses can produce (“the cap”). Pollution credits are then allocated to these businesses, which stipulate how many GHG emissions each business is allowed to produce. These credits can then be bought and sold in a newly created pollution credit market (“the trade”). Businesses that reduce their emissions in a given year can sell their leftover credits to those that have emitted more.

Typically, the cap is lowered gradually to reduce the total GHGs emitted by the participating jurisdiction over time. We do not yet know what the emission cap will be in Ontario and if it will change over time.

What sectors will be most impacted?

The Ontario government has not indicated which businesses or sectors will be subject to the cap and trade system. However, it has announced its intention to link the carbon market with North America’s largest cap and trade system currently in place in California and Quebec.

In Quebec, businesses that emit 25,000 metric tons or more of CO2 equivalent (i.e. GHGs) a year are subject to the cap and trade system. In its first year, only the industrial and electricity sectors were subject to Quebec’s cap and trade system. This year, fossil fuel distributors are being phased into the system, which will affect a more significant portion of the economy.

How will the government use the revenue collected from cap and trade?

The provincial government has not indicated how much will be raised by the cap and trade system. It has signalled that it will reinvest the money raised through the system into projects that reduce GHG emissions and help businesses remain competitive. Projects may include building more public transit or providing financial assistance to businesses as they move to reduce their carbon footprint.

What is the Ontario Chamber of Commerce’s position?

The Ontario Chamber of Commerce (OCC) recognizes that urgent action is required to mitigate the existing and pending negative environmental and economic effects of climate change. In principle, we support efforts to reduce GHGs.

However, the introduction of a cap and trade system must be viewed within the broader context of the escalating cost of doing business in Ontario. Over the past year, the Government of Ontario has implemented or announced a number of initiatives that will have a direct impact on business, including a new Waste Diversion Act, a review of the Labour Relations Act, the Ontario Retirement Pension Plan (ORPP), in addition to this new carbon pricing system.

The cumulative impact of these changes poses a serious threat to the future competitiveness of Ontario’s business climate. It is incumbent on the provincial government to ensure that Ontario remains among the most attractive places in the world to do business. As such, we believe government must put economic interests, along with environmental ones, at the forefront of the discussion. The following principles should be among those that shape the design of the cap and trade system:

  1. Government must consider the impact that the cap and trade system and regulatory changes have on the economy and job creation in the province.
  2. The cap and trade system must be revenue neutral and the revenue collected should be used to mitigate the impact of the plan on those businesses most affected.
  3. Government should harmonize its efforts with Ontario’s immediate competitors for investment and trade.

What are the Ontario Chamber of Commerce’s next steps?

In the coming months, we will work with the Chamber Network to advocate on behalf of Ontario’s business community and communicate our position to the Government of Ontario. We will also seek answers to the key design questions that remain unanswered.

Please stay tuned for updates as this important business issue unfolds.

Additional resources

How Cap and Trade Works (Government of Ontario)
News Release: Cap and Trade System to Limit Greenhouse Gas Pollution in Ontario (Government of Ontario)
Ontario’s Climate Change Discussion Paper 2015 (Ministry of the Environment and Climate Change)


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