Ontario could lead the way to a Canada-wide carbon pricing mechanism

By Arman Kazemi

June 11, 2015

By remaining balanced, predictable and transparent, Ontario’s recently announced cap-and-trade system could set an example for a Canada-wide carbon-pricing regime, according to a recent study.

The economists behind Canada’s Ecofiscal Commission are once again championing an interprovincial carbon-pricing, this time with a focus on Ontario. Their latest report The Way Forward for Ontario, suggests how Ontario can build a carbon pricing scheme that can be replicated elsewhere in Canada.

After Ontario revealed its plans to join the California and Quebec cap-and-trade system as part of the Western Climate Initiative, talk has focused on how to best “design and implement a cap-and-trade system” to meaningfully reduce carbon emissions while ensuring equitability and competitiveness across sectors.

“Ontarians—everyday consumers, small business owners and large emitters alike—must see the system as clear, fair, and immune from political interference,” said Chris Ragan, Chair of the Ecofiscal Commission.

The report recommends four broad principles that would aid the implementation of a cap-and-trade market in Canada’s largest economy and establish a roadmap for other provinces to join a national carbon-pricing infrastructure.

The first recommendation is a call for a hard cap on emissions that would gradually decrease over time, providing predictability in order to promote business innovation and best practices amongst the largest polluters. The report also calls for the broadest implementation of a cap as possible, minimizing exemptions and ensuring fairness and transparency.

According to the report, the allowance structure of the cap-and-trade system would benefit from being narrowly defined in order to ensure widespread adoption of GHG targets. Further, any allowances that are created should be transparent and based on stringent rules, avoiding free allowances to sectors “in which emitters can pass on costs.”

The fourth principal emphasizes the need for a comprehensive and interlinked system among the provinces, embracing a broad definition of emitters  and attaining a practicable reduction in Canada’s carbon emissions, as the commission emphasized in their earlier report.

“There is a movement across many countries towards pricing carbon and cap-and-trade systems in particular,” according to the Global Managing Director for McKinsey & Company, a partner of Canada’s Ecofiscal Commision.

“There is a huge opportunity for Ontario, Quebec and California to establish a best-practice template that could accelerate the linking of different carbon markets together, supporting the transition to a low-carbon economy.”



Photo Credit: Jay Morrison