California and Quebec have closed the joint carbon market to Ontario, preventing companies from dumping some $2.8-billion in emissions allowances after premier-designate Doug Ford announced an end to the provincial cap-and-trade system.
While Mr. Ford’s decision could provoke lawsuits from companies that purchased allowance, the province is also set to join Saskatchewan’s legal fight over the federal government’s right to impose its carbon tax where provinces have not levied their own carbon price, whether by direct tax or cap-and-trade system.
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Saskatchewan Premier Scott Moe welcomed Mr. Ford as an ally in the fight over carbon taxes that his province has been waging for the past two years.
In announcing the decision Friday, Mr. Ford played down the potential for lawsuits. Mr. Ford said companies that are holding emission allowances will benefit from the removal of the regulatory burden going forward.
“They’re going to be quite happy that they won’t pay in the future; it’s putting money back into businesses’ pockets and families’ pockets, [and] I think people will be pleased,” he said. Asked whether the province is facing lawsuits, he said: “I don’t believe so; we’ve looked into that and we don’t see a problem with that.”
The move by Ontario’s partners in the Western Climate Initiative comes as Prime Minister Justin Trudeau’s principal secretary, Gerry Butts, suggested Mr. Ford’s action has left the province open to lawsuits.
“That didn’t take long,” Mr. Butts tweeted on the weekend in reference to the move by Quebec and California. “Lawyers, start your billable hours. Ontario is now open for business. Business = pointless litigation.”
Companies could face a higher levy if Ottawa wins its court case and imposes a levy that will kick in at $20 a tonne in January, rising to $50 in 2022. The Ontario carbon price – which is incurred by companies, but passed on to consumers at the gas pump and on the heating bills – is forecast to be about $25 in 2022.
Federal Environment Minister Catherine McKenna said on Friday that Ottawa is confident it has the authority to impose the carbon tax.
Quebec and California governments had to act quickly to ensure companies holding allowances that had been needed to comply with Ontario’s cap-and-trade regulations do not dump them onto the market, causing a glut that would depress prices in future auctions.
Under the program, the three governments set emissions caps on their energy distributors and industrial emitters, and then sold allowances that companies would require to meet the regulations over the period from 2017 to 2020. They also established a secondary market where regulated companies and speculators can buy and sell allowances.
In six auctions conducted since March, 2017, Ontario’s government has sold $2.8-billion worth of allowances. The next auction is scheduled for August, but the province served notice on Friday that it will not participate.
The province is also scheduled to make a payment of US$311,055.40 to help fund the Western Climate Initiative on June 30, the day after Mr. Ford is sworn in as premier.
In a notice to market participants issued late Friday, California and Quebec governments said the Western Climate Initiative would no longer allow trades between companies registered in their jurisdictions and those registered in Ontario.
“Our goals are to make certain that the program continues to reduce emissions of climate-changing gases as a crucial part of our efforts to combat the existential threat of climate change, while also continuing the smooth operation and integrity of our common carbon market,” the notice said.
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Quebec Environment Minister Isabelle Melançon said the two governments would work with Ontario to co-ordinate its withdrawal from the joint system and the treatment of existing allowances.
“Governments do not have to choose between the economy, on the one hand, and environmental protection and combating climate change, on the other,” Ms. Melançon said in a release.