Ontario is prepared to implement a far-reaching cap-and-trade system to drive down carbon emissions, putting a price on everything from industrial emissions to gasoline and natural gas.
But some big polluters could be in line for big breaks – a move certain to prove controversial – as the government seeks to protect the province's long-suffering manufacturing sector from the full cost of a carbon market.
These details are laid out in a provincial government consultation paper that sketches the broad outlines of how the cap-and-trade system would work. The province unveiled these proposals to businesses and environmental groups on Thursday and Friday in hopes of generating feedback. The system will be finalized in the spring.
The consultations come as Ontario prepares to play a major role in Canada's delegation to the upcoming United Nations Climate Change Conference in Paris.
"We've set targets and we've been clear about what those are. We've made commitments around setting up the cap-and-trade system, and so what we will be bringing is that commitment," Premier Kathleen Wynne said Friday in an interview in Beijing, where she was wrapping up a week-long trade mission. "And we are well down the road in getting that set up. We are working with industry. We are taking the time we need to work with our industries to make sure that they are ready as well."
Under cap-and-trade systems, the government puts a hard cap on how much carbon can be burned. Companies that wish to emit carbon must purchase permits, called allocations, from the government. If a company decides to burn more than its share of carbon, it must buy extra allocations from other companies that have burnt less than their share.
The proposed system outlined in the 66-page paper would see cap and trade start on Jan. 1, 2017. The cap on greenhouse gas emissions would drop 3.7 per cent in each of the next three years, falling to 15 per cent below 1990 levels by 2020.
Most sectors of the economy would fall under the cap, including heavy industry; transportation fuels, such as gasoline; and electricity generation. Both businesses and environmentalists applauded this wide reach. Some other systems, such as Quebec's, initially excluded gasoline. But experts have argued that, with transportation accounting for more than a third of the province's greenhouse gas emissions, gasoline and other fuels must be covered by the system. A broader system also spreads the costs out more evenly.
"Our view is that you ought to spread it across as large a constituency as possible, so it's not any one business or one sector. This is really all about all Ontarians," said Allan O'Dette, president and CEO of the Ontario Chamber of Commerce.
Added Erin Flanagan, a policy analyst with the Pembina Institute, an environmental think tank: "I was really happy to see that they are getting the broadest subset of emissions that are easily measurable."
Putting gasoline and natural gas under the cap likely means costs will be passed on to consumers, sending a price signal to drivers to choose more ecologically friendly means of transportation. Carol Montreuil of the Canadian Fuels Association estimated cap and trade would add at least 3.6 cents to a litre of gasoline to start with, rising to 4.6 cents by 2020, if Ontario's carbon allocations trade at the same minimum price as Quebec's. If the price of allocations rises, the cost to consumers could go higher.
Meanwhile, however, heavy industrial polluters may be getting some breaks.
The government proposal suggests giving industry, which includes everything from auto plants to oil refineries, up to 100 per cent of their carbon allocations for free for the first four years of the program. Such a proposal would still force them to reduce carbon emissions to stay under the government's cap, but it would save them money by allowing them to receive permits free of charge while other companies and consumers would have to pay.
The purpose of these breaks would be to stop companies, particularly in the province's hard-hit manufacturing sector, from closing shop and moving to provinces or states that do not have a price on carbon.
"We think that really is an important indicator from government that they recognize that the community is going to need some time to adjust to this," Mr. O'Dette said. "It really addressed the competitiveness concern that we've been concerned about."
But environmentalists warned that giving away too many free allocations would simply make the system less effective without any economic gain.
"Giving away 100-per-cent free permits is going too far," said Keith Brooks of Toronto-based Environmental Defence. "We need a strong incentive in the price for companies to reduce emissions."
Ms. Flanagan said the government should reduce the number of free allocations at the same time it lowers the cap, steadily making companies pay more for the emissions they produce.
"If they do not do that and allow for full coverage, the province will not be able to close the gap with its emissions targets, or it's going to be asking other sectors of the economy to do more," she said. "Ontario's in a challenging spot, where they need to balance the environment question while recognizing the nuances of the economic base."
Asked to explain the rationale behind floating 100-per-cent free allocations for some companies, Environment Minister Glen Murray's office said some breaks are an economic necessity.
"It is in every Ontarian's interest to have a strong, healthy, clean and robust industrial and manufacturing sector. This is why the government is proposing that industries get some assistance in transitioning to [a] lower carbon way of producing products," David Mullock, Mr. Murray's spokesman, wrote in an e-mail.
He also stressed that the proposals floated this week are not final and could be changed over the next few months.
With reports from Nathan VanderKlippe in Beijing and Shawn McCarthy in Ottawa