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To combat climate change, Canadian premiers are looking at cap and trade systems and carbon taxes. Ontario Premier Kathleen Wynne recently signed a deal with Quebec to implement a cap and trade system but the details are few and far between. Karl Baldauf, Vice President of Policy and Government Relations of the Ontario Chamber of Commerce joins BNN to talk about a report on what the business community wants done to ensure a fair playing ground in the domestic and global market.

Ontario must not go easy on big polluters lobbying for breaks under the upcoming cap-and-trade program, a coalition of 80 businesses, environmental groups and labour unions warns in a report to be released Thursday.

The province should create an arms-length agency to handle the money raised from the program to ensure it is spent on environmental programs and not funnelled elsewhere in government, the coalition adds.

These are among seven recommendations from the Clean Economy Alliance spelling out how Ontario should make sure its new carbon-pricing system achieves the maximum reductions in greenhouse gases.

The governing Liberals announced cap-and-trade in the spring. The province will set a cap on emissions and companies will have to buy permits, also called allowances, from the government to burn carbon. Details on how the system will work are still being finalized and are expected to be released before the end of the year.

The Alliance report tackles the two thorniest problems facing the province: how the program will treat big polluters and how the government will spend money raised from the system.

The Globe reported in the summer that more than 20 companies and industry associations, from oil and gas to pulp and paper, are lobbying for breaks under cap-and-trade, such as free permits to burn carbon. They argue they need these exemptions to stay competitive with companies in jurisdictions that do not price carbon.

But the Alliance says handing out too many free permits would drive permit prices down, diluting the incentive for companies to cut emissions and making the system less effective. A 2009 study from the C.D. Howe Institute found that only a few industries – such as iron and steel, chemicals and fertilizer – genuinely need help from the government with the cost of carbon pricing. For other sectors, it said, such help is probably not necessary and companies will do just fine.

"Competitiveness concerns are legitimate. We support doing something to address that. But you don't want to go too far, because it undermines the effectiveness of the carbon price and the signal you're trying to send," said Keith Brooks of Environmental Defence, one of the groups in the Alliance.

The report also contends government must have a transparent process for determining which companies get free permits. California's cap-and-trade system, for instance, is run by an arms-length agency called the Air Resources Board that uses a mathematical formula to calculate how vulnerable firms are to competition and determine how many free permits they receive. Quebec's system leaves such decisions at the discretion of the environment minister and it is not always clear why companies get free permits.

"California has done a really good job of setting up a really transparent, evidence-based organization at the Air Resources Board, and as a result, their program enjoys a high degree of confidence," Mr. Brooks said.

The Alliance recommends the government also consider ways to put a levy on goods imported from jurisdictions without carbon pricing as an alternative to handing out free permits to Ontario firms.

How Ontario spends its cap-and-trade revenue – a possible $2-billion a year – could also be a minefield: The province is wrestling with a deficit of $8.5-billion and the largest subsovereign debt in the world.

The Alliance argues cap-and-trade revenues should not simply be used as a new tax to help deal with the deficit, and should be put into the environmental policies that will produce the greatest and quickest reductions in emissions. These could include retrofitting buildings, more public transit or incentives for manufacturing companies to change production processes. Having an arm's-length agency would help here, too, to cut the risk of lobbying or political interference.

"We want to make sure the money is spent well, and the decisions are made based on evidence," Mr. Brooks said.

Among the Alliance's other recommendations are that the province start cap-and-trade no later than 2017, cut emissions by five megatonnes per year, and set minimum and maximum prices for permits to ensure a stable carbon market.