Monday's announcement that Ontario is about to take steps to reduce greenhouse gases contained one bit of good news, one serving of bad news – and one giant question mark.
The good news? Ontario plans to put a price on carbon, with the goal of reducing greenhouse-gas emissions.
The question mark? Ontario's plan for a cap-and-trade system – which would cap carbon emissions from each sector of the economy, and allow trading of pollution permits – contains few details, including no costs or pricing.
And the bad news? Ontario will not be following in the footsteps of British Columbia – whose carbon tax is Canada's simplest, cheapest, best carbon-reduction strategy. Cap-and-trade, in contrast, is not transparent, has a distinctly mixed track record and runs the risk of being captured and gamed by powerful interests. Lobbyists, start your engines.
For all of that, Ontario, which is linking up with existing cap-and-trade systems in Quebec and California, could end up building an excellent program. Then again, it could also end up delivering Green Energy Act, Round II. The first incarnation was an industrial strategy camouflaged as a pollution-reduction solution. It doled out hefty subsidies to favoured businesses, paid for by electricity consumers. It was arguably the Liberal government's biggest mistake. Have they learned from it?
Ontario should have gone with the B.C. model. That province imposes a straight tax on carbon-based fuels – gasoline carries a tax of 6.67 cents per litre. The tax raises $1.2-billion a year.
Yes, taxes can be politically toxic. But B.C.'s carbon tax is revenue-neutral. Every cent raised on carbon means lower taxes everywhere else. B.C. used carbon-tax revenues to drop the corporate tax rate from 12 per cent to 10 per cent, and cut the first two personal income-tax brackets by 5 per cent.
The carbon tax is an economist's dream: It's clear, it's simple, and it imposes higher taxes on something we want less of, pollution, to lower taxes on things we want more of, like income and investment. Since bringing in the tax nearly seven years ago, B.C. carbon fuel use has dropped far more than the rest of Canada, while B.C.'s economy grew slightly faster.
Ontario's cap-and-trade system, in contrast, comes with risks. Ontario has all but promised that the money raised by emissions caps will not be used to cut other taxes. Instead, the hundreds of millions or billions raised each year will be "reinvested" in "projects that reduce greenhouse gases and help businesses remain competitive." In other words, targeted subsidies – the lobbyists' delight.
Ontario's plan doesn't earn a red card, because the details still aren't in. But it should already be raising red flags.