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Why it may make sense for Ontario to go it alone on climate change

This is one of a six-part series exploring climate change and regulation, and their effect on companies.

You could call it Ontario's declaration of energy independence: a radical plan to sweep carbon out of the provincial economy by turning off natural gas in homes and workplaces and switching on electric cars at a cost of $7-billion to taxpayers.

Premier Kathleen Wynne's Climate Change Action Plan, revealed last week, is certainly ambitious, some critics might say fanciful. Natural gas delivers the heat to three-quarters of the province and the plan proposes that by 2050 gas will be entirely replaced by geothermal, solar and other forms of non-hydrocarbon energy. But, before we even get to the nitty-gritty of how Ontario will banish methane and gasoline from the home and the transportation system and what the private cost to households and businesses might be, there is an interesting political debate about going it alone.

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The Ontario government is forging ahead with plans to save the Earth from anthropogenic climate change in the full knowledge that the effect will be to hurt fellow Canadians whose livelihoods are closely linked to the fortunes of the oil and gas industry. Alberta has been hammered by America's oil glut and natural gas bubble. Bearing in mind the lack of pipelines to new export markets, Western Canadians may be feeling like sacrificial lambs on the altar of urban Ontario's environmental purity. With her plan to close Ontario as a market for oil and gas, Ms. Wynne could not do more to offend Alberta if she were to announce plans to convert her province to a vegetarian diet.

Still, she may be right to go it alone. The conventional wisdom used to be that political action to solve global problems had to be international. It was the logic that spawned the myriad agencies of the United Nations. Success in some areas, such as eradicating plagues like smallpox, encouraged the world to think that the enlightened self-interest of nations working together (especially when amply funded by American dollars) would end all disease and poverty and save the environment.

It hasn't worked because self-interest is not always aligned or even very enlightened. Almost two decades on from the original Kyoto protocol, there is no genuine global plan to reduce carbon emissions.

There are many statements of support, much of it sincere and well-intentioned, including (one must assume) those from the 177 nations that signed the agreement in Paris in December. But the new agreement will not be in force until more than 50 countries accounting for 55 per cent of carbon emissions have formally committed to implementing its commitments.

As usual, the European Union is a vocal supporter, but Europe's efforts to cut its own emissions have foundered in a quagmire of excuses, avoidance and recrimination. The ETS, Europe's cap-and-trade system, which was intended to set a market price for mitigating carbon, has failed. Member states insisted on keeping national control on the issuance of allowances (permits to emit carbon) to industry; as a result, too many were issued and the current price of an allowance to emit a tonne of carbon is currently just €6 ($9 Canadian).

In the EU today, it pays for power stations to buy permits to emit carbon rather than convert to cleaner fuels. It's good news for German and Polish coal miners, who still have jobs digging the black stuff, and it explains why the German government is studiously ignoring the campaign by Ségolène Royal, France's Minister of Ecology and former partner of President François Hollande, to impose a price floor of €30 on the cost of emitting a tonne of carbon. Of course, France is mainly nuclear-powered, but Ms. Royal's campaign will be endorsed in France's next finance bill, which will make the €30 carbon floor applicable throughout the country.

You might think, so what? The answer is that peer pressure is a powerful motivator among wealthy nations where public opinion matters. While the U.S. Congress has dragged its feet over a federal climate policy, individual states have take action, notably California. Even more important, the commercial market has responded both with investment in renewable technology and electric vehicles and natural gas. The United States is now cutting carbon emissions faster than the EU and American emissions are now 12 per cent below 2005 levels, mainly because of the displacement of coal in power generation by natural gas.

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It may not be necessary for the U.S. Congress to impose a federal strategy on Americans to shift away from carbon. They will do it anyway, through piecemeal initiatives, lobbying and peer pressure. It may therefore make sense for Ontarians to politely tell Western Canadians to sell their dirty gas to someone else. However, they have to make sure they can still heat their homes.

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