Saturday, April 04, 2015

Ontario moves to tackle greenhouse gas emissions - but is it the right move?

Kudos to the province of Ontario for (finally) going ahead, subject to cabinet approval, with a fiscal program aimed at tackling greenhouse gas emissions. Given the size of Ontario's economy, even in these times of relative economic gloom, it would represent one of Canada's single largest endeavour against climate change, on a par with Ontario's recent phasing out of all its coal-fired power stations, and the money raised (up to $2 billion a year) can be ploughed back into public transit or energy conservation programs.
The model they have chosen, however, is a cap-and-trade system, similar to and linked with those of Quebec and California. I understand the advantages of cap-and-trade - as compared to the other main alternative, a carbon tax, like the one being so successfully administered in British Columbia - and there is much to be said for it. For one thing, unlike a carbon tax, it caps the absolute amount of carbon emissions, which might help Ontario in its ambitious and aggressive goal to reduce emission to 15% below 1990 levels in just five years.
However, it is a much more complicated system that a straight carbon tax, and more potentially prone to manipulation and fudging, especially if it is applied, as it usually is, on an industry-by-industry basis (for example, Quebec's energy-hungry aluminum industry is exempted from the scheme on the grounds that it would put them at a competitive disadvantage!). Plus, exactly how and where the caps are set is a horribly fraught and contrived process, and notoriously prone to the influence of powerful industrial lobby groups, and I can imagine they are as likely to be relaxed by future administrations as tightened (which is the stated intention). Cap-and-trade also puts all the onus on industry, and does not work to change the bad habits and preferences of individuals.
Furthermore, cap-and-trade systems are notoriously subject to the vagaries of the market. As we have seen in recent months, with the sharp fall in oil prices, the trading price of carbon credits has likewise fallen precipitously, thus weakening the system's effectiveness.
Perhaps the main reason it has been chosen over a carbon tax, though, is the worst reason of all: it is probably much easier to sell to a skittish electorate, simply because nowhere does the word "tax" appear in its description. People seem to object to a carbon tax on knee-jerk principle, even when it is specifically explained to them that the system would be revenue neutral, and they would receive rebates on their income tax for every penny collected by a carbon tax. I imagine that some behind-the-scenes politicking also occurred,  and apparently it was seen as more politically astute to curry favour with Quebec than with B.C.
My own feeling is that carbon taxes do a better job of educating the general public on the real environmental costs of their habits, something I consider essential in the long run. I also intuitively tend to trust a prescriptive, fixed tax over a complex system that relies on the machinations of the free market. Instead, it looks like what we will actually have is a cap-and-trade system that changes nobody's propensities towards a high carbon lifestyle, but nevertheless maddens the business community and risks an industrial investment backlash.
Interestingly, the vast majority of the commentaries I have read since the announcement favour a B.C.-style carbon tax over cap-and-trade, but there are almost certainly other political considerations and wheelings-and-dealings going on behind the scenes, so I can't imagine this decision being reconsidered any time soon.

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