Designing a carbon pricing system in Ontario

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Among other things, a carbon pricing system in Ontario should ideally be

• Broad:

  • include emissions from all or most emitters of greenhouse gases, particularly, the large emitters

  • include all greenhouse gases

• Effective:

  • enable the province to reach or exceed its greenhouse emission reduction targets of 15% below 1990 level by 2020 and 80% below 1990 level by 2050

• Equitable:

  • protect real incomes of low- and middle-income families

• Sustainable:

  • designed to endure, survive change in government, economy, etc.

There are options which would meet these three principles, some of which have been successfully implemented in some jurisdictions, and can be adapted to Ontario.

One is a broad revenue-neutral carbon tax with low-income credit similar to that in British Columbia. But, we recommend that it be set at an appropriate initial tax rate with mandated yearly increases in carbon tax that would achieve or surpass emissions reduction targets. And that there should be very few exemptions. Another option is a Carbon Fee and Dividend system, which would impose a fee on greenhouse gas emissions. We suggest that it start at an initial level that, along with appropriate yearly increases, would achieve or surpass targets. And, that the revenue be used to provide equal regular dividends to Ontario residents/households.

Yet another is a Cap and Dividend system - a form of cap and trade system, which places a cap on the amount of emissions that tightens yearly at a rate that would enable achieving our target emissions reductions, but with dividends. So, this would include auctioning of permits, and using the revenue to provide equal regular dividends to Ontario residents/households. The system should also have an adequate price floor, non-bankable permits, and limit use of offsets to those that are real, additional, verified, enforceable, and permanent. Or a Cap and Trade with low income credit to protect real incomes of Ontarians. A cap and trade-based system could be expected to be sustainable because it is not a “tax,” hence may be politically more saleable, and also because “frequent changes in a carbon tax to adjust the tax level to the changing cost of abatement are likely to be administratively difficult and politically divisive.”2

Implementing a carbon pricing system that is based on these three principles would not only make our province a leader, but also help transition our province, our economy and our workforce quickly and relatively painlessly to one that is cleaner and sustainable. Studies have shown that such a carbon price could reduce emissions, prevent many premature deaths and illnesses from carbon pollution, create jobs, grow the economy and real incomes of people.1

References:

1. Nystrom, S., & Lucknow, P. (2014). Carbon Fee and Dividend’s Economic Impact. Retrieved March 13, 2015, from https://citizensclimatelobby.org/remi-report/

2. Charles, F. (2014). Pricing Carbon: A Carbon Tax or Cap-And-Trade? Retrieved March 22, 2015, from http://www.brookings.edu/blogs/planetpolicy/posts/2014/08/12-pricing-car...