Ontario to Join North American Carbon Market

16 April 2015

The Canadian province of Ontario unveiled plans on Monday to join California and Quebec’s cap-and-trade system under the so-called Western Climate Initiative, in a bid to curb climate warming greenhouse gas (GHG) emissions.

Further details around permit prices and implementation timing will be finalised in the coming months, according to media reports.

“Climate change needs to be fought around the globe, and it needs to be fought here in Canada and Ontario,” said Kathleen Wynne, Ontario’s premier, in a press release. Wynne added that the move would also help to secure a more competitive economy.

Cap-and-trade programmes work by setting a limit on emissions and issuing permits to covered industries in line with this mitigation target. Companies can then buy and sell these permits according to their relative mitigation efforts. In theory, this will lead to cost-effective emissions reductions, as firms with relatively low abatement costs will reduce emissions and sell surplus permits to firms with higher reduction costs.

The Western Climate Initiative (WCI) is a collaborative sub-national effort between seven US states and four Canadian provinces to implement emissions-reduction measures. The group has a regional GHG target of 15 percent below 2005 levels by 2020 and aims to achieve many of these reductions through its cap-and-trade programme.

With the addition of Ontario, Canada’s second largest provincial GHG emitter, WCI’s carbon market would cover some 61 million people. 

California and Quebec linked their emissions trading schemes last year, in a world first, and the inclusion of the transport sector in this scheme from January makes it the world’s third largest carbon market.

Debated market tool

Ontario said that it planned to reinvest the funds raised through the cap-and-trade system back into further mitigation efforts. These could include, for example, projects related to household energy efficiency, increased public transport, and industrial abatement. 

California, which is also part of the WCI, has estimated that it will raise US$2 billion or more over the next two years through the market-based tool. However, a study by the University of California, Berkeley suggests that the system is not without some costs, estimating that it will add around 2.6 cents per litre to the price of gasoline. 

The use of market-based mechanisms to tackle climate change and set a price on carbon have been a much-debated tool at regional, national, and international levels and the debate differs according to the context. (See Bridges Weekly, 19 February 2015)

Nevertheless, as of February, there are 17 emissions trading schemes in place on four continents, covering 35 countries, 12 states or provinces, and seven cities. Together these jurisdictions account for around 40 percent of global GDP.  

In addition, many more jurisdictions are planning or considering the introduction of cap-and-trade schemes, including China where a move to a national emissions trading scheme is scheduled for 2016. With an expected coverage of three to four billion tonnes of carbon dioxide by 2020, China would form the world’s largest carbon market.(See Bridges Weekly, 27 November 2014)

In a national climate action plan recently submitted to the UN climate talks, Mexico said that it could raise the level of its post-2020 mitigation ambition if countries set an international price on carbon and ensured fully functional bilateral, regional, and international market mechanisms. (See BioRes, 13 April 2015)

Countries have agreed that individual national plans will form the basis of a new multilateral emissions-cutting deal due to come into effect at the end of the decade. 

Sub-national action

Following hot on the heels of Ontario’s announcement, representatives from Canadian provinces and territories gathered in Quebec City on Tuesday reaffirmed a commitment to fight climate change, but did not make mention of specific goals in their joint declaration.

The premiers agreed on the need to price carbon and transition to a lower-carbon economy through appropriate initiatives, signalling a lack of consensus between provinces over which tools to deploy to tackle climate change, according to some reports.

Cities and regions are increasingly engaging in climate policy and action. In countries such as Canada and the US, for example, the WCI is touted by some experts as a response to the political hurdles around creating national carbon markets.

National governments are primarily held responsible for climate mitigation efforts at the international level. Increasingly, however, subnational as well as non-state actors have become involved in supporting the UN multilateral talks. 

Last Thursday, for example, 100 city mayors from around the world adopted a sustainable cities’ declaration that includes a pledge to curb urban greenhouse gas emissions.

In January, UN Secretary General Ban Ki-moon, as well as the outgoing and incoming presidents of the UN Framework Convention on Climate Change (UNFCCC)’s annual meet, in January released a joint declaration pledging to support such action.

The incoming French presidency has also reportedly expressed an interest in providing space to recognise subnational and non-state action at the pivotal December UNFCCC meet, due to be held in Paris, where countries are slated to agree to the new global climate deal.

ICTSD reporting; “Ontario joins cap-and-trade programme,” THE FINANCIAL TIMES, 13 April 2015; “Ontario confirms it will join Quebec, California in carbon market,” REUTERS, 13 April 2015; “Quebec Climate Summit: Premiers Urge Feds to Take More Action,” THE HUFFINGTON POST, 14 April 2015; “100 mayors adopt ‘Seoul Declaration’ on climate change,” RTCC, 11 April 2015.

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