Helping The Economy And Environment

Archived Release

Helping The Economy And Environment

McGuinty Government Introduces Enabling Cap-And-Trade Legislation
TORONTO, May 27 /CNW/ -
NEWS
The province is helping industry reduce greenhouse gas (GHG) emissions and stay competitive in the emerging low carbon economy.
Proposed legislation being introduced today would, if passed, create the government authority to set up a greenhouse gas emissions trading system within Ontario.
Known as Cap and Trade, the system is a form of market regulation applied to greenhouse gases produced by industry. It is an effective way to reduce the threat of climate change caused by carbon emissions.
A discussion paper, called "Moving Forward: A Greenhouse Gas Cap-and-Trade System for Ontario", is now available that will guide consultations over the summer on what Ontario's cap-and-trade model could look like. It is posted on the Environmental Registry (http://www.ebr.gov.on.ca/) under number 010-6740.
The government anticipates a North American cap-and-trade plan could be in place as early as 2012.
QUOTES
"Ontario is taking a leadership role in implementing a cap-and-trade system that can link to an emerging North American system. Our government is committed to reducing greenhouse gas emissions and working with our industries as they transition to the new green economy."
- John Gerretsen, Minister of the Environment
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QUICK FACTS
- The creation of a cap-and-trade system for industry will help the
province meet its climate change commitments to reduce GHG emissions
by 6 per cent below 1990 levels by 2014 and 15 per cent by 2020.
- Ontario has had months of discussions with nine industrial sectors
likely to be involved in cap and trade. These sectors are base metal,
cement, chemical, electricity, lime, natural gas, petroleum, pulp and
paper, and steel. Environmental groups were also consulted.
- These sectors represent about 40 per cent of Ontario's total
emissions in 2007. Electricity alone accounts for 16 per cent (ref:
Statistics Canada).
- Ontario and Quebec formed a working alliance on this issue in June
2008. Together they represent close to 60 per cent of Canada's
economy.
LEARN MORE
How cap and trade works
(http://www.ene.gov.on.ca/en/news/2009/052701fs.php)
About the proposed legislation (http://www.ebr.gov.on.ca/)(registry
number 010-6467)
About Ontario's proposed cap-and-trade model
(http://www.ene.gov.on.ca/en/news/2009/052701fs2.php)
About Ontario's climate change action plan
(http://www.ene.gov.on.ca/en/air/climatechange/ourplan.php)
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CAP AND TRADE: A PRIMER
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The Cap
Cap and trade is a form of market regulation applied to greenhouse gas (GHG) emissions. It requires industry to reduce GHG emissions but provides financial incentives to help with the cost of doing so.
A regulation establishes a "cap" or limit on GHG emissions for the territory - in our case, Ontario. The cap determines the maximum amount of GHGs that can be emitted, which is then transcribed into number of allowances. The government distributes these allowances to companies (emitters). Companies must match their emissions to their allowances. Over time, the overall cap is lowered leading to reductions in GHGs.
This process occurs in every jurisdiction that employs a cap-and-trade system. The European Union is already using cap and trade, the United States is committed to this approach and developing economies (e.g., China and India) are interested.
The Trade
A company that is part of a capped sector must report its total emissions according to prescribed methods. If the company's actual emissions are equal to the number of its allowances, then the emitter is compliant and needs to do nothing.
If the actual emissions are less than the allocated allowances, then the company has unused allowances or a surplus that it can sell or save for use later. Creating and selling surplus allowances can subsidize the cost of "going green".
If the actual emissions are greater than the allowances allocated, then the company must purchase allowances (from other companies) or offsets (see below). Otherwise, the company faces penalties imposed by the regulator.
Surplus allowances are traded and are priced according to the laws of supply and demand. As government gradually lowers the cap on emissions, fewer allowances are distributed. This creates a demand for allowances which increases their value or price. Over time, industries that use older, carbon-intensive technology will find it more economical to upgrade to new low-carbon technology in order to decrease their need for allowances.
The Cost
Cap and trade does not give polluters a free ride. It does give financial incentives to companies to reduce emissions below their cap. In this way companies find that it is in their best interest to reduce emissions and convert to a lower emissions approach (i.e., become greener).
It works like this:
Companies are allocated allowances, either for free or by auction or a combination. They must match their emissions to these allowances. They can invest in technology to reduce emissions and their need for allowances, buy unused allowances from other companies, or purchase offsets. They may even combine all three methods. Any choice they make, they pay.
In some cases, a complete technological overhaul will be required to reduce GHGs. The technology costs can be high.
Some companies will phase in new technology over time to keep the costs manageable. Others may find it more economical to purchase allowances or offsets until they make the necessary technology changes. But, eventually, as allowances or offsets become scarce and more expensive, companies will find it cheaper to purchase low-carbon technology.
The Need
This need for new, better technology is one force powering an emerging green economy. Not only will cap and trade reduce GHG emissions but it will encourage longer term investment in new technology. This will create new businesses and related jobs.
Other elements
Offsets
Cap-and-trade systems also create an economic incentive for "carbon offsets", which can be used to achieve compliance in the carbon trading system.
Offsets are projects that reduce or remove GHGs undertaken by non-regulated industries. It could be a tree-planting project (trees naturally capture carbon dioxide), or other activity that reduces GHGs.
Offsets can be sold so that emitters can meet their compliance obligations. Offset projects are usually undertaken by groups, companies, environment associations, etc... To be eligible as an offset, projects have to meet criteria specified by the regulatory authority.
Offsets in Farm Country
Farmers and other rural landowners can develop offset projects by changing some of their practices - such as changing the way they till their land. (Tillage/ploughing opens up the topsoil, which then releases carbon dioxide, a GHG.) Another offset project could be about on-farm management of manure.
Offsets in the North
Ontario is working with its partners in forestry to develop, implement and verify a number of carbon offset measures. Tree planting is one project type as trees act as "sinks" to absorb carbon.
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Learn More
About Ontario's cap-and-trade approach
(http://www.ene.gov.on.ca/en/news/2009/052701fs2.php)
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ONTARIO'S APPROACH TO CAP AND TRADE
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The Model
Cap and trade is one of the most effective strategies we can use to combat climate change, reduce our greenhouse gas (GHG) emissions and help create a green economy.
Proposed amendments to the Environmental Protection Act would put the first steps in motion for a cap-and-trade system in Ontario.
Ontario's leadership in this area -- pursuing partnerships with Quebec, other provinces and U.S. jurisdictions - helps to ensure the province's strong position in an emerging green economy. We will attract new businesses, stimulate job creation and bolster investments in new greener technology that can be exported around the world.
Currently, industry (including electricity generation) produces 40 percent of the province's total GHG emissions and needs to do its part in helping Ontario meet the targets set in its Climate Change Action Plan. The plan calls for GHG emissions to be reduced by six per cent below 1990 levels by 2014, and by 15 percent by 2020.
Cap and trade would also create a demand for low-carbon technologies, driving innovation, economic growth and new job creation.
As well, Ontario would be well positioned to protect Ontario's interests in negotiations with the federal government and with other jurisdictions when developing a North American cap-and-trade system.
Aligning Ontario's Approach with What is Emerging in North America
Ontario will aim to harmonize its cap-and-trade program with Canadian federal, North American and international approaches. A broad, common system would maximize Ontario's trading opportunities, ensure a level playing field for our industries and avoid punitive cross-border tariffs. The United States is moving to put a national program in place that could begin as early as 2012.
Ontario will continue to work with its partners in the Western Climate Initiative (WCI), which is playing an important role in the development of a U.S. federal and broader North American cap-and-trade system. Members include Ontario, Quebec, British Columbia, Manitoba, and seven U.S. states.
Ontario will also work with the Government of Canada to develop a national system that reflects Ontario's interests. One of the goals of this work will be to avoid duplicate federal and provincial regulations.
The Specifics
Ontario's Environmental Protection Act (EPA) provides the authority to implement a cap-and-trade system.
However, the EPA does not provide specific authority to support certain elements of the cap-and-trade system being considered for Ontario. The EPA needs to be amended accordingly.
The proposed amendments to the Environmental Protection Act would provide, if passed, the regulatory authority needed to set up a GHG emissions trading system. This would allow the government to create regulations that would set the rules around such things as allowances, linking to other trading systems and related activities.
While the proposed bill would give the authority to make regulations, the details of the regulations would not be determined until the government has consulted further with industry and stakeholders. To assist in those talks, a discussion paper has been developed.
Our first consultation with affected industries and other stakeholders shaped Ontario's approach to cap and trade. Their input is reflected in the objectives, which include:
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- establishing a reliable "price on carbon" signal, which would help
industries plan their growth
- enhancing competitiveness of Ontario industries
- ensuring a level playing field for Ontario businesses
- encouraging low-cost, absolute GHG reductions
- avoiding duplication (with potential federal requirements)
- creating green jobs.
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The discussion paper "Moving Forward: A Greenhouse Gas Cap-and-Trade System For Ontario" - which is posted on Ontario's Environment Registry (http://www.ebr.gov.on.ca/) under Registry number 010-6740 -- helps clarify the approach being considered in Ontario and the decisions to be made around Ontario's model. It includes the elements of a cap-and-trade system, gives background on each element according to stakeholder views, and outlines options to be weighed. Stakeholder discussions and public review will occur over the summer and fall of 2009.
Our path will become clearer as the details of a U.S. federal and Canadian federal system are revealed and stakeholders make their views known this summer.
The Process
The proposed legislation is posted on the Environmental Registry under Registry number 010-6467 for 60 days. The public is invited to comment.
Ontario's proposed bill must go through final readings and passage before it becomes law. Second reading would not occur until after the legislature resumes in Fall 2009.
If the proposed amendments are passed, then feedback from stakeholders will shape the regulations that govern cap and trade.
By mid-2010, government expects to have completed the necessary groundwork to be able to implement cap and trade in 2012.
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Learn More
About cap and trade (http://www.ene.gov.on.ca/en/news/2009/052701fs.php)
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For further information: John Karapita, Minister's Office, (416) 314-6736; Kate Jordan, Communications Branch, (416) 314-6666