What is cap and trade?

Climate change is on everybody’s mind. The Ontario government has been slowly releasing a stream of green initiative announcements about green cars and environmentally sustainable housing retrofits, but one of the most important initiatives is still to come. Investing in a cap and trade program is one of the best options for the province, with the potential of making a vast impact on the amount of carbon Ontario produces.

Cap and trade agreements place limits on the amount of carbon companies can produce without being financially penalized for it. The “cap” puts a limit on the specific amount of emissions that can be produced annually. In Quebec and California, which currently have active cap and trade programs, the cap declines annually by three to four per cent to allow companies to slowly adjust to increasing carbon reduction targets.

The “trade” allows companies to participate in a market where companies can buy or sell carbon credits. The carbon credits are linked to every tonne of greenhouse gas that is emitted. The “trade” portion of the incentive creates an opportunity for companies make financial gains through the use of environmentally sustainable initiatives — if a company lessens their rate of emissions, they can sell their unused carbon credits to other companies.

The cap and trade program simultaneously rewards companies that have lowered emissions, while penalizing companies that use high levels of greenhouse gases. The incentive also pushes companies to invest in green technologies.
When the cap and trade programs were put in place in Quebec and California, free permits were accessible initially to companies that were particularly vulnerable to the cap and trade program, and Ontario is due to follow suit. Companies that are emissions intensive and trade exposed (EITE) will receive free permits until they can gradually meet targets and reduce greenhouse gases.

Ontario’s cap and trade program will partner with the existing system in Quebec and California. The partnership will allow access to a bigger pool of low-cost emission reductions, a larger market for trade, and help to set a common price for carbon across several jurisdictions.

It is expected that the cap and trade program will make $1.4 billion for the Ontario government annually through penalties, permits, and the auctioning off of carbon credits. Ontario has promised this profit will be invested back into environmental initiatives. “The proceeds generated through cap and trade in Ontario will be reinvested in a transparent way. They will be used for initiatives that further reduce greenhouse gas pollution, support innovation and help households and businesses reduce fuel needs,” said the Cap and Trade Program Design Options report, released by the Ontario government.

Cap and trade essentially holds high carbon-emitting companies accountable and allows environmental sustainable companies the opportunity to make financial gains while supporting the green energy industry and boosting government dollars. More importantly though, it makes strides towards a world where human beings co-exist with the planet rather than continue to destroy it— that is, as long as the government doesn’t auction off too many credits, allowing emission-intensive companies to continue producing greenhouse gasses by simply paying for it.

The Ontario Premier, Kathleen Wynne, is positive that this new cap and trade program will make a substantial difference in the province’s emission levels.

“To fight climate change — one of the greatest challenges mankind has faced — Ontario is putting a limit on the main sources of greenhouse gas pollution through a cap and trade system to protect the air we breathe, the water we drink and the health of our children and grandchildren,” she said in a statement back in April.

The Ontario government will be revisiting the cap and trade program in Thursday’s budget meeting, in preparation for its estimated launch in January 2017.