On Wednesday, the Government of Ontario released its new Climate Change Action Plan, a complement to the cap and trade plan that the government has been gradually elaborating over the past few months. While the cap and trade plan is supposed to create economic incentives for businesses and consumers to reduce their own emissions, the action plan details how the government will spend the proceeds from cap and trade auctions to reduce emissions further.
The plan outlines a grab bag of measures, some explained in detail, some rather vague, some with emissions reductions attached, others promising future reductions after the life of this plan from 2017 to 2020. The cost per tonne of emissions reductions indicated in the document ranges from an affordable $5 per tonne to add renewable natural gas to Ontario’s gas distribution system to $425 per tonne to reduce emissions from multi-residential buildings or $525 for greenhouse gas reductions from building the GO Express. The costs of some of these measures are extremely high – but on second glance, they may even be higher. The document indicates a cost estimate over four years thought it reports emissions reductions estimates only for 2020. But if one assumes that the spending and emissions reductions ramp up evenly over the 4-year period from 2017 to 2020, that means that roughly 40% of the total reductions would be achieved in 2020. If the government spends a mid range of its estimates – around $7 billion – to achieve roughly 10 million tonnes of reductions by 2020 (or roughly 25 million tonnes over a four year period) that means that the average cost of reduction is $280 per tonne. Furthermore the costs of many of the specific reductions listed look a lot higher as well – the cost of reducing emissions through renewable natural gas closer to $30 per tonne, while the cost of reductions from multiresidential buildings may be over $3000 per tonne.
Ontario’s strategy seems not to rely on carbon pricing to incent businesses and individuals to reduce their emissions, but to use cap and trade revenues as a way of raising money to purchase much more expensive reductions. For 2020, the gap between Ontario’s projected emissions and its target is about 19 megatonnes. The current plan will get about 3 megatonnes of reductions from cap and trade. If the government’s plan succeeds in buying another 10 megatonnes of reductions, that leaves 6 megatonnes to meet the target – presumably by buying allowances from California. But to achieve the government’s 2030 target of a 37% reduction below 1990 levels, there is a gap of roughly 70 megatonnes between projected emissions and the target. If cap and trade reductions triple to 10 megatonnes, then that means 60 megatonnes to close the gap. At $280 per tonne, that would cost almost $17 billion dollars per year for the government to buy its way to meeting our reduction targets.
The best way to reduce emissions is to rely on a strong carbon price signal to do most of the work, and let businesses and consumers figure out how to respond to it. They can be given the resources to pay for higher fossil fuel energy and other costs by cutting other businesses and personal taxes. Instead, the Ontario plan treats carbon pricing as a kind of “sin tax” that is used to raise money for a highly expensive subsidy program – a program that is excessively costly in the short run, and in the long run completely unsustainable. It is time for Ontario to go back to the drawing board and design a carbon pricing system, such as a revenue neutral carbon tax, that lets price, not subsidies, do the work.