FACING CLIMATE CHANGE

Cap and Trade in Ontario ̶ CIAC

April 20, 2017, Toronto

Dianne Saxe

Overview

1: Who is the ECO?

2. Cap and trade

3. Spending the money

4. Is there hope?

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1: Who is the ECO?

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Who is the ECO?

Impartial, independent•

Guardian of the • Environmental Bill of Rights

Watchdog on:•Greenhouse gas emissions in •Ontario

Energy conservation•

Environmental protection•

Driven by what I have learned •in the last year

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(7) Really Good Reports

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CLIMATE ENVIRONMENTENERGY CONSERVATION

Find Them Here

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Making our work accessible

• Searchable/ Downloadable

• Webinars

• Climate science

• LTEP

• Executive summaries

• Primers

• Both official languages

• And others on request

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Public Access

Registry Alert system

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About you (DOTS)

EBR / ECO•Have you used our website or reports?•

Climate change•Which do you think is affecting your company more right now: Climate •change or carbon pricing?

Which do you think will affect your company more in the next • 10 years: Climate change or carbon pricing?

Has climate change caused your company any financial loss yet? y/n•

How soon will your company • be ready to disclose its climate –related financial risks, per the FSB guidelines? 2018, 2019, 2020, 2025, 2030

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2: Cap and TradeReady, Set, Go!

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Who are you working for?

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Ontario is doing so much right

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Coal power plant closures

Price on carbon

Action Plan

Climate Ready update?

New Climate Act

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Historical

Historical data: http://unfccc.int/national_reports/annex_i_ghg_inventories/national_inventories_submissions/items/9492.php

• Carbon pricing to increase fossil fuel costs

• Proceeds in Greenhouse Gas Reduction Account spent as per Action Plan

• Reduce GHGs by 80%?

0

50

100

150

200

250

1990 2010 2030 2050

On

tari

o G

HG

Em

issio

ns (

Mt

CO

2e

)

Business As Usual

Targets

Basic Theory – Polluter Pays

To reduce GHG emissions, we must put a price on • them

GHG polluters would emit less if they had to pay for the privilege•

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https://goo.gl/O4uUSH

Carbon Tax vs Cap and Trade

Carbon Tax:

Gov’t sets price

Cap and Trade:

Gov’t sets cap

Doesn’t include the

term tax

Lower cost GHG

mitigation

Faster to implement

Simpler to understand

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The first Ontario auction

March 2017 2017 Vintage 2020 Vintage

Allowances Available

for Sale

25,296,367 3,116,700

Allowances Sold 25,296,367 812,000

Settlement Price

(CAD)

$18.08 $18.07

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Cap and Trade Design Issues

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How high is the cap?How fast does the cap

drop?Who needs allowances?

Who must pay for them?

Competitiveness and carbon leakage

Stability and predictability

Cost and fairness Linking

Key Evaluation Metrics?

GHG emission reductions

Economic efficiency/cost-effectiveness

Market functioning

Carbon leakage18

Who Needs Allowances?

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Agriculture &

Waste

Does Not

Need

Allowances

Liquid Fuel and Natural Gas

Distributors

Needs Allowances, Costs Passed on to Customers

80% Industry

40 Mt 31 Mt100 Mt

Needs Own

Allowances

Who Pays, Who Doesn’t?

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Agriculture &

Waste

Does Not

Need

AllowancesPays for Allowances Indirectly

Liquid Fuel and Natural Gas

Distributors

>90% Free

Allowances until

2020

80% Industry

40 Mt 31 Mt100 Mt

Ontario’s Design Choices

Ontario’s cap and trade system is:

• Reasonable

• Appropriate for our economy

Challenges:

• It is complicated

• It will take time to work

• Needs longer-term certainty

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Linking with California and Quebec

Benefits

• Cheaper for emitters (us)

• Reduce carbon leakage

• Market functioning

Consequences

• Temporary outflow of Ontario cash:• $250+ million to California?

• $250+ million less fossil fuel imports?

• Lock in reliance on imported allowances?

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In first years, Ontario emitters may find it cheaper to buy allowances / credits

from California than to reduce emissions in Ontario

Bigger, more liquid

market

Lower, more stable prices

Lower prices

Less GGRA, Action Plan

funding

Offsets – Major Potential

Ontario Emitters within Cap

Emitters Outside Ontario

Ontario Emitters Outside Cap

• Possible Offsets, e.g.:• Mine methane• Landfill gas• ODS / refrigerants• N2O / fertilizer• Forest / afforestation• Urban forests• Livestock• Conservation cropping…

• Competitive?• If so, can keep money and GHG

reductions in Ontario

• Maximum? • 8% of emissions (not cap)• 11.4 Mt in 2020

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Offset Credits

Adapted from: https://openknowledge.worldbank.org/bitstream/handle/10986/23874/ETP.pdf?sequence=11&isAllowed=y

3: Spending the MoneyGreenhouse Gas Reduction Account

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Climate Change Action

Plan?

Ontario Consolidated

Revenue Fund

Greenhouse Gas Reduction Account

Emission allowance auction

$Greenhouse Gas

Reduction Account$

Initiatives “that are reasonably likely to

reduce, or support the reduction of,

greenhouse gases” or for related government

expenditures

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$

Dividend

• $1.8 billion per year?Mostly from everyone who buys petroleum products and natural gas•

Limited impact to Large • Final Emitters and electricity sector (90% fossil free)

$

Will the money be used well?

• $350 million already spent/ committed

• Diversion a big risk:

• Initial plan to subsidize electricity rates

• Transparency and accountability

• We’re pushing hard

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5 Year Climate Change Action Plan

• More of a direction than a plan

• No precision in the numbers

• Compromise document

• After 44 drafts, several leaks

• Details being worked out after

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Good Ideas That Will Take Time

• Land use and transit

• Green bank

• Cleantech companies

• Reductions:

• When?

• Where?

• How big?

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Big Claims for 2020

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-Not Plausible

• Subsidizing the Global Adjustment – 3 Mt

• Per ECO - no plausible additional reductions

• Renewable fuel regulation – 2 Mt

• Per ECO - plausible, requires careful regulation of environmental effects

• Could have high per tonne cost

• Industrial transformation - 2.5 Mt

• Per ECO

• no clear mechanism

• cannot quantify

After Action Plan: Still lots to do

Mitigation•How to build a low• -carbon economy?

Adaptation•

• What will make Ontario resilient?

Many risks, opportunities and co• -benefits

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Compliance Gap

How will Ontario meet the 2020 target?

• Reductions?

• Offsets?

• California allowances?

• Early reduction credits?

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0

5

10

15

20

25

30

Compliance Gap

Mt

CO

2e

q

Other

Action Plan

Cap and Trade

4. Knowledge + Action = HopeNo one can do everything, but everyone can do something

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Lots of Progress

• Encouraging international, national, and provincial progress

• Paris Agreement – came into in force on November 4, 2016

• Kigali Amendment to Montreal Protocol – hydrofluorocarbons

• Carbon Offsetting and Reduction Scheme for International Aviation

• Pan-Canadian Framework

• Green Bonds >$100 B

• Despite U.S. election…

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Who is Leading by Example?

• MOHLTC: Health Impacts

• MTO: More transit, Cycling Strategy

• OMAFRA: Soil Carbon/Soil Health

• Toronto, Oxford County

• Region of Durham: Adaptation Plan

• Hamilton bio buses

• Waterfront Toronto: Green Procurement

• Task Force on Climate Related Risk Disclosure

• Universities?34

Bristol Bio Bus

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What Can I Do?

• Climate cannot be left entirely up to government

• It’s not too late36

Reduce your carbon footprint

Get ready to adapt

Speak up

Questions?

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Download the Facing Climate Change report

and the Introduction to Cap and Trade in Ontario document: eco.on.ca

Contact us: commissioner@eco.on.ca