The Many Different Flavours of Carbon Pricing

Ontario needs to ensure that its carbon pricing approach enables its cities to accelerate reduction of urban emissions sources.

Ontario needs to ensure that its carbon pricing approach enables its cities to accelerate reduction of urban emissions sources.

Consultations regarding the Province of Ontario’s proposed climate strategy are underway, including two public meetings held at the downtown Toronto YMCA last week. If the public response at these meetings is any indication, there are a lot of different opinions on the best way to design an effective carbon pricing strategy.

 

Carbon Tax

Many were favouring BC’s revenue neutral carbon tax approach, also known as a carbon fee and dividend approach, where all the funds collected through the tax on gasoline, natural gas and heating fuels are returned to citizens and businesses through tax reductions and rebates.

While many British Columbians were sceptical that their carbon tax would really be revenue neutral, the resulting tax cuts have actually been larger than the tax revenue, making it slightly revenue-negative.  Now a majority of British Columbians (52%) continue to support the policy, which has survived two election cycles.  Starting low at $10/tonne and gradually scaling up to $30/tonne over 5 years helped reduce opposition; however, announcing a longer-term schedule of price increases (e.g. to $50/tonne by 2018) would have enhanced impact and provided businesses and consumers with longer-term certainty.

recent report by Clean Energy Canada delves into the BC experience.  It shows that, overall, the carbon tax has helped the Province to achieve its 2012 emissions target (6% below 2007 levels), both because of the price signal and the official signal it gave that carbon reduction was an important, economy-wide priority.  Meanwhile, economic growth in BC has outpaced the Canadian average, demonstrating that carbon taxes are not the job killing economic disaster opponents claim.

Cap & Trade

What a carbon fee/tax does not provide is certainty about emission reductions.  They way Quebec has moved ahead on carbon pricing is by adopting a cap & trade system, where the government sets maximum allowable carbon emission limits and then provides emissions allocations to specific emitters in the form of emission permits, with  the total amount of permits being equal to the cap.

Emitters that produce less than their allowed emissions can sell the ‘excess’ reduction to those entities that exceed their permitted emissions, creating a carbon market.  Total emissions must stay beneath the cap, which in turn is reduced gradually over time on a predictable schedule, so that emitters are motivated to continuously innovate to bring down their carbon emissions.

While most cap & trade systems only apply to major emitters, Quebec’s system expanded in 2015 to include all suppliers of gasoline, diesel and natural gas, and now covers 85% of the province’s emissions sources. This is critical to the impact of the policy because Quebec’s largest source of GHG emissions is the transportation sector.

And in an effort to create a larger trading market for carbon, Quebec synchronized its approach with the Western Climate Initiative. Members of this group include Quebec and California, although Ontario was one of the original signatories to the initiative in July, 2008.

The Best Tools?

The design of a carbon pricing regime is critical and affects its overall impact. Key design elements include which sources and sectors will be affected, and how strong the price signal will be.

We’ve given some consideration to what tools will have the greatest ability to reduce urban GHG emissions and help Toronto achieve its carbon reductions targets. For example, a carbon tax approach would apply to 80-90 percent of urban GHG sources including emissions associated with transportation, space heating of buildings, and electricity use, not just those that come from large emitters.

On the other hand, a conventional cap & trade system for large-emitters would cover less than 10% of urban emissions; for example, in Toronto, there are only nine facilities which emit more than 25 thousand tonnes annually – the threshold cited by a previous provincial discussion paper.

As with any policy lever, the devil is in the details.

Designed with care and squarely focused on objectives, any carbon pricing tool can be highly effective. A cap & trade approach can also cover 80-90% of urban emissions if, like in Quebec, it is applied not only to large emitters but also to distributors of fossil fuels, including transportation fuels and natural gas.

A Hybrid Approach

A hybrid approach is also possible: a cap & trade system surgically-focused on large emitters complemented by other targeted pricing tools, for example an increased gas tax, increased rate-based funding for natural gas conservation and/or shadow carbon pricing in utility planning.

Selecting the right flavour of carbon pricing for Ontario is a challenge, but one thing is clear: Ontario needs to ensure that its carbon pricing approach enables its cities to accelerate reduction of urban emissions sources. Without giving cities the tools to enable urban reductions, Ontario will not reach its overall carbon reduction targets, and that will leave a bad taste in our mouths.

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Saving money and driving less: a TAF grant project shows it’s possible

Summerhill-OttoView-Montage

The OttoView data logger provided immediate feedback to drivers, leading to better results.

What would you say to an idea that could help tackle urban congestion, cut greenhouse gases, save drivers hundreds of dollars a year, and wouldn’t involve spending a dime on new infrastructure?

Summerhill Impact, a not-for-profit organization dedicated to engaging the public on environment- and health-related programs, tested such a concept as part of its Shuttle Challenge.

This pilot project, co-funded by TAF, encouraged participants to drive better and drive less: drivers were given tips to reduce their total number of car trips and their fuel consumption for the trips they did take.

The participants’ performance was then monitored with in-car data loggers and compared to their baseline driving behaviour.

The results were encouraging: 57% of the 500+ participants were able to reduce their total kilometres driven and their total fuel consumption by 10% or more. The average levels of reduction achieved would lead to an annual fuel cost savings of over $300 per driver, based on the gas prices around the time of the pilot. Scaled up to a nationwide level, a 10% reduction would eliminate about 8.7 megatonnes of greenhouse gases emissions each year – the equivalent of taking over 1.8 million cars off the road.

Other key findings from the final report include:

  • Participants were more successful at reducing kilometres driven (“driving less”) than improving overall fuel effi­ciency (“driving better”).
  • The most signi­ficant reductions in kilometres driven and fuel consumed were made during off-peak periods and by participants who lived and worked in the same region.
  • Drivers who were given immediate feedback on their driving results through an in-vehicle or app-based display had a higher success rate than those without access to this engagement tool.
  • The promise of fi­nancial rewards – in the form of Canadian Tire gift cards and a cash prize draw – was a key motivator that drove participation in the challenge.

The Ontario Ministry of the Environment and Climate Change has recognized the success of the Shuttle Challenge with an Honourable Mention for the 2013 Minister’s Award for Environmental Excellence, awarded in late January 2015.

There are promising opportunities to build on this success – such as expanding the program and exploring potential partnerships with corporate commuter programs and usage-based insurance schemes.

There’s no doubt that strategic infrastructure funding is still desperately needed to tackle our ever-mounting congestion problems.  However, if the Shuttle model can be scaled up successfully, it may offer a quick, powerful, and low-cost complement to these investments.

For more information on the Toronto Atmospheric Fund’s grants program, please see our grants page.

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Ontario’s 45-Day Climate Consultation Count-Down

Cropped 2The time has come to show vigorous public support for climate action in Ontario. On February 12, 2015, the Ontario government launched a climate policy discussion paper and a 45-day public consultation  to stimulate discussion on addressing climate change and unlocking trillions of dollars of value in a new low-carbon economy.

Ontario’s climate change action plan will include a suite of policies and supports. However, it is especially significant that putting a price on carbon is highlighted as a key tool, following in the footsteps of British Columbia, Quebec, California and Europe. In fact, Ontario is simply making good on a previous commitment made in July 2008 when Premier Dalton McGuinty agreed to sign on to the Western Climate Initiative to advance a cap-and-trade system for the Province.

The carbon pricing idea alone is sure to result in a lively round of debate. We will hear a lot of different viewpoints on the merits of the different pricing approaches, with inherent policy complexities that can take one’s breath away. Given that so much is already known about the pros and cons of fees versus cap-and-trade approaches based on experience in Canada and around the world, the short consultation period will be a blessing.

Frankly an effective and predictable price on carbon is long overdue. We just need to get on with it.

No doubt the opposition will be fierce. So the key task during this 45-day consultation – and during the public debate that is sure to follow – is to build a tidal wave of support across multiple sectors, calling for good policy to capture the many benefits a low-carbon economy will offer to Ontarians.

With a great sense of timing, Environmental Defence along with TAF, Metcalf Foundation, the Cement Association of Canada and MaRS, brought together a multi-stakeholder group on the day the consultation was launched. We agreed that our key task is to amplify the call for a robust climate policy for Ontario and build understanding that such a policy is essential to public health, our economic competitiveness, and our quality of life.

We invite you to join with a diverse and growing chorus across Ontario asking for a robust and effective climate policy. You could start by reviewing the discussion paper and urging your friends and colleagues from all sectors to participate in this consultation opportunity. To make your views known you can:

  • Post them to the environmental registry until March 29, 2015
  • Attend a public meeting in your area – see dates and locations here
  • Join the conversation on twitter at #ONclimate

Stay tuned to TAF’s 80X50 blog for more insights on the nuts and bolts of good climate policy, analysis of proposed measures, and insights on how Ontario policy can position cities as strong allies in advancing low-carbon opportunities.

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TAF’s Secret Weapon

David Wai and Jane Ambachster during TAF's Volunteer Appreciation event on Tues. Feb. 10, 2015.

David Wai and Jane Ambachster during TAF’s Volunteer Appreciation event on Tues. Feb. 10, 2015.

It was a pleasure to see many of our colleagues and friends at TAF’s Volunteer Appreciation event last night, giving us a chance to formally acknowledge the invaluable contributions our volunteers make to TAF’s mandate. The sky-high embrace of KPMG’s offices – special thanks to KPMG Partner and TAF volunteer Andrea Baldwin for hosting – was a great backdrop to this special event.

As many of you know, TAF has just eight core staff, so it is the volunteers on our Board, Investment and Grants Committees and special working groups that really allow TAF to punch above its weight in the carbon-reduction ring. While every volunteer provides critical support and advice, special recognition is due to four dedicated volunteers who have all been supporting TAF’s work for eight years now.

Jane Ambachtscheer was recruited to TAF’s Investment Committee in 2006. Since then she’s been a force for change, leading action related to TAF’s investment beliefs that carbon risk will undermine performance in the long-term, supporting our transition to mandate-aligned fund managers and development of our direct investing portfolio. Jane has also been a tireless networker opening up many connections for TAF in the responsible investing space.

Councillor Shelley Carroll has been a member of TAF’s Board of Directors since 2007, serving as TAF’s Chair and Vice-Chair. She has encouraged us to think big, has been a TAF champion on City Council, and has always emphasized that the ability to cultivate and celebrate A-list volunteers is a source of strength for TAF.

Bryan Young was first involved with TAF as a grantee, leading the development of the Exhibition Place wind turbine installation through the Toronto Renewable Energy Co-op (TREC). In the past eight years, Bryan has given back as a hard-working member of the TAF Grants and Programs Committee.

David Wai has also served eight years on TAF’s Board of Directors, both as Treasurer and as Chair of the Investment Committee. Throughout he supported Committee members in evaluating and advancing innovative financing strategies for energy efficiency and provided thoughtful advice as TAF reframed our investment policy to align our portfolio with our mandate.

Thanks to these long-time TAF supporters, and all of our other wonderful, essential volunteers. We couldn’t do it without you.

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Carbon pricing: coming soon to Ontario

CarbonPricingSoldOutCroppedLast Tuesday night, I went to an event at the Isabel Bader Theatre on the University of Toronto’s downtown campus. To my surprise, the theatre’s 300 seats were all taken, and anyone showing up without a ticket was being turned away at the door. You’d be forgiven for thinking that all the hubbub was about a new must-see play opening to rave reviews, or maybe a famous local indie band making a rare Toronto appearance. But no – the crowds had braved the numbing cold to hear a panel of experts talk about carbon pricing.

That’s right. Carbon pricing.

Specifically, the panel – organized by For Our Grandchildren, Citizens’ Climate Lobby and U of T’s School of the Environment – was debating how the Ontario government should move ahead with a regulatory scheme that puts a price on greenhouse gas (GHG) emissions and encourages citizens and businesses to reduce their carbon impact.

Some panel members were backing a carbon tax (or carbon fee) system, which places a levy on the carbon content of fossil fuels (e.g., in electricity, natural gas, vehicle fuels). Other panel members favoured a cap-and-trade system, which would place a limit on the total amount of carbon that can be released and issue emissions “permits” that firms can trade on a market.  A third camp was pretty neutral as to which way Ontario should go.

The expert panelists – which included a climate and energy researcher, an economist, a sociologist, a cap-and-trade executive, a lawyer, and a clean economy advocate – made some convincing arguments for both systems by drawing on economic theory and real-world examples.

The most interesting part of the whole evening, however, was that so many people were interested in hearing the finer points of carbon pricing policy. Until very recently the design elements of carbon pricing systems were the preserve of policy wonks and enviro-geeks. Now the topic is making national headlines and packing theatres with people from many different walks of life.

What’s going on here?

The reason behind this flurry of activity is that the Ontario government is getting serious about the issue. Seven years after committing to pricing carbon pollution alongside BC, Quebec and California – and after all three other jurisdictions have moved forward – Ontario finally seems ready to introduce a mechanism of its own.

Last month Premier Wynne announced plans to introduce an Ontario carbon pricing system and Environment Minister Glen Murray is expected to issue a discussion paper on the topic imminently. This is welcome news since an effective carbon pricing regime could take us a long way towards achieving both Ontario’s and Toronto’s long-term GHG reduction targets.

At the same time, a well-designed strategy would provide predictability to guide business investment decisions and ensure our economy’s long-term competitiveness in a world where concern over climate risk is growing stronger. That’s why carbon pricing has been endorsed by multiple industry groups, including the Canadian Chamber of Commerce.

And the timing couldn’t be more critical. With BC, Quebec and Alberta already on board with carbon pricing systems (albeit with differing levels of ambition), a new regime in Ontario would mean that our four largest provinces – and the vast majority of Canada’s economy – are covered by carbon pricing.  This critical mass could help accelerate the discussion about how to tackle climate change at the national level in a year that will see a federal election followed by crucial global climate change negotiations in Paris in December.

Now is the time to get informed about Ontario’s options. Global experience has proven that when it comes to carbon pricing, the devil is in the details. In Ontario, we need smart policy design to ensure carbon pricing achieves its objectives. TAF will be keeping a close eye on the latest developments and giving you the information you need to be part of the conversation.

Stay tuned for more blogs on this important topic.

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