Ontario's Auditor General Raises Questions About Cap and Trade

On November 30, 2016, Ontario's Auditor General Bonnie Lysyk released her 2016 Annual Report, which included a chapter titled Climate Change. The accompanying News Release titled "Ontario's Cap and Trade Will Not Significantly Lower Emissions Within the Province by 2020: Auditor General" summarizes the concerns raised by the Auditor General about Ontario's pending Cap and Trade Program. Overall, the concern seems to be that the value for money proposition of the Cap and Trade Program is questionable.

Among other things, the Auditor General raises doubts about how much Cap and Trade will contribute to emissions reductions in Ontario. Citing a report that was commissioned by Ontario's Ministry of the Environment and Climate Change, the Auditor General's Report observes that Cap and Trade may support as little as 3.5Mt of the 18.7Mt emissions required in Ontario to meet 2020 commitments. The balance of emissions reductions required would be achieved by purchasing emissions credits from Quebec and California, which would theoretically lead to emissions reductions in those jurisdictions. A problem noted here is that there is currently no agreement between those jurisdictions that would permit Ontario to claim credit for emissions reductions in Quebec or California, even where Ontarians had purchased emissions credits from those jurisdictions.

Another area of focus from the Auditor General is about whether permitting purchases of emissions allowances from Quebec and California will actually reduce emissions in those jurisdictions. Currently, there are substantial numbers of available emissions credits from those jurisdictions that remain unsold from prior auctions (see our earlier posts on this here and here). If Ontario emitters purchase those credits, that will not be supporting future emissions reductions.

A further concern raise in the Auditor General's Report is around the costs to Ontario consumers from Cap and Trade versus the benefits to Ontario. Again, a focus is on the impacts from purchases of emissions credits from other jurisdictions, which means that the funds spent for Ontario will not stay in the province. Here, there are some similarities between the concerns raised in the Auditor General's Report and the questions asked in the Cap and Trade chapter of the recent Greenhouse Gas Progress Report from Ontario's Environmental Commissioner (described in a recent post). The concern raised by both the Auditor General and the Environmental Commissioner is that Ontario consumers may see significant cost impacts arising from paying for emissions credits associated with Cap and Trade, while the benefits from the sale of the emissions credits will be enjoyed by residents of other jurisdictions.

The Auditor General's Report includes 16 recommendations. The Ministry of the Environment and Climate Change indicates that it agrees with many of the recommendations and will increase or enhance future reporting on the implementation of the Cap and Trade Program. It is clear from the Ministry's responses, however, that the Government is not open to reconsidering its commitment to link the sale of Ontario emissions credits with the Quebec and California auction.