But even if you buy into Kathleen Wynne’s sense of urgency — especially if you do —why pick a solution that has proven not to work?
The Ontario government has a seemingly endless pipeline of costly moral imperatives to foist on its hapless constituents. Next year, Ontarians will be subjected to yet another high-minded boondoggle: cap and trade for carbon emissions. It will cost consumers billions, undermine the competitiveness of job-creating businesses and do virtually nothing to combat global warming.
Premier Wynne passionately believes we face environmental Armageddon and is convinced, as is her wont, that government must do something about it. So, apparently, cost is irrelevant. Of course cost is never irrelevant, because it means making choices among priorities or passing on the accumulated debt for today’s expenses to the next generation. But even if you buy into Wynne’s sense of urgency — especially if you do —why pick a solution that has proven not to work?
The stated purpose of a cap-and-trade market is to reduce GHG emissions by setting a maximum or cap on the CO2 that companies emit, which varies according to their industry. If companies emit more, they must buy allowances (like religious indulgences) from government or from companies that emit less than their allotted amount.
This scheme is projected to increase monthly home heating bills by $5 and the price of a litre of gasoline by 4.3 cents. Initially, the Ontario Liberals estimated emissions permits would cost businesses $1.9 billion, while costing taxpayers another large bureaucracy. Now the premier admits the permits may collect less, given the disappointing results from the sale of credits in California and Quebec. Ontario is about to join that carbon-trading market, which only sold 11 per cent of its allowances. The risk is that the hoped-for revenue will not be there for the government’s latest environmental policies. Since this is really just a cash grab cloaked in green garb, Ontarians should brace themselves for more changes to extort more money for the government to dispense on its pet projects or other priorities, like paying interest on its ballooning debt.
Cap and trade increases the cost of energy, which will make Ontario businesses less competitive, especially since there is no prospect that our biggest trading partner (an our nearest rival for business investment), the U.S., will impose it on a national basis. Moreover, it constitutes a regressive consumer tax, hurting the economically disadvantaged most.
And how has cap and trade worked so far? Very poorly. In 2005, Europe introduced its Emissions Trading Scheme, with disastrous results. Massive free credits were doled out to large emitters and trade-exposed industries, so the price of allowances plummeted. That made it cheaper for companies to buy credits than to reduce emissions. Also, fraud and corruption were rampant. Consumers and businesses bore the brunt of a policy designed to lead the world in environmental responsibility. Europe is now confronting de-industrialization. Its green policies have jacked up energy costs to the point where its companies are relocating to the U.S., which ironically ended up reducing emissions more than Europe did.
Ontario has imitated the European failure. Subsidizing inefficient wind and solar power contributed to doubling electricity prices in the past decade. Inevitably, its manufacturing sector has suffered. The appropriate focus of government policy should be making low-carbon alternatives affordable and that means encouraging research and development.
For all the pain created by various green policies, there has been minuscule gain. According to a peer-reviewed paper published by Dr. Bjorn Lomborg in the Global Policy Journal, if every nation fulfills its unenforceable promises in the COP21 accord by 2030, and extends them for another 70 years, global temperatures will decline by less than half a degree centigrade. Furthermore, history demonstrates it is extremely unlikely that every country will meet these much-ballyhooed voluntary targets, pious protestations to the contrary notwithstanding.
The half-degree implies that if Ontario reduces its emissions in proportion to its share of global emissions (0.38 per cent), then it will reduce global temperatures by less than a rounding error – 0.000018 C by 2100, or an infinitesimal millionth of a degree every five years.
Yet the cost to Ontarians of accomplishing nothing over those future decades, at $1.9 billion a year, would mount to $158 billion, just paying for cap and trade. Clearly, the provincial government is not motivated by facts or reason. Its actions can only be understood as political posturing, inspired by ideological zealotry.
Since cap and trade is ineffective, at least it could be made revenue neutral by reducing taxes by an amount equal to its cost. Alas, no chance of that in Ontario, since one of the motivations for the scheme is to generate revenue for a bloated and spendthrift government.
You would think the province would want to do everything it could to make life more affordable for hardworking Ontarians and enhance the competitiveness of job-creating businesses. Instead, Kathleen Wynne seems hell-bent on earning the gratitude of American workers and bequeathing a legacy of indebtedness to Ontario’s children.
Joe Oliver is the former minister of finance and of natural resources
Joe Oliver, Special to Financial Post | July 25, 2016 2:08 PM ET