Ontario Moving in the Right Direction on Climate Policy: IISD input on climate policy design to the Ministry of the Environment

A proposed move by Ontario to establish elements of a carbon pricing system is a major step forward for climate policy.

This move forward could define how a provincial system covering multiple sectors might be viewed under federal equivalency. It also provides another opportunity to establish carbon bridges between sectors and jurisdictions to keep compliance costs low. Importantly, it provides an opportunity for Ontario to implement cost-effective policy that minimizes competiveness impacts. Our modeling suggests that, under current proposals, compliance costs could be well below $15 per tonne in 2020 if full complacence flexibility is enabled. Emission reductions could be in the order of 3 Mt, or 7 per cent below a forecast of 2020 industrial emissions.Design matters however, and we recognize the importance of balancing costs with emission reductions. Still, we think a proposal of a 5 per cent decrease in industrial emission and electricity sector stabilization against a fixed base year could be increased somewhat under a cap-and-trade system with full compliance flexibility. Permit allocations have a greater impact on cost outcomes than the compliance target, and care is needed to avoid adverse competitiveness outcomes, but also to avoid overcompensating firms through free allocations.Please visit our Regulating Carbon page for more details.