Ontario signs cap-and-trade with Utah

Media coverage of emissions trading agreements between Ontario, Quebec, Manitoba, British Columbia and several Western States generated very brief coffee shop discussion this summer.

The issue is complex.

Basically, emissions trading – also known as cap-and-trade or carbon trading – is a process whereby jurisdictions agree to limit -- or cap -- the amount of carbon dioxide emitted.

The goal is to address climate change linked to increased carbon dioxide in the atmosphere. Companies that need to increase their emissions -- or cannot meet the cap -- must buy credits from those who emit less.

Recently, Ontario has asked to join the Western Climate Initiative – a collaboration launched last year by Arizona, California, New Mexico, Oregon and Washington to address climate change. Since then, Utah, British Columbia, Manitoba, Montana and Quebec have signed on. This month, the partners are to complete a market-based mechanism – an emissions trading system -- to help achieve carbon dioxide reduction.

To date I have found emissions trading a very difficult and complex concept to explain to people.

I do get a blank stare when I say to people ‘Ontario just signed cap-and-trade for carbon dioxide with Utah to deal with climate change. Firstly, people have never heard Utah and climate change in the same sentence before. Secondly, it appears to make about as much sense as Ontario signing on with Arizona (which is also being done).

Others wonder why we would not sign on with neighbouring Michigan, Ohio or New York State, or perhaps Alberta. And shouldn’t Ottawa be looking after this?

So there are many questions. Who will monitor? Who will enforce? Who will keep an eye on the buying and selling of credits and the potential for speculation? The concept is vague; could become bureaucratic and perhaps ineffectual.

Personally, I feel cap-and-trade could work with respect to carbon dioxide emissions. It is similar to the emissions trading process agreed to by Ronald Reagan and Brian Mulroney when they successfully addressed sulphur dioxide and acid rain.

But we must ensure cap-and-trade does not become cap-and-tax or a mechanism to put jurisdictions and companies in North America at a competitive disadvantage with those in countries like China and India. Fossil fuels – like natural gas, coal, and oil – produce carbon dioxide, but these fuels also provide 77 per cent of Canada’s energy. That is why Canada is one of the best places in the world for investment and development.

So back to Ontario’s emissions deal with Utah, and other Western jurisdictions. Theoretically, companies in Utah that aggressively reduce their emissions can make money by selling their credits on the market. And companies in Ontario that need to increase their carbon dioxide emissions -- or can’t operate under the cap or target -- could buy these credits.

Overall, these costs will ultimately be borne by households through higher prices, or changes in employment income or corporate profits. Basically, cap-and-trade will have the same effect on the wallet as a carbon tax. Either way the goal is to reduce carbon dioxide emissions.

My concern is that we will spend years talking about this – with little action or actual adoption of technology like carbon capture and sequestration for example.

The issue of climate change is not new – actually doing something about it is.