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The Pace of the Government’s Dismantling of Cap & Trade Leaves Many Unanswered Questions

Written by ClearBlue Markets | Jul 3, 2018 3:56:00 PM

The newly elected Ontario government announced on Tuesday it would end the province’s cap-and-trade program, a policy designed to reduce greenhouse gas emissions, fulfilling one of Premier Doug Ford’s election promises.

However, it leaves businesses that bought C$2.8 billion ($2.1 billion) worth of allowances in limbo.


Ford’s Progressive Conservative government swept to power last month, ending 15 years of Liberal rule in Ontario, Canada’s most populous province and the country’s economic engine, with a promise to cut corporate and personal taxes.

The government said it would immediately start an orderly wind-down of all programs funded out of cap-and-trade carbon tax revenues but agreed to honour certain contracts that have already been signed.


“Cap-and-trade and carbon tax schemes are no more than government cash grabs that do nothing for the environment, while hitting people in the wallet in order to fund big government programs,” Ford said in a statement.


The government says it aims to reduce gasoline prices by 10 cents per litre and lower energy bills, scrapping the plan that forced large companies to buy allowances for their carbon emissions.


Citing the auditor general, the government said the program could cost Ontario consumers and businesses C$8 billion, with a minimal impact on the province’s carbon emissions.

Michael Berends, managing director at Toronto-based cap-and-trade advisers ClearBlue Markets, said the pace of the government’s move leaves many unanswered questions.


“All those entities that have purchased allowances, as they thought they were going to be required, are now wondering what’s the value of allowances and whether they will need them or not,” Berends said.


Berends believes the Ontario government’s decision is also going to impact companies that are planning on using their allowances for their obligations towards Quebec and California before the Nov. 1 deadline.


Earlier this year, the U.S. state of California and two Canadian provinces - Ontario and Quebec - kicked off a cross-border auction of greenhouse gas emission credits to buy and sell in the cap and trade market in an effort to fight global warming.


Left-wing politicians criticized Ford’s move, citing environmental concerns.
 

“Cancelling Ontario’s plan to price greenhouse gas pollution without announcing an alternative is reckless and irresponsible,” said Mike Schreiner, member of provincial parliament for Guelph, a city in southwestern Ontario. “Premier Ford is telling clean economy companies that Ontario is not open for business.” ($1 = 1.3133 Canadian dollars)

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