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Ontario's new climate plan is far from conservative

Steel mills, like this one in Hamilton, Ont. emit greenhouse gases. Ontario must reduce its emissions from 161 megatonnes to 143 megatonnes by 2030. haglundc/flickr, CC BY-NC

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In late November, the Ontario government unveiled its game plan to reduce greenhouse gas emissions and fight climate change by replacing the previous Liberal government’s cap-and-trade program.

The first few pages of the Made-in-Ontario Environment Plan contain messages you would expect from a conservative government, such as “taxpayers should not have to watch their hard-earned dollars be diverted towards expensive, ineffective policies and programs that do not deliver results.” Such statements attempt to justify the decision for a new approach as an ideological shift related to the transition from a liberal to a conservative government in Ontario.

But just how well does Ontario’s new environment plan conform to a conservative ethos, particularly compared to the previous cap-and-trade approach?

The role of government

The cap-and-trade approach sets a goal (the cap) for emissions reductions. If that goal is exceeded, the surplus must be covered by purchasing a permit or allowance to emit the extra pollution.

Under this scheme, the market determines where the most efficient areas of emission reduction should occur. Firms are free to choose how they want to reduce emissions, if at all. Firms that have limited options to reduce emissions (or only have very expensive solutions) have the option of purchasing allowances — thus subsidizing emissions-reduction costs for other firms where reductions are easier or less costly to achieve.

The approach proposed in the new Made-in-Ontario Environment Plan involves a performance standard, a requirement for heavy polluters to reduce their emissions to a specific and inflexible target. It also creates a fund — the Ontario Carbon Trust — that uses taxpayer dollars to pay these polluters to reduce their emissions.

Under Ontario’s new plan, regulators, in this case the government, will have to monitor individual companies to ensure they are meeting their commitments. The government will then decide via an “independent board” which firms will receive taxpayer dollars to pay for pollution reduction.

The government bureaucracy involved in setting, monitoring and enforcing performance standards is much more significant than the cap-and-trade approach, which is market-based. Ontario’s policy should be particularly infuriating for anyone with a business background or a supporter of “small” government. Under the new plan, the government is essentially trying to run the business of emissions reduction.

As a consequence, the costs of reducing emissions is much higher, given the additional bureaucracy needed to make sure firms comply. But there is also lost efficiency from the firms choosing their own ways to reduce emissions. Some studies have calculated that regulations similar to Ontario’s proposed approach cost taxpayers 43-55 per cent more than a cap-and-trade system.

On our conservative ethos scorecard, it is:

Cap-and-trade: 1

Environment Plan: 0

Picking winners

Apart from the initial start-up costs associated with establishing the market, a cap-and-trade approach does not rely on tax dollars.

Instead, a price is placed on emissions, and this acts as an incentive for a business to lower its emissions — they save money by taking action themselves.

In contrast, the new Ontario plan uses taxpayer dollars to not only set up a regulatory body to evaluate proposals from businesses to reduce emissions (that is, to pick “winners”), but also rewards these businesses with taxpayer dollars that pay them to reduce emissions.

This creates an incentive to emit more! Why would a company reduce emissions on its own, when it can get the government to pay the company to do it? Such handouts are rarely cost-effective as it is difficult to track whether the investment leads to a reduction in emissions.

Ontario’s plan requires more taxpayer dollars and uses them to subsidize companies’ emissions reductions.

Conservative ethos scorecard update:

Cap-and-trade: 2

Environment Plan: 0

Driving innovation

Under a cap-and-trade approach, there is a built-in incentive for businesses to innovate, since the more emissions a business abates, the cheaper the operation becomes. Ontario’s new approach is in direct contradiction to this approach.

Other governments, including Australia, have tried plans similar to Ontario’s new policy with little evidence of success. Often the subsidies are instead “politically captured” by existing influential interests: Innovation gets stifled as powerful and well-established firms or sectors lobby and attract subsidies, which in turn limits the opportunity for smaller, more transformative organizations to grow.

And where is the incentive to do anything now? Why not keep emitting so you can qualify for a subsidy the next year?

Ontario’s plan may not drive innovation or allow businesses to set their own path forward, free from government intervention.

Conservative ethos scorecard update:

Cap-and-trade: 3

Environment Plan: 0

Move towards the middle

Cap-and-trade may not be the final answer of how we solve climate change, but it represents a much cheaper and more market-friendly option than the current proposal.

Now comes the hard part for supporters of Premier Doug Ford’s Ontario Government: the cap-and-trade approach also better reflects conservative ethos.

The coming weeks will be an interesting time for the Ford government. Its newly announced plan to fight climate change will substantially grow the size of the Ontario government compared to Liberal scheme they scrapped.

The previous Ontario government embraced a somewhat conservative ethos to implement a market-based cap-and-trade program. Essentially, this was a move to the centre. As Ford attempts to distance his government the Liberals, he has actually moved further left from the traditional conservative ethos.

One thing is for sure. If we are to really address all of the environmental issues outlined in the Made-in-Ontario Plan, each of us, regardless of our political stripes, needs to work together.

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