Ontario Offers Valuable Cap and Invest Experience for Oregon

This post, authored by Arjun Krishnaswami, originally appeared as a guest post in Noah Long's blog.

As the Oregon legislature considers implementing a carbon cap-and-invest law, the state should look to Ontario for an example of an environmentally and economically successful program in a similar jurisdiction.

Senate Bill 1070 would set in motion an economy-wide carbon pollution market. Carbon markets function by capping greenhouse gas (GHG) emissions and requiring large emitters to purchase from a limited and declining pool of allowances to pollute. Oregon’s program would implement the state’s target to reduce emissions by 45 percent from 1990 levels by 2035 and 80 percent by 2050.  Governor Kate Brown went to Bonn this week to show her commitment to action on climate, following her recent executive orders.

The proposal shares many similarities with the programs in California, Ontario, and Quebec, the three jurisdictions with which Oregon could link as part of the Western Climate Initiative. The programs all cover multiple sectors, including electricity, industry, and fuel suppliers, and have similar criteria for regulated emitters—all based on a threshold of annual emissions greater than 25,000 metric tons of CO2 equivalents. In all four states, polluters can use a limited quantity of approved offsets—initiatives that avoid or reduce GHG emissions in other sectors—though the types of allowable offsets vary among the programs.  

With a population of 14 million and a Gross Domestic Product (GDP) of $625 billion, Ontario is considerably larger than Oregon (population 4 million and GDP $227 billion), but both jurisdictions depend on diversified economies that combine natural resources and agriculture with manufacturing, services, and significant exports.

Ontario passed its cap-and-invest legislation in May of 2016, with the first auction occurring in March of the following year. The government explored many mechanisms for carbon pricing and decided on a cap-and-invest system as the best choice to achieve the greatest emission reductions with the smallest negative economic impact. Like Oregon, Ontario is home to cement manufacturing, pulp and paper production, and other heavy industry, and, like Oregon, Ontario took the industry perspective into consideration when designing its carbon market.

Ontario’s thoughtful consideration was fruitful; the program ultimately won the support of many industry players. Representatives from agriculture and the cement, pulp and paper, fuel, insulation, and real estate industries have all supported Ontario’s carbon limits.

In addition to verbal support, several companies have responded with—or continued—strong efforts to reduce emissions. St. Marys Cement plant, which produces 540,000 metric tons of CO2 per year, plans to increase the capacity of a small bioreactor that absorbs CO2to grow algae, currently offsetting about 36 metric tons per year. Goldcorp, a large mining company, promises to reduce emissions through efficiency measures and is working to open the world’s first fully electrically-powered mine this year. Enbridge, one of the largest natural gas providers in the world, plans to offer geothermal heating and cooling solutions for homes in Ontario, helping homeowners cover the large up-front costs that accompany geothermal systems. While these companies still have much work to do to address their broader environmental and social impacts, their efforts demonstrate that Ontario industry is responding to the carbon limit by taking initiative to curb its impact on the climate.

The industry support for cutting carbon goes hand in hand with Ontario’s booming economy. The province, which is a crucial financial services center and consistently ranks as one of the greatest recipients of direct foreign investment in North America, has shown strong economic growth over the past couple of years. In June of 2016, General Motors chose Ontario as the location for its new autonomous vehicle center, a decision that demonstrates industry’s commitment to develop and grow under the carbon cap. In 2017, household spending has increased, real GDP has grown by 2.4 percent, and the unemployment rate dropped below 6 percent for the first time since 2001.

Ontario will reinvest the revenue—estimated at $1.5 billion per year—in emissions reduction programs to further cut carbon and grow the economy. The government plans to use the initial revenue to invest $298 million to help homeowners lower their energy bills and reduce GHG emissions, $519 million to improve public housing, and $79 million to support municipalities with energy efficiency improvements. The Green Ontario Fund will channel a portion of the proceeds to retrofit homes, incentivize electric vehicles, and support innovation in clean energy technologies.

Ontario’s story illustrates that a well-designed cap-and-invest program can put Oregon on the path towards much needed reductions in GHG emissions while maintaining a happy private sector, growing investments, and low costs to the consumer.

About the Authors

Arjun Krishnaswami

Policy Analyst, Climate & Clean Energy Program

Noah Long

Director, Western Region, Climate & Clean Energy Program

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