Carbon Pricing Cap and Trade Policies in Ontario and Canada

Provinces and territories are working with the Canadian government to develop a low-carbon economy. The federal government’s current strategy is to let provinces develop a plan for how they will achieve individualized carbon-reduction goals. This regional approach, as opposed to a ‘one size fits all’ model helps provinces develop a tailored plan that respects industries and differences in business operations across the country.

Ultimately, all provinces and territories across Canada will develop carbon pricing policies and business owners and executives should be sensitive to how this will affect their business. Carbon pricing phrases such as ‘carbon tax’, and ‘cap and trade’ will become more common in the near future, and businesses should begin learning how to work with these systems to build a better company.

Industries such as manufacturing, agriculture, energy, mining, and construction are especially vulnerable to these policies since their industries are among the top producers of carbon. All businesses, especially those within these industries, should inform themselves about these incoming policies so that they can develop strategic plans of overcoming this cost.

This article is intended to help businesses discover the main carbon pricing strategies being developed by Canadian provinces. You will also learn ways that your business can reduce the amount of carbon taxes it must pay through sensible, innovative energy efficiency projects.

The Two Most Prevalent Provincial Carbon Pricing Strategies

In Canada there are two strategies currently being employed on the provincial and territorial levels to ensure businesses are reducing their greenhouse gas emissions:

1. Carbon Tax

Carbon taxes are a relatively simple way for the government to encourage energy-efficiency. In this strategy, a standardized price is put on carbon emissions and consumers must pay based on how much they emit. The amount of tax charged for every unit of carbon released is then increased on a recurring (usually yearly) basis to encourage the adoption of energy efficient technologies or methods.

Some provincial governments, such as British Columbia and Alberta, have begun implementing revenue-neutral carbon taxing strategies that return these collected taxes to businesses and consumers through reduced income tax rates.

2. Cap and Trade

This model is currently used by Québec and may be implemented in Ontario by 2017.

There are two fundamental concepts involved in cap and trade policies. These include:

i) Cap – ‘Allowances’ or carbon thresholds that businesses must remain under, given their specific industry or business activity.

ii) Trade – The ability of businesses to buy and/or sell allowances based on their usage. As businesses improve energy efficiency and reduce the amount of carbon they’re emitting, they can sell off some of their allowances to businesses who are seeking more.

In this model, businesses are provided a maximum amount of carbon that they are able to release into the atmosphere for a given year. These caps dictate, according to the business’ primary industry, a benchmark for how much they are able to pollute. Should a business need to exceed this threshold, they can buy allowances from businesses who are more energy efficient.

As businesses become more environmentally sustainable, they will use fewer allowances and be able to sell their remaining cap space. This generates capital and businesses can then re-invest these funds into internal R&D projects that further increases energy efficiency.

Ontario Businesses: Cap and Trade Policies Proposed for 2017

If you’re an Ontario-based business, here’s what you need to know about the proposed cap and trade carbon pricing program.

  • As of May 2, 2016, Ontario’s proposed cap and trade legislation, the Climate Change Mitigation and Low-carbon Economy Act, has not been voted on and is still being developed.
  • The Government Ontario vows that carbon taxes collected through this program will be reported in a transparent way, then re-invested into ‘green’ projects within the economy.
  • Ontario will set an economy-wide carbon emissions cap of 142 megatonnes during its first year and will decline annually to an expected 125 megatonnes by 2020.
  • Funds collected will be divided among programs that help homeowners and businesses alike. This includes investments in public transit, innovative technologies for businesses, energy efficiency retrofits, and electric vehicle incentives.
  • New Canadian government grants and incentives, such as the $325 million Green Investment Fund, will be created to help businesses implement innovative carbon-reduction projects.

Proposed Canadian Government Funding Programs for a Low-Carbon Economy

Canadian businesses shouldn’t be fearful of carbon taxes, rather they present an opportunity to become more innovative and competitive than before. The federal government has anticipated the increased cost to businesses that will result from conducting emissions-reducing projects, and has created a variety of soon-to-be-released government grants and incentives to assist in the completion of innovative projects. Some of this support includes:

  • New Canadian government funding programs to support Canada’s industries most in need of clean technology innovations. Up to $1 billion will be available over four years (2017-2020) to support investments in the energy, mining, forestry, agriculture, and fishery sectors.
  • New Canadian government funding programs will be developed to support businesses performing innovative research and development projects that reduce carbon emissions. A $130 million small business funding pool will support investments in these projects over five years (2016-2020).
  • The Low Carbon Economy Fund – A $2 billion federal investment over two years (2017-2018). This funding will be provided to provincial and territorial governments to continue carrying out greenhouse gas reduction strategies.
  • Post-Secondary Institutions Strategic Investment Fund – A $2 billion fund over three years (2016-2018) that provides 50% of eligible costs to post-secondary institutions who are developing on-campus infrastructure. This helps to form research centres that businesses can access, such as Fanshawe College’s Canadian Centre for Product Validation, or Western University’s Particle Technology Research Centre.
  • An additional $95 million per year provided to Canadian research councils to develop Canadian government funding programs that businesses can access to complete innovative R&D projects.

Although these Canadian government grants and loans are currently in development, businesses will soon be able to apply for clean technology funding. Canadian companies can remain updated on the status of these government funding programs by registering for Mentor Works’ small business funding newsletter.

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Jeff holds an Honours Bachelor of Business Administration at the University of Guelph. He is passionate about Canadian business, economics, and politics. As Marketing Coordinator for Mentor Works, Jeff educates business leaders about proactive funding strategies.

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