CFFO: Cap and Trade

By Suzanne Armstrong

As the New Year begins, the winds of change are in the air, but we are still waiting to see what direction things will take in the weeks and months to come. Indications are clear to be prepared for changes in the economy, including a possible increase in interest rates, and uncertainty about cross-border trade from the change in the U.S. administration. We also know there will be changes in the economy in Ontario, such as with the new Cap and Trade system which took effect as of January 1 st . Drivers are already seeing a change in prices at the pump. Agriculture will also be impacted by the increased cost for fossil fuels, including propane, natural gas, gasoline and diesel.

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The agricultural sector is exempt from the Cap and Trade system for the direct emissions it produces, which, according to statistics from the Ontario government, are about 6% of the total greenhouse gas emissions in Ontario. These come primarily from soils, enteric fermentation, and manure management. Agriculture is instead eligible to provide offsets within the Cap and Trade system, which would pay farmers for reducing greenhouse gases or for sequestering carbon. The offset protocols for Ontario are still being developed.

Offsets are a good way to encourage innovation and greenhouse gas reduction beyond the regulated sectors in the Cap and Trade system. However, the focus should remain on genuine reduction of emissions in the regulated sectors. Sequestration should be a second line of defense. Offset protocols recognize that some sources of greenhouse gases cannot be completely reduced, making sequestration an important part of the effort to reduce overall greenhouse gas pollution.

The CFFO would like to see aggregation permitted within the offset system in order to allow to a wider array of initiatives and operators to participate. There should also be a voluntary offset system for carbon sequestration projects that do not fit within the permanence requirements of the Cap and Trade regulations.

CFFO also wants to see the money going into the Cap and Trade system remain revenue neutral for the government, and remain within Ontario. Offsets should first be sourced from initiatives within Ontario, and only come from elsewhere in Canada if sufficient offsets are not available within the province. British Columbia’s Carbon Tax system (different from Ontario’s Cap and Trade) also has regulations to keep the carbon-price revenue neutral for government. As a 2014 article from the

Globe and Mail explains, in BC, the government has reduced other taxes, including income tax, to balance the increased costs to consumers, and the system has been effective in reducing fossil fuel use. A recent article in the Star points out that Ontario plans to use the funds raised from Cap and Trade “on programs that reduce emissions and help businesses and consumers adapt to a low carbon economy.” In order to be effective, these programs will need to make sure they are saving businesses and consumers enough money to compensate for the higher cost of fossil fuels where alternatives do not currently exist to replace or reduce their use.