TORONTO

The outline released by Ontario’s Liberal government Friday of how it plans to introduce cap-and-trade carbon pricing to Ontario starting Jan. 1, 2017, is the most financially irresponsible document I have ever read in nine years of reporting on climate change and carbon pricing.

It will deliver undeserved, windfall profits to some of the province’s biggest industrial polluters and billions of dollars to government coffers, paid for by consumers through higher prices on most goods and services.

This while producing insignificant reductions in greenhouse gas (GHG) emissions linked to climate change, and creating a massive new government bureaucracy to oversee a carbon pricing scheme prone to being gamed by political donations and lobbying by industries seeking favourable treatment from the government.

Ontario’s plan repeats virtually every mistake that was made by Europe’s decade-old, inefficient and fraud-ridden cap-and-trade program known as the Emissions Trading Scheme.

Under cap-and-trade, the government sets a gradually decreasing annual limit on GHG emissions from the burning and use of fossil fuels.

It then auctions off, or gives away, on an annual basis, carbon credits up to this limit to major emitters — for example gasoline, propane, natural gas, cement, steel, aluminum, chemical and pulp and paper producers, utilities and institutions, auto manufacturers and food processors — each credit entitling the bearer to emit one tonne of carbon dioxide or its equivalent.

The theory is energy efficient companies that reduce emissions over time will have extra credits to sell to inefficient companies that don’t have enough credits to cover their emissions, creating a stock market in emissions trading, which sets the market price for carbon credits.

What undermines the integrity and effectiveness of cap-and-trade is governments giving away free carbon credits to industrial polluters to entice them into the scheme -- the same thing as giving them free money.

The reason is those industries receiving free credits raise the prices of their products to the public as if they had paid for them in the government auction, or bought them as companies not receiving free credits must do in the carbon trading stock market created by the government.

Free credits undermine the purpose of cap-and-trade, which is to attach a cost to industries putting GHG emissions into the atmosphere.

Premier Kathleen Wynne’s government “is proposing all industrial and institutional sectors will have an assistance factor of 100% in the first compliance system period ... of 2017 to 2020.”

It will also give free credits to industries which, in its determination, reduced emissions voluntarily, before 2017.

This means the government will be giving some of Ontario’s biggest polluters free carbon credits for at least four years, the imaginary costs of which these companies will pass along to consumers in higher prices, as if they had paid for the credits.

In the first year in 2017, the government will set the emission cap at what it forecasts will be Ontario’s total emissions without any reductions, meaning a zero decrease in emissions while consumer prices rise.

The government says its initial goal is to reduce emissions to 15% below 1990 levels by 2020.

Ontario’s emissions in 1990 were 177 megatonnes (Mt) of GHG, so the province intends to reduce emissions to 150 Mt annually by 2020.

Current Ontario emissions are about 165 Mt annually, meaning the province’s goal is to reduce them by about 15 Mt annually by 2020.

To put this in perspective, China, the world’s largest GHG emitter which faces no restrictions on its emissions, puts 15 Mt of GHG into the atmosphere every 12.5 hours.

The Liberals say they must give free carbon credits to polluters to prevent “carbon leakage”, where companies abandon production in jurisdictions that have carbon pricing in favour of those that don’t.

But that’s the reason you don’t set up carbon pricing schemes in isolation from competing industries in other jurisdictions like the United States, where only California, along with Quebec, will participate in Ontario’s scheme.

What’s happening in Ontario is what happened in Europe a decade ago.

To get business onside with cap-and-trade, the Liberals are offering them windfall profits, paid for by the public in higher consumer prices.

The government will get its cut — estimated at up to $2 billion annually once the system is fully operational — from the initial sale of carbon credits to non-exempt industries and increasingly over time as more credits are sold by government and fewer given away.

Industry will make money. So will the government. GHG reductions will be insignificant. The public will pay through the nose.

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Cap-and-trade: A primer