Ontario’s carbon tax: Too late to do good?

WATCH: Alan Carter reports that the Liberals are contemplating introducing a carbon tax later in the year.

TORONTO – Ontario has been thinking about a carbon tax since 2008. By the time it’s unveiled later this year, it may be too late to do much good.

But whether it works depends largely on whether the province is willing to back out of existing regulations governing the province’s energy sector, says University of Guelph economics professor Ross McKitrick.

“A carbon tax only makes sense if it’s introduced instead of all the other climate policies,”he said in an interview Tuesday.

“B.C. didn’t go for a Green Energy Act kind of approach. They didn’t throw a whole lot of money intro wind and solar and regulations like that. So there’s a bit of a case to be made for them to go the carbon tax route.”

Premier Dalton McGuinty introduced Ontario’s Green Energy Act in 2009 to force the province to shift to renewable energy and away from coal.

If Ontario returned to its 2000 electricity system – a mix of coal, natural gas, nuclear and hydro – a carbon tax could make sense, increasing the cost of coal relative to gas and hydro.

But what the Ontario government has done instead, he said, is force the shift away from coal while also forcing in wind farms and extra gas (which compensates for the lower amount of energy produced by wind).

“They’re forcing people to use gas, then they’re putting a tax on top of it, all it’s going to do is basically be a tax on policies that were forced in place,” McKitrick said.

Tweet This Click to share quote on Twitter: "They're forcing people to use gas, then they're putting a tax on top of it, all it's going to do is basically be a tax on policies that were forced in place," McKitrick said.

“It’s too late for Ontario. I mean, they’ll raise money for it, of course. … But it’s too late for them to use it as an efficient policy mechanism unless they’re prepared to back out of all the inefficient policy mechanisms that they’ve put in place through regulation.”

Ontario Environment and Climate Change Minister Glenn Murray told The Globe and Mail the Liberal government is “looking at how we can transition Ontario to a low-carbon economy through initiatives such as setting a price on carbon.”

He wouldn’t say whether the plan was a cap-and-trade model or a carbon tax similar to British Columbia’s, but did say it would be unveiled later this year and include cleaner fuel standards and energy conservation policies.

Environmental Commissioner Gord Miller suggested  that if Ontario wants a carbon tax, the government should look to the carbon tax in British Columbia and not Quebec and California.

“A carbon tax is a good thing when they do like they did in British Columbia,” Miller said at a Tuesday morning press conference.  “Which is, you tax things that emit bad stuff in the atmosphere and you give the money back to the people. And that is why they have one of the most successful carbon taxes certainly on the continent, if not the world.”

Tweet This Click to share quote on Twitter: "A carbon tax is a good thing when they do like they did in British Columbia," <a href="http://globalnews.ca/news/1771040/ontario-watchdog-urges-wider-gap-between-peak-off-peak-electricity-prices/">Miller said at a Tuesday morning press conference</a>.  "Which is, you tax things that emit bad stuff in the atmosphere and you give the money back to the people. And that is why they have one of the most successful carbon taxes certainly on the continent, if not the world."

There are two main types of carbon tax: a revenue neutral model and a cap-and-trade model.

The B.C. carbon tax is revenue neutral. The province puts a $30 levy on each tonne of carbon emissions – about 7 cents on a litre of gasoline – and in turn, reduces income tax for residents by an equivalent amount.

“We’re taxing the bad things and relieving the tax on the good things that we want to encourage,” Miller said.

Tweet This Click to share quote on Twitter: "We're taxing the bad things and relieving the tax on the good things that we want to encourage," Miller said.

And it appears to be working. According to The Globe and Mail, fuel use in the province has dropped by 16 per cent while increasing everywhere else in Canada.

The carbon tax in Quebec and California is cap-and-trade. The two jurisdictions limit how much carbon a company can use. If the company wants to use more, it must buy credits from a company that has some left over.

The cap-and-trade model has been used around the world – sometimes effectively, according to the David Suzuki foundation. The United States implemented one in the 1990s to reduce acid rain; the European Union implemented one in 2005 to reduce greenhouse gas emissions; and Tokyo launched its own cap and trade system in 2010 with a goal of reducing emissions 25 per cent below 200 levels by 2020.