Ontario enters cap-and-trade era with first auction raising $471-million

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The Ontario government declared its first foray into international carbon markets to be a success on Wednesday after an auction of allowances raised $471-million that will be funnelled into programs aimed at reducing greenhouse gas emissions in the province.

Ontario's inaugural joint auction of greenhouse gas allowances with Quebec and California took place on Feb. 21 as part of the province's cap-and-trade programs. The auction comes just months before a provincial election, with the Progressive Conservative Party vowing to kill the Liberal's carbon-pricing plan.

Under that plan, major industrial emitters, gasoline markets and distributors of natural gas face a limit on the amount of carbon dioxide they or their products can emit, but companies having trouble meeting the cap can buy allowances while those who can reduce emissions below their regulatory obligations can sell.

In the auction from governments, more than 98 million current-vintage allowances were sold at a price of $18.44 a tonne, while 8.6 million allowances with a 2021 date were sold at $18.34. Ontario accounted for roughly a quarter of the allowances sold, while Quebec sold a total of 11 million allowances.

The two provinces opted for the cap-and-trade plan rather than the straight carbon tax that B.C. and Alberta have adopted. Cap-and-trade sends money out of the province but lowers the cost of compliance because emitters in those provinces can purchase allowances from other companies – including those in California – who can reduce their emissions more cheaply.

"That's good news for businesses and consumers," Ontario Environment Minister Chris Ballard said in a release. "In a linked market, companies have more choice and lower cost options for reducing their greenhouse gas pollution, and that means lower costs for consumers."

The three main candidates running to replace deposed Tory leader Patrick Brown – Christine Elliott, Caroline Mulroney and Doug Ford – have all come out against carbon taxes, making no distinction between a cap-and-trade levy or a straight tax. Mr. Brown had pledged to kill the cap-and-trade plan and impose a broad-based tax.

The federal government is preparing to introduce legislation that would impose a carbon tax in provinces that don't have a program deemed by Ottawa to meet its standards.

Despite the political uncertainty in Ontario, some of the province's largest energy companies were active in the February auction, although there are no details on whether they were buyers or sellers or to what degree. They include gasoline refiners and marketers such as Suncor Energy Inc. and Imperial Oil Ltd.; Enbridge Inc.'s two natural-gas subsidiaries, Enbridge Gas Distribution Inc. and Union Gas Ltd.; and Ontario Power Generation.