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Cap-and-trade auction in Ontario yields $472-million

Environment Minister Glen Murray is pictured on Dec. 12, 2013. Ontario’s first auction under its controversial cap-and-trade system sold all its offering of 2017 permits, yielding the province more than $472-million that will be used to finance programs aimed at reducing greenhouse gas emissions and adapting to climate change, Mr. Murray announced Monday.

Fred Lum/The Globe and Mail

Ontario's first auction under its controversial cap-and-trade system sold all its offering of 2017 permits, yielding the province more than $472-million that will be used to finance programs aimed at reducing greenhouse gas emissions and adapting to climate change, Environment Minister Glen Murray announced Monday.

The province's largest energy distributors and industrial consumers participated in the auction of greenhouse-gas emission allowances, which they need in order to comply with the provincial climate regulations. They include Suncor Energy Corp. and Imperial Oil Ltd., which market gasoline under the PetroCanada and Esso brands, respectively, and the province's biggest natural gas distributors, Enbridge Gas Distribution Inc. and Union Gas.

"Today's results demonstrate that our market system here in Ontario is functioning as intended, and that businesses across the province are engaged in the market," Mr. Murray said.

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In an interview, the minister said he does not expect a 100-per-cent result in every emission-allowance auction the province holds over the next four years, but that results will vary according to circumstances at the time.

"I'm sure we'll see 100 again, but I'm sure we'll see much lower numbers and we'll see it move around a lot," Mr. Murray said.

"What's important to us is that the market is working well, is getting participation from across the economy, and is contributing to the reduction of greenhouse gas emissions, which is the important part of it," the minister said.

Under the plan, the large industrial operations, gasoline marketers and natural gas distributors face emission caps that will be reduced by 4 per cent per year. The energy suppliers must purchase allowances covering all the fuel and natural gas they sell in the province, while industrial emitters get free allowances up to their caps but must purchase permits in the market if they exceed those GHG limits.

Gasoline retailers are adding 4.3 cents per litre to the pump price to cover the cost of emission permits, while the gas distributors estimate it will add $80 annually to the average homeowner's gas bill.

Progressive Conservative Leader Patrick Brown raised concerns just prior to the March 22 auction when he said he would end the cap-and-trade system if his party wins power in the election scheduled for 2018. There was some concern Mr. Brown's comment would put a damper on the bidding.

"It think this is a really good result; people were scared it would not be that good," said Nicolas Girod, head of trading and research for Toronto-based advisory firm ClearBlue Markets.

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The province sold 25.3 million tonnes of 2017 vintage permits and three million tonnes for the 2020 period. The amount of bids was 16 per cent higher than the supply of allowances, Mr. Girod noted. The settlement price for 2017 permits was $18.08 per tonne.

The provincial government will auction off allowances on a quarterly basis, and expects to reap between $5-billion and $9-billion over the next four years. By law, that money is directed into climate-change related programs across the province.

However, it is not clear that the revenue target will be met. Similar auctions in the joint California-Quebec carbon market have been dramatically under-subscribed, with revenue well below what had been forecast. Ontario is expected to link with California and Quebec markets under the Western Climate Initiative in 2018.

California faces a number of uncertainties with its pioneering cap-and-trade program, including a court challenge from business groups that argue it is an illegal tax. The state won in the lower court, and a Court of Appeal decision is expected this spring.

As well, Governor Jerry Brown is trying to win enough support in the legislature to extend the program beyond 2020, but needs two-thirds approval as a result of a proposition approved by voters that now make it more difficult to establish fees to pay for programs such as cap-and-trade.

Mr. Murray said the provincial government is negotiating with Quebec and California over its plan to join the Western Climate Initiative but must work out some matters of concern.

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The minister defended the provincial government's GHG plan, which will add to energy prices at a time when U.S. President Donald Trump is reversing course on climate change and environmental regulations. He said many states are "doubling down" on carbon-pricing systems, while public and private investments in efficiency measures and new technology will lower energy costs over the medium to long term.

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About the Author
Global Energy Reporter

Shawn McCarthy is an Ottawa-based, national business correspondent for The Globe and Mail, covering a global energy beat. He writes on various aspects of the international energy industry, from oil and gas production and refining, to the development of new technologies, to the business implications of climate-change regulations. More

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