Are You Ready For The New Cap and Trade Environment?

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Your natural gas bill is going up by $66,000. If your business uses 2,000,000 m3/year, the new 3.3 cent cap and trade tax beginning January 1st, means your annual natural gas costs will be $66,000 higher in 2017.

Even your home natural gas bill will see an increase in the neighbourhood of $79. If you are creating budgets for next year, this would be a good line item to include.

 

How will you be charged?

Under Ontario’s cap-and-trade program, Ontario gas utilities are required to purchase emission allowances, administer the program and bill for the natural gas your business and home consumes.

The charge will be 3.3 cents per cubic metre based on actual metered natural gas consumption. The charge will be added to the delivery portion of your natural gas utility bill.

The price of emission allowances will vary with supply and demand, and can change over time. In January 2017 the price is expected to be 3.3 cents per cubic metre of natural gas used. In addition, gasoline will cost about 4.3 cents more per litre at the pumps.

 

Who will be affected?

All natural gas consumers are affected as well as gasoline users and other carbon emitters. Companies that emit less than 25,000 tonnes of carbon dioxide equivalent a year will be automatically charged by their local natural gas utility. 25,000 tonnes is equivalent to 13 million m3/year.

Businesses with annual emissions over 25,000 tonnes will be required to buy their own emission credits. A facility between 10,000 and 25,000 tonnes (5 million to 13 million m3/year), may opt into the cap-and-trade program as a voluntary participant. Voluntary participants may register in 2016 if they meet the criteria set out in the Cap-and-Trade Regulation. There will also be opportunities to register as a voluntary participant in 2017 or after 2017.

To be a part of this program, you must:

  • submit a 2015 greenhouse gas emissions report and verification statement
  • submit a voluntary participant form
  • register to use the Compliance Instrument Tracking System Service (CITSS)

 

What will happen to the proceeds from the Cap-and-Trade Program?

Among other plans to reduce emissions, the government intends to create incentives for the purchase of electric vehicles, increase the availability and use of lower carbon fuel, improve public transportation, and provide incentives for apartment building energy retrofits.

The provincial government may revise the plan and must review it every five years.

 

Beyond Ontario

There are only two jurisdictions in North America that have been active in cap and trade since 2014: California and Quebec. The auctions have not gone well this year leaving the governments short of their revenue targetsOntario has budgeted for about $1.9 billion annually from cap-and-trade auctions.

Ontario’s cap-and-trade program starts up in January 2017, but for the first year the auctions will be isolated within the province. The joint auctions with California and Quebec start in 2018, and the total revenue from those auctions will be split proportionally between the three jurisdictions. There is also legal and political uncertainty in California. A lawsuit arguing that the program is an unconstitutional tax is working its way through the courts.

Starting in 2018, the Canadian federal government will impose a national price on carbon to meet its obligations under the Paris Agreement.

 

Summary

Cap and trade is here and begins January 1, 2017. Plan accordingly. The government will be collecting a lot of money under the program. Some of that money will go back to industry in the form of incentive programs. Look for ways to benefit, not just pay the increases on the bill. Voluntary participation may sound enticing, but may not be worth the time and effort. There will be many opportunities in the future to on-board should programs prove lucrative.