The costs and benefits of Ontario’s Cap and Trade initiative
In January 2017, the provincial government will begin implementing its Cap and Trade initiative. This new program is part of Ontario’s broader Climate Change Action Plan and seeks to reduce the greenhouse gas effect by introducing a carbon tax on companies that emit large amounts of greenhouse gases (GHG). While it will mean increased costs for social housing providers, it also has the potential to significantly benefit the sector.
The Greenhouse Effect
Some gases in the Earth’s atmosphere act similarly to the roof of a greenhouse. These gases trap heat from the Sun, keeping the Earth within a certain temperature range. However, if too many of these gases are released into the atmosphere the greenhouse effect will become too strong and too much heat will be trapped. This is the current situation the Earth is facing. As humans release more carbon dioxide and other gases into the air, the Earth is becoming hotter, which poses significant environmental risk.
Cap and Trade
Through the new Cap and Trade initiative, Ontario is seeking to mitigate the greenhouse effect by limiting the amount of GHGs that are released. Organizations or companies that emit over 25,000 tonnes of GHGs each year will be required to participate in the program. Those that emit between 10,000 and 25,000 tonnes have the option of participating.
Beginning in 2017, the province will place a “cap” (a limit) on how many tonnes of GHG can be emitted each year. Each permitted tonne will be known as an “allowance”, and participants will be given a certain number of them. If participants go over their allocated allowances, they will have to purchase more. This is the “trade” component of the initiative, and it refers to a market where allowances can be bought or sold.
Ontario’s goal is to reduce GHG allowances from 142,332,000 to 124,668,000 tonnes between 2017 and 2020. As the number of allowances are reduced each year, participants will either have to reduce their emissions or purchase an increasing number of allowances. As the supply of allowances decreases, it is expected that their cost will increase.
What does this mean for Social Housing Providers?
As large emitters, natural gas companies will be required to participate in the program. As a result they will have increased costs and these will get passed onto their customers. Ontario estimates that the cost of natural gas will increase by approximately 3.3 cents per cubic metre in 2017, though these costs are expected to change over time. It is important to be aware that the increased costs will be reflected in the delivery charge on your bill, and you will not see a separate line for costs related to Cap and Trade.
You can find information about your monthly gas usage (cubic metres used) on your utility bill. To estimate what increase you might see next year, you can apply the following calculation: cubic metres used x 0.033 x 12 months. We recommend that housing providers consider budgeting for increased natural gas costs in 2017 and that you contact your utility provider to learn more about how Cap and Trade will impact your organization.
The Cap and Trade initiative is expected to generate revenues of $1.9 billion per year, and the government has committed to reinvesting this back into projects that reduce GHG pollution. This will include energy retrofit programs for the social housing sector. ONPHA will continue to monitor and provide updates about developments related to this, and we will advocate for and inform our members about any funding opportunities for the sector.