The impact of Cap and Trade on business

This is Ontario’s first week with the cap and trade program in effect.  At the end of 2016, a coalition of Chambers asked the provincial government to defer the program for a year.  Why?  Several reasons including the cost of the program on top of electricity prices that continue to go up, the lack of a sector by sector analysis of the impact of the program, the uncertainty about the new administration in the United States, and the fact that the federal government has said all provinces must be on board with either cap and trade or a carbon tax by 2018. 

The ask to the provincial government is not about sitting still and doing nothing about our environmental challenges; it’s about understanding the true impact of a program on the Ontario economy.  Gas prices went up on January 1st – the business with a fleet of vehicles to fill to keep goods moving to and from their destination just experienced an immediate increase.  How are they to absorb this and are they confident that the increase will be returned to them in a meaningful way?

The Minister of Energy was quoted in a Toronto Star article as having said that the cap and trade program is simply the cost of doing business.  It’s a hard pill to swallow for many businesses after a series of legislated increases such as WSIB, increasing electricity prices, College of Trades and various other compliance measures that have been chalked up to the “cost of doing business”.   At the Chamber level we have called this stacking of legislative costs the cumulative burden.  In isolation from each other, each of these programs has merit, but when you start adding up the full impact of implementation of each of them over the past several years, it’s no wonder business confidence is lagging.  

“Amazon, after its announcement to set up a location in Montreal, cited the cost of hydro as one of the main factors in their decision to choose Quebec over other locations including Ontario,” says Stuart Harrison, President & CEO,
Peterborough Chamber of Commerce.  “Leland Industries CEO Byron Nelson also attributes Ontario’s uncompetitive electricity costs for their recently announced expansion to Illinois, adding that Leland will no longer invest in Ontario. That should be a red flag to our provincial government.”

In Ontario, since 2004, electricity prices have increased by 383%, from a flat rate of 4.7 cents a kilowatt hour to 18 cents a kilowatt hour at peak times.  The introduction of the cap and trade system will add further charges on natural gas, gasoline and diesel fuel that will be keenly felt by every individual and business in Ontario.

In the auditor general's report, electricity prices are projected to increase by 14% for businesses and 25% for households; after applying the $1.32 billion in revenues planned to be spent by the Ministry of the Environment to mitigate electricity prices, businesses will still face a 13% increase and households 23%.

So why is the government rushing this program?  There are programs in existence to help businesses improve lighting and the like.  In fact, the Peterborough Chamber is hosting an information session about such energy efficiency programs at our Lunchbox Learning event on Wednesday, January 18, 2017.  There is no doubt these programs have been important cost savers for a number of local businesses.  

The cap and trade program will also generate significant revenue – about $8 billion between 2017 and 2020, according to the provincial auditor general.  But will that money be pushed back into the economy to maintain and improve competitiveness for business?  How will the portion paid in by business be returned to the business
community?  

As well, with the recent federal policy calling for the provinces to have plans in place by 2018, deferring the program for at least a year to better understand and communicate the exact impact would benefit all. Currently, Quebec and Ontario have cap and trade; Alberta and BC have a carbon tax.  There is value in leaving the decision to each province, but that also poses challenges for businesses with multiple locations and conducting business in multiple jurisdictions.  

The Chamber Network passed a resolution at the Ontario Chamber of Commerce AGM in May 2016. The first recommendation was that the program be deferred until 2018. 

Ontario has already made great strides in reducing Greenhouse Gas Emissions (GHGs) with the elimination of coal.  This is a success like no other.  However, it is anticipated that the cap and trade system will result in only a small portion of the required greenhouse gas reductions needed to meet Ontario’s 2020 target.

The message around cap and trade is simple.  Our members tell us: “Business loves certainty” and without it, they are less likely to hire and invest in themselves.  Certainty can be achieved through transparent government policies that provide businesses a strong foundation from which to operate and compete. 

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