The Impact of Cap and Trade on Oakville Businesses

Gas Pump
The Impact of Cap and Trade on Oakville Businesses

It was not surprising that when Oakville businesses were surveyed about the provincial governments cap and trade program, 82% of respondents agreed that the cap and trade plan should have been delayed until its impact on business was fully understood.

As the voice of business we get it. We understand that businesses are feeling tapped due to rising costs and burdened by onerous regulations.

In fact, Oakville Chamber members believe that energy costs are becoming a serious obstacle to doing business and are reporting that the price of electricity is undermining business’ capacity to grow, hire new workers, and ultimately remain competitive.

“Finally, whether or not a business is directly impacted by the system, all businesses and consumers will see rising costs from increased energy, electricity and transportation fuel prices.”

The Chamber has echoed this resounding sentiment of our members and called on the provincial government to delay its implementation for one year to conduct an economic analysis of the cap and trade plan.

However, as part of the province’s plan to reduce its impact on climate change the government decided to proceed with its implementation in January 2017.

To be clear, the business community and the Oakville Chamber supports actions to address climate change however, finding the right balance between the economy and the environment is crucial. Uncoordinated policies could erode competitiveness. For example, when implemented on a provincial basis, the regulations could negatively impact competitiveness relative to other jurisdictions. This may compel companies to relocate their production to other jurisdictions with little or no policies on carbon emissions, commonly referred to as “carbon leakage”. Under these circumstances the greenhouse gas (GHG) emissions are simply relocated to another jurisdiction. This weakened competitiveness could lead to poor economic and environmental outcomes.

With a new cap and trade system, some businesses are worried that it will be more difficult to attract investment relative to these other jurisdictions.

According to the Business Council of Canada “governments at all levels should commit to a national approach to GHG reductions and carbon pricing. The alternative—conflicting federal and provincial targets, plans and policies—is a recipe for confusion and inertia.”

The Oakville Chamber believes that the government needs to be transparent in its implementation of cap and trade policies. To that end, the Chamber encouraged the government to list the new carbon fee on monthly natural gas bills. We believe that by not highlighting this charge, one of the measures funding the government’s $8.3 billion cap and trade plan undermines the effort of placing a price on carbon in order to motivate consumers to take action and change behaviour.

On behalf of our members, the Chamber will continue the dialogue with the provincial government to try to limit the impact on business competitiveness. We also believe that it is important to ensure that our members understand the program and what it means for your bottom-line.

The direct impact of cap and trade depends on the specific characteristics of a business however, most small and medium sized business who will not be directly participating in the program can expect to see the impact in the consumption of energy, electricity and transportation fuel. Indirectly, there will be possible increased costs from suppliers.

Natural gas prices are projected to increase by 3.3 cents per cubic meter in 2017 and will be subject to an incremental increase of a minimum of 5% plus Consumer Price Index (CPI) starting in 2018. Similarly, the price of gasoline is projected to increase 4.3 cents per litre and the cost of diesel by 5 cents per litre in 2017. This too will be expected to rise 5% plus CPI adjustment annually.

Cap and Trade GraphBusinesses that release more than 25,000 tonnes of emissions per year are required to directly participate in the cap and trade program. At the end of each compliance period, they must hold a quantity of permits equal to the amount of GHG emissions that they have released during that period. Permits can be obtained via quarterly government auctions or in the market, making these businesses directly subject to the carbon price.

Finally, whether or not a business is directly impacted by the system, all businesses and consumers will see rising costs from increased energy, electricity and transportation fuel prices.

The Oakville Chamber believes that the goal of the cap and trade system, and Ontario’s climate change strategy, should be to help Ontarians transition to a more carbon-efficient economy on a system that meets the government’s environmental goals while fostering positive economic outcomes.

Recognizing that Ontario’s businesses are the backbone of our economy, and that many businesses have already embarked on sustainability initiatives of their own, the government should consider rewarding employers who have already instituted environmental initiatives. Providing businesses with rewards and incentives would support business success while achieving the goal of reducing greenhouse gas emissions.

On your behalf, the Oakville Chamber remains committed to working with the Government of Ontario while ensuring that the voice of business continues to be heard on this issue.

What is Cap and Trade?
The program sets a cap, or maximum limit, on the amount of greenhouse gas (GHG) emissions that can be released by large emitters in the province (those that release more than 25,000 tonnes of emissions per year). Large emitters are required to hold permits equal to their total emissions, and can buy or sell these permits in the market based on their needs. This market activity generates a carbon price, or a cost to emit.



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