Myths of Ontario’s cap-and-trade system.

An associate professor at McGill wrote an interesting op-ed last week in the Toronto Star seeking to answer the four major myths about the Ontario-Quebec cap-and-trade system to reduce greenhouse gasses. The only problem with Christopher Ragan’s column is that most of the myths he attempts to debunk are answered with arguments for a straight carbon tax.

The first myth and the easiest to debunk is that it will raise hydro rates. That is wrong because Ontario has phased out its coal-fired generation plants and has only a small percentage of gas-fired plants for back-up. Professor Ragan’s bias is showing though when he refers to the Ontario subsidies for its small percentage of renewable energy sources as “massive.”

The second myth and the most crucial is that business will want to move to jurisdictions without taxes on greenhouse gas emissions. Yet he tells us that his Ecofiscal Commission has studied this question and he finds that less than two per cent of the Ontario’s gross domestic product is at risk of this.

The third myth he mentions is that the provincial government can undermine its cap-and-trade system by the distribution of free passes for some of their carbon emissions. While this is not the case in a straight carbon tax, it illustrates the major weakness of cap-and-trade in that these “get-out-of-jail-free” passes can be handed out behind the scenes without public knowledge.

The fourth myth applies to both cap-and-trade and a carbon tax—that carbon pricing might not work. Ragan uses the old argument from Wealth of Nations guru Adam Smith that “a large collection of small responses to price movements is what makes our market economy work.”

Ragan insists that there is ample evidence from around the world that carbon pricing works. He says though that we should not expect results right away and it will likely only happen as carbon costs rise.

But Ragan leaves us with no clear understanding of where he stands on the differences between cap-and-trade and carbon taxes. We have a right to expect more from academics.

The Ontario-Quebec cap-and-trade system that they have linked with California is the least understood system. It is carried on between industry and politicians and the public is largely left out. Some vague taxes showing up at our gas station on January 1 was a bad idea and the governments involved have done little to clarify the situation.

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