Photo: Will cap-and-trade slow climate change?

(Credit: kris krüg via Flickr)

By David Suzuki with contributions from David Suzuki Foundation Climate Change and Transportation Policy Analyst Gideon Forman.

The principle that polluters should pay for the waste they create has led many experts to urge governments to put a price on carbon emissions. One method is the sometimes controversial cap-and-trade. Quebec, California and the European Union have already adopted cap-and-trade, and Ontario will join Quebec and California's system in January 2017. But is it a good way to address climate change?

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The program sets an overall limit — a cap — on the amount of greenhouse gas emissions a province can emit. It then tells polluters, such as heavy industry and electricity generators, how many tonnes of carbon each can release. For every tonne, polluters need a permit or "allowance." So, if a company's annual limit is 25,000 tonnes, it would require 25,000 allowances. If a company exceeds its limit, it can purchase additional allowances from another firm that, because of its greater efficiency, has more allowances than it needs. This is the "trade" part of the equation.

Although an individual company can exceed its greenhouse gas limit by purchasing credits, the province as a whole can't. The overall limit is reduced every year, so if the law is followed, cap-and-trade guarantees annual emissions reductions. The declining cap is the system's great strength and the way it protects the environment.

How effective is it? Although the answer isn't straightforward, there's evidence cap-and-trade played a key role in reducing acid rain in the United States. The 1990 Clean Air Act allowed power plants to buy and sell the right to emit sulphur dioxide. Since then, U.S. sulphur dioxide concentrations have gone down by more than 75 per cent. As Nobel Prize-winning economist Paul Krugman wrote in the New York Times, "Acid rain did not disappear as a problem, but it was significantly mitigated."

Despite this and other successes, some experts are skeptical, arguing that cap-and-trade amounts to little more than a cash grab by government, a tax in everything but name. Others say it's a mistake to expect climate change can be addressed through markets, when the problem actually requires changing our entire approach to economics, with a commitment to a steady-state economy and an end to the commodification of nature.

Some experts have also noted that the emissions reductions it brings are often modest. A 2015 paper in Canadian Public Policy claimed Quebec's system "is still too weak to meaningfully address the environmental imperatives as outlined in the Intergovernmental Panel on Climate Change's 2014 Fifth Assessment Synthesis Report, in which fully eliminating carbon emissions is the benchmark for long-term policy goals." From 2013 to 2014, California's allowance cap went from 162.8 to 159.7 megatonnes, a drop of less than two per cent.

Ontario's proposed legislation indicates its program will have some great strengths and a number of shortcomings. It will likely have wide coverage, applying limits on most of the province's emissions, including those from transportation fuels. (California's system did not initially include these fuels.)

Ontario is expected to reduce emissions by over four per cent a year — about twice the initial rate of California — and generate $1.9 billion annually from the plan. That money will be invested in "green" projects throughout the province with the goal of reducing carbon emissions even further.

Ontario's proposal to give away many allowances to big emitters is less encouraging. The government says it will eventually phase out this free disbursement, but in the meantime millions of dollars in government revenue that could be used to support renewable energy and public transit will be lost.

To keep the bulk of fossil fuels in the ground — as scientific evidence says we must — we need a variety of strategies. Cap-and-trade helps reduce emissions and generates billions of dollars for other strategies to address climate change. It also embodies the polluter pays principle. But it's not enough on its own.

The David Suzuki Foundation and others have long argued that provinces and the federal government should put a price on carbon, through carbon taxes, cap-and-trade or a combination of both. The urgent need to address global warming means provinces that have adopted cap-and-trade need to strengthen it by ensuring emissions drop faster and polluters pay a price that truly reflects the damage caused by carbon pollution.

March 3, 2016

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Mar 08, 2016
1:34 PM

Over the last while I have been trying to get a better grasp of what climate change really is and what the causes are. Heavy industry is down in most provinces and US states and those being related more to the steel industry. Our steel city, Hamilton ON still has some odors but no where as bad as 20-30 years ago so great changes have happened and emissions have dropped considerably. But having lived in and around southern and central Ontario I’ve seen weather patterns continue to change like nothing has changed. We read about temperature increases but what I’m seeing and its more an observation is temperatures in and around here are not as drastic as they once were. Like other areas of population expansion of roads, homes, transportation and commercial buildings have become the norm as it were.

With having work different shifts and enjoy looking up into the stars during the Blackout in 2003 I came to see in vivid reality the effects of light pollution as it was called several years ago. As I laid on the hood of my car on the second night I was in awe of the things you could see, the stars and yes satellites passing over the line every few minutes. It was the most beautiful thing IMO you could ever witness.

Once everything was turned back on it became business as usual and pretty much everything I was able to watch and see was gone. It was then that I came to realize that we as people going about our daily lives are or at least likely as responsible as industry was. At that time I was in Orangeville and a friend out in the country and there was a 10 deg. difference between us over maybe 5 km’s as the crow flies.

So IMO we’ve been apart of the problem so now how do we address this? This idea or thought process doesn’t seem to being discussed or attributing to the problem. I’ve known about the 7 year cycle as it used to be referred to and everyone talks about El Nino being the cause because someone says it is.

Until mankind’s selfish desire for expansion are curved the problem is going to get worse not better. One finger points out and 3 back at ourselves.

Mar 06, 2016
5:31 PM

Cap and trade is just another form of giveaway to polluting corporations, and has already proven that it doesn’t work to significantly reduce emissions. The excellent Story of Stuff project calls Cap and Trade “Cap and Giveaway,” with good reason. Here’s how it works:

The approach climate scientists like James Hansen call for is instead a Fee and Dividend carbon price, a revenue neutral price on carbon that puts power back in the hands of citizens rather than being yet another handout to corporations.

Mar 05, 2016
9:09 AM

I am totally against the David Suzuki Foundation’s support for “cap and trade”, carbon taxes etc. This is not a solution. It will only drive heavy industry offshore and the jobs that go with it. If our leaders were truly serious about global warming, they would start talking about the population growth problem. That is not going to happen and therefore global warming is not going to be prevented.

Mar 05, 2016
4:56 AM

With respect to emitting carbon the case has been made we must prevent climate disaster. With respect to cap-and-trade I have yet to see the case made. A carbon tax has a theoretical shot at addressing the problem but not if we never speak about where the money goes. I fail to understand why the urgency of what’s done with the taxes collected isn’t present on everyone’s mind. It’s not just that those monies must directly reduce carbon emissions (or the idea is pointless to begin with), it is that it must reduce carbon in the most efficient way possible. There needs to be a competition to see who can reduce the most tons per dollar — or we are ignoring the problem.

Mar 04, 2016
5:13 AM

Carbon fee and dividend seems to show the most promise, as endorsed by Dr. James Hansen (the father of climate change) and Citizens Climate Lobby and Dr. Hansen writes about it in “The Oxford Handbook of the Macroeconomics of Global Warming”

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