By and large, Ontario’s first cap and trade auction was a success. 2017 emission allowances were completely sold out which signals that regulated emitters in Ontario have embraced the cap and trade program and are preparing for the transition to a low carbon economy. The fact that 26% of the available 2020 vintage allowances were sold also creates more regulatory certainty for the long term continuation of the program – a significant result considering the Ontario Conservative’s rhetoric around cancelling the program if elected. The results of the auction are positive for registered participants of the program, clean tech providers, investors, society and the environment.
The bidding prices of the GHG allowances were higher than the floor price. This is reflective of the effect that strong demand has on prices. The Ontario government expects this demand to continue as it projects proceeds of $1.9 billion per year. The next three auctions, scheduled for June 6th, September 6th, and November 29th, would have to raise around the same amount as the March 22nd auction to reach the $1.9 billion level. However, proceeds, participation rates and demand are not the sole indicator of success. Reductions in emissions are the ultimate goal.
Strong demand is not guaranteed to continue. Future auctions could mirror recent auctions in California and Quebec where just 18 percent of allowances were sold. Nevertheless, the Ontario Cap and Trade program is off to a solid start. The first auction results have established level of credibility and legitimacy to cap and trade. And at least one opposition MPP has recognized this. Despite his critique about a lack of transparency to the cap and trade program, Peter Tabuns, the NDP environmental critic, congratulated and shook hands with Environment and Climate Change Minister Glen Murray, after the announcement of the results. Let’s hope that the cap and trade system can be criticized on its merits without becoming a political wedge issue.
Other Canadian provinces without a carbon pricing or a cap and trade system in place will have taken notice of the success of Ontario’s first auction. Nova Scotia might implement an cap and trade system. Newfoundland and Labrador might join Ontario, Quebec and California in the linked Western Climate Initiative (WCI). The more the merrier.
Cap and trade is a strong foundation for moving towards a low carbon economy. The first auction showed that participants have demonstrated a strong level of support and confidence in cap and trade. This should inform the policy platforms in the next Ontario election. Establishing certainty around cap and trade will benefit Ontario businesses, investors and innovators, and the entire economy in the long run.