On May 27, 2009, Ontario’s first Greenhouse Gas Emissions Trading Bill 185 was introduced.  If passed, this Bill will allow Ontario to develop a cap-and-trade system, and integrate it with the other systems being developed in other Canadian jurisdictions and the United States, as Ontario is member of the Western Climate Initiative. This Bill will amend the Environmental Protection Act to allow Ontario to distribute GHG allowances. Specific regulations will also be adopted consequently. A discussion paper is now available. Comments may be submitted until July 26, 2009. The cap-and-trade system is expected to be implemented by 2012. For more details, click here.  Nimonik users, see topic Ontario Air Emissions.

I attended the CCCA’s spring conference in Montreal this week where the keynote speaker was Jeff Rubin, until recently the chief strategist and chief economist at CIBC World Markets, and who’s now coming out with a new book in May.

According to Rubin the current global economic downturn was caused by high oil prices, more so than defaulting mortgages, just like in four of the last five world recessions (the 1998 Asian meltdown being the exception). Why? Japan and much of Europe had already entered into recession before the financial crisis hit.

For Rubin, the real story of this recession lies in the energy patch, even now that low oil prices have disrupted much of the exploration that fueled Alberta’s economy only a short while ago. But as soon as the global economy recovers (when remains a mystery), you can bet oil prices will quickly follow, exacerbated by the fact that there’s been no increase in the world’s oil supply.

I raise this because, if Rubin’s right, we’re missing a golden, once-in-a-lifetime opportunity to pass a carbon tax now, while oil is cheap. Indeed, we saw this week further indications that implementing a cap-and-trade system in the U.S. will be a tough sell. The Obama administration is already suggesting that it is open to the idea of auctioning only a portion of the emissions allowances issued, instead of the whole kit.

No doubt the back-and-forth debate about the merits of precise targets will have an impact on how Canada proceeds with its own plans to reduce carbon emissions.

But more importantly, it sheds light on the principle shortcoming of a cap-and-trade system. It’s a political nightmare to get it implemented.

A highly regulated cap-and-trade system lacks the simplicity and adaptability of a carbon tax that would shift the burden of taxation from income to carbon emissions.

What’s more, cap-and-schemes are rarely equitable. The trouble with giving away free permit allowances, generally allocated for purposes of political expediency, is that they can easily produce windfall profits for polluters at the expense of consumers, little of which will fill government coffers.

And here’s the real tragedy. Rising oil will hurt consumers — badly. It seems counter-intuitive, but by adopting a well calibrated gas tax, phased in over the next few years, consumers would respond in anticipation by purchasing more fuel efficient vehicles, thereby shielding themselves somewhat from exposure to higher oil prices and runaway inflation. Not to mention that governments would then have the means to build cleaner transit infrastructure and capacity.

If there ever was a time to put forth policies that would see our energy bills rise, it’s is when oil prices are low. Why let the opportunity pass?

Ontario seems to be taking a lead in consultations aimed at designing a greenhouse gas cap-and-trade system. In December the province released its discussion paper on the issue. Gowlings gives a good breakdown of the details.

A copy of the discussion paper can be found here. Comments will be accepted until March 3, 2009, following which consultations will continue in 2009 on a sector-specific basis with industries likely to be affected, to guide the development of the system. It’s expected that the framework will be announced as early as 2010.