Summary Report: "The Cost Implications of Ontario's Environment Plan to Reduce Greenhouse Gas Emissions"

The Cost Implications of Ontario's Environment Plan to Reduce Greenhouse Gas Emissions
A report by Canadian for Clean Prosperity entitled "The Cost Implications of Ontario's Environment Plan to Reduce Greenhouse Gas Emissions" written by Dave Sawyer and Seton Stiebert ("Report") is pulling the rug from under Doug Ford's terrible political stance on climate change in the province of Ontario.  For ease of reference to the reader, a summary of the Report is included immediately below.

In the Report, Dave Sawyer and Seton Stiebert assess the economic costs of the greenhouse gas (GHG) mitigation measures contained in the Made-in-Ontario Environment Plan (Plan) and the alternative Federal Backstop Carbon Pricing approach to be applied in provinces, like Ontario, who have otherwise failed to implement a provincial climate action strategy that meets national standards. The two authors of the Report conclude the cost of the Made-in-Ontario Plan on businesses and households is 59% higher in 2022 and 50% higher in 2030 than the Federal approach for the same quantity of GHG reductions. 

Dave Sawyer and Seton Stiebert estimate the total cost of the Ontario Plan in 2022 to be approximately $334 million, with an average cost of $62 per tonne removed. In 2022, the authors affirm that the plan could reduce Ontario’s GHGs by about 3.3% or 5.4 megatonnes (Mt). To achieve the 18 Mt reduction in 2030 sought by the Plan, the authors calculate the average cost per tonne of emissions removed is $69 per tonne with a total cost of $1.23 billion. The authors then affirm that the cost of the Federal approach for the same level of emission reductions is estimated to be $214 million in 2022 with an average cost of $40 per tonne removed. The two authors conclude that in 2030, the total costs are $811 million with an average cost of $45 per tonne. 

Dave Sawyer and Seton Stiebert estimate that household costs under the Ontario Plan total $450 million in 2022 and $924 million in 2030. The two authors affirmed that given there are no carbon revenues to address the household impacts of the policy, they found that on average, Ontario households are worse off under the Plan.  In 2022, the authors state that the Ontario Plan could cost the average Ontario household $80 rising to $154 in 2030. The authors further state that assuming all carbon costs are passed on by industry, an assumption which they say is consistent with recent Parliamentary Budget Office analysis, household costs would rise to $94 in 2022 and $181 in 2030.

Conversely, under the Federal approach, Dave Sawyer and Seton Stiebert affirm that households are better off in both time periods due to the federal rebates, even when accounting for abatement and carbon costs passed on by industry through higher prices. In 2022, they found that an average Ontario household under the Federal approach is ahead $130 while in 2030 the benefit is $25. Further assuming that all carbon costs are passed on by industry, the authors state that the benefit in 2022 falls to $71 with rebates greater than carbon costs. They further state that in 2030, the benefit shifts to a net cost of $24, where they say that rebates are insufficient to offset the costs. 

Dave Sawyer and Seton Stiebert move on to explain that large final emitters under the Ontario Plan could be overcompensated in 2022 and 2030 as carbon costs, they say, are passed on while carbon payments are rebated under the Industry Performance Standard and subsidies provided under the Carbon Trust. According to the two authors, under the federal approach, there are competitiveness risks for segments of the economy that can’t opt-in to the Output-based Pricing System and likely will pay more than they are rebated.

While the two authors of the Report did not assess the feasibility of the GHG measures contained in the ON Plan, they found that integrated economy-wide modeling accounting for the policy interactions between the Plan’s measures would likely find higher costs for the same GHG reductions. Under the Federal approach, they affirm that the policy interaction effect is less of a risk due to economy-wide carbon pricing, but that there is some interaction risk given the presence of the Clean Fuel Standard.

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