Cap and trade will provide endless reasons for interest groups to lobby Queen’s Park for access to the many exemptions and potential political favours embedded in the legislation.

This article also appeared in The Hamilton Spectator.

The new cap and trade market introduced by Queen’s Park is anything but a market, but it does produce one big winner: Queen’s Park.

Under proposed legislation, elected officials will have the power to create, take and redistribute any amount of carbon credits they wish, alter the province’s historical emission data and use the new money on anything Queen’s Park desires. While the cap and trade market has been presented to the public as an environmental policy that relies on “market” forces, it bears little resemblance to any real world market and will do little for the environment.

But the new cap and trade law will be successful in providing endless reasons for businesses and other interest groups to lobby Queen’s Park for access to the many exemptions and potential political favours that are embedded in the new legislation.

Unlike a normal market where the value of goods and services is determined by the demand for them, the value of Ontario’s cap and trade market is completely at the whim of the Cabinet. The new legislation grants Queen’s Park the power to create any number of emission credits, allowing it to flood the market with excess credits to preferred companies or industries, as has occurred in every other cap and trade system around the world, or to starve it and raise the cost of energy significantly for Ontario’s energy customers.

The efficacy of the entire cap and trade market depends solely on whether Queen’s Park can hit the sweet spot, where the price is just high enough to force consumers and businesses to conserve, but not too high to negatively impact the economy and erode its new revenue stream.

Cap and trade will also see Queen’s Park become a wealth generator, as it will allow anyone in the province to table a carbon-saving project entitling them to carbon credits that they could then sell to the businesses now being forced to buy them. Contrary to claims that the new credits will only be given to projects that reduce carbon emissions, the legislation grants bureaucrats the power to look at what it calls “other eligibility criteria” of its choosing when handing out carbon credits – whatever that eligibility may be.

All of the businesses that participate in the cap and trade system will discover that Queen’s Park has the upper hand. Once these buyers and sellers have set up their carbon credit accounts, Queen’s Park will have the power to access those accounts, remove carbon credits and “redistribute” them as it sees fit – all without their consent. The province can also arbitrarily set limits on how many carbon emission credits any business is allowed to purchase and hold in its carbon accounts.

Queen’s Park can also continuously move the environmental goal posts. The current intention of the cap and trade market is to reduce the level of carbon emissions in the province by 80% from 1990 levels. Yet, that baseline figure can be “recalculated” by Queen’s Park “from time to time,” according to the legislation.

To deflect criticism that the money raised from the new cap and trade program isn’t simply a cash grab, the province promises that all of the proceeds will be used to fund projects that will reduce carbon emissions. But the legislation casts such a wide net that just about any project would fit that criterion, including activities that have little to no relationship to the environment, such as education programs, “deploying technology” and “providing information to the public.”

And if that’s not a wide enough net, the province can always fund a project under the “other actions” criterion it has afforded itself. There really is no limit to where the money can go.

Queen’s Park also benefits from the cap and trade program, as it has to create an entire new regulatory regime – and all the employees and expenses that come with it – in an effort to keep the market from being riddled with the rampant fraud and corruption that has plagued other cap and trade schemes. As part of that regulatory regime, the province would have extensive powers to require companies to pay for audits or submit extensive documentation, seize potential evidence and shut down operations during inspections. It will require an army of regulators.

Queen’s Park wins big with cap and trade. It has control over every aspect of an artificial market and the power to pick and choose who wins.

This article also appeared in The Hamilton Spectator.

Brady Yauch is an economist and Executive Director of the Consumer Policy Institute (CPI). You can reach Brady by email at: bradyyauch (at) consumerpolicyinstitute.org or by phone at (416) 964-9223 ext 236