Emissions trading plan may not work

The Ontario government's new emissions trading plan for the electricity sector may be seriously flawed, suggests Andrew Muller, a professor in the Department of Economics.

The province wants to put a cap on total emissions of nitrogen oxides (NOx) and sulphur dioxides (SOx) by Ontario Hydros' generating stations. But the generators will be able to meet the cap by buying emission reduction credits from the non-capped sector.

In a formal comment to the Ministry of the Environment, Muller suggests that coupling the capped and non-capped sectors in this way is inappropriate if firms in the non-capped sector receive baselines equal to their 'business-as-usual' levels. In this case, expansion of the non-capped sector will progressively relax the emissions constraint on the capped sector. In the limit, neither the capped nor uncapped sectors will undertake any emissions controls that they would not have adopted voluntarily.