Ontario plunges into cap and trade with first carbon auction

The Ontario government's new climate-change plan kicks into high gear Wednesday, but the opposition leader is vowing to scrap the program if he wins next year's election.

The province holds its first-ever auction of greenhouse gas emission permits under its new cap-and-trade program this afternoon. Fuel companies, natural gas distributors,auto makers, steel mills and chemical factories are among the firms purchasing the permits.

• How Ontario's cap-and-trade system works

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• Kathleen Wynne defends cap and trade program

Companies have already been passing on the costs to Ontario drivers and homeowners by charging extra for fuel and home heating since Jan. 1, when the program took effect.

Wednesday'sauction one of four to be held this yearcould generate $513millionfor the province if all the carbon allowances are sold at the minimum price. The government is estimating the program will raise $1.9 billion annually and by law must put the money into projects that reduce greenhouse gas emissions, such as public transit and home energy retrofits.

PC leader Patrick Brown said Tuesday he would "withdraw" the province from the Western Climate Initiative, the joint cap-and-trade program bringing together Ontario, Quebec and California.

Brown prefers carbon tax

"I would dismantle cap and trade," Brown said in response to a question from CBC News. "It makes Ontario less competitive and if it was really about the environment it would not be a revenue tool for government."

Brown called the program "a $1.9-billion cashgrab."

He is promising instead to implement a carbon tax to cut emissions and make it revenue-neutral by providing rebates of some combination of income tax, sales tax, or small business taxes. "We're still going through our policy process on that," Brown said.

The Liberals reject the "cash-grab" claim. "Our approach guarantees greenhouse gas reductions at the cheapest price possible, unlike Brown's carbon tax which would cost families four times more," said a statement from the Liberal caucus.

The most recent auction involving California and Quebec's joint carbon market sold just 18per cent of the available permits. That result was labelled "disastrous" byChandanKumar, chief economist for Climate Connect, a company that monitors carbon markets around the world.

Analysts expect Wednesday'sOntario-only auction will be far more successful and sell most of the 25 million allowances available.

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• Cap and trade pushes up fuel and home heating costsin Ontario

"In the next year or so, we can expect a bunch of action in the Ontario auction," said Dave Sawyer, head of the consulting firm EnviroEconomics, in an interview Tuesday with CBC News.

Under the terms of theauction, Ontario industries must pay at least $13.57 (US) for each allowance, equivalent to onetonneof carbon emissions.

There is some uncertainty about the future of California's participation in the cap-and-trade program. The California Chamber of Commerce is challenging the program in court, arguing that it's a tax that should have required a two-thirds majority in the state legislature. A lower court rejected that argument, but the business group is appealing.