Cap and Trade in Ontario

In January 2017, Ontario, Canada launched its cap-and-trade program in an effort to curb greenhouse gas (GHG) emissions. Ontario took a progressive position on combatting climate change that included shutting down coal-burning power plants, investing heavily in renewable power, and setting aggressive emissions-reduction targets across all sectors. Its targets included reducing emissions levels of 1990 by 15 per cent in 2020, 37 per cent in 2030, and 80 per cent in 2050. Its efforts allowed the province to meet its 2014 target of 6 per cent below 1990 levels. These targets complemented Ontario’s commitment to the United Nation’s 2015 Paris Agreement. Firms that annually emitted more than 10,000 tonnes but fewer than 25,000 had the option of entering the market on a voluntary basis. The expected downstream impact to the average Ontario household would be an increase of about CA$150 per year in home-heating and car-fuel costs. However, cost increases would be felt less directly through the rest of the economy. Four particular companies in Ontario had some decisions to make regarding how the province’s cap-and-trade program would affect their operations.

This case is suitable for undergraduate- or graduate-level courses that cover carbon emissions management, particularly the topic of carbon markets. This interactive simulation allows students to examine the mechanics of a Canadian cap-and-trade system for managing carbon emissions. Students take on the role of operations manager for one of four corporations with major operations in Ontario. After working through this exercise, students will be able to:<ul><li>familiarize students with the mechanics of carbon markets;</li><li>understand the concept of marginal abatement cost and how this forms the basis for making efficient decisions in carbon markets;</li><li>understand the concept of carbon intensity of production as a way of explaining how companies are differentially affected by the imposition of a carbon market;</li><li>highlight how the efficacy of a company’s production, investment, and carbon trading strategies depends upon the decisions of other companies; and</li><li>compare the mechanics and outcomes of the cap-and-trade system with other regulatory approaches: command and control, carbon taxes, and laissez-faire.</li><ul>

• Climate Change, Greenhouse gas, Market Mechanism, Externalities, Regulation