Low demand in cap-and-trade auction not a worry for Ontario: minister

Auctions in a cap-and-trade market that Ontario is set to join sold just a fraction of its allowances for the second time in a row, but the environment minister insists it doesn't spell trouble for the province.

Only 35 per cent of the available carbon pollution credits were sold in California and Quebec's latest joint auction — though that's up from the approximately 10 per cent in the previous round.

Next year, Ontario is set to launch its cap-and-trade program, requiring emitters to pay for greenhouse gases released into the air, and will link with California and Quebec's market the following year.

Environment Minister Glen Murray said fluctuations in that market are "normal" and are affected by a host of political, economic and legal factors. He believes Ontario will fare well in the first, unlinked year.

"We know that there is demand," he said. "We're not in an oversupply position with allowances. We have a fairly tight market, so there's no doubt that there will be some real uptake."

Ontario is capping emission allowances at roughly 142 metric tonnes per year in 2017, and the cap is expected to decline 4.17 per cent each year to 2020, when the Liberals hope to have achieved a 15-per-cent reduction in greenhouse gas emissions over 1990 levels.

That rate of decline is more aggressive than California and Quebec's, Murray said, which he believes will protect against oversupply.

NDP critic Peter Tabuns said the Liberal government has to "seriously consider" delaying the linking of Ontario's market.

"If people can't buy their allowances in Ontario they'll buy them in California and Quebec," he said.

If the programs are linked too early, Ontario may not see the $1.9 billion a year in revenue it is counting on, Tabuns said.

That revenue is earmarked to fund the Liberal government's climate change action plan, but Murray said the plan has built-in ranges of costs.

Ontario's revenues could be as low as $300 million some years, or as high as $2.5 billion in other years, Murray said, adding that the $1.9-billion figure is an average. Priority program areas for the cap-and-trade revenue are transportation and building emissions reductions, he said.

The Ontario Chamber of Commerce has called for a one-year delay on cap-and-trade and suggested the province wait for a new national climate change plan.

"The success of the government's climate change action plan will depend on the success of these auctions moving forward," CEO Allan O'Dette said. "At a minimum, the Ontario government needs to outline its contingency plan in the event that these auctions fail to reach revenue targets."

The Progressive Conservatives want cap-and-trade scrapped all together.

"The Liberal government is setting Ontario up for failure by entering the province into California's oversupplied carbon market," said critic Lisa Thompson.

In California, pollution credits consistently sold out after the program began in 2012, bringing in hundreds of millions of dollars quarterly for initiatives that reduce greenhouse gases. The proceeds are used to fund a high-speed rail project, along with other transit construction and energy conservation efforts. This year, demand plummeted amid uncertainty about the program's viability.