Too early to tell financial impact of cap-and-trade in Ontario, watchdog says

Ontario's government spending watchdog says there are too many uncertainties for it to determine the financial impact of the Liberal government's cap-and-trade program to fight climate change, which starts Jan 1, 2017.

The financial accountability office released a report Wednesday saying it needs more data on how the government plans to spend the $1.9 billion it expects to raise each year from auctioning pollution emission credits to industries.

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"Given the uncertainty surrounding revenues, and without more specific information on planned expenses, the FAO cannot forecast the fiscal impact of cap and trade in any particular year with sufficient precision to be useful," concluded the report.

"We're raising questions about the $1.9 billion revenue figure," said Peter Harrison, the FAO's chief financial analyst.

"As we've seen from the past year, the auction process can be quite volatile, and from auction to auction (revenues) can move quite a bit."

The Liberal government promises to use all revenue from the cap-and-trade program to help industries adapt to a low-carbon economy, and to fund projects that help reduce greenhouse gas emissions.

"Our plan includes strict, transparent requirements on revenue collection and cost-effective investments," said Environment Minister Glen Murray. "Anything that gets funded actually has to demonstrate reductions (in greenhouse gas emissions)."

The financial accountability office said the impact of cap-and-trade on the province's deficit will depend on how many emission credits are sold, at what prices, and what the U.S. exchange will be on the auction revenues.

"There's fundamental uncertainty around the revenues," said Harrison. "A lot of the uncertainty reflects that we're basically in early days for cap-and-trade, and we fully anticipate that more information will come forward as plans are firmed up."

The opposition parties said the FAO's report shows the government can use cap-and-trade revenues on previously announced programs to eliminate the $4.3 billion deficit next year as promised.

"This is nothing but a cash grab by the government to be used to artificially balance the budget by 2017 and then plunge us back into deficit," said Progressive Conservative finance critic Vic Fedeli. "It's all about being able to book the revenue now and pay the expenses later."

NDP environment critic Peter Tabuns said the FAO report shows the government "can play games with the cap-and-trade money" to balance the books.

"The big one really for me is the government can take the money, make their books look good, and not actually take on climate change," said Tabuns.

Murray admitted there would be volatility in the emission market auctions that will alter the amount of government revenue from cap-and-trade, but insisted the government will reduce expenditures if revenues aren't as high as expected.

"The program is designed in ranges, so you can't spend any money that you don't have," he said. "And every year we have to do an investment plan that identifies that entire spending planned for that year, and every single proposal or project has to be evaluated."

The FAO did not look at the impact of cap-and-trade on consumers, but the government has already warned it will add about $5 a month to home heating bills and about 4-cents-a-litre to the price of gasoline at the pumps.