About cap and trade

Ontario’s cap and trade program is a market-based system that sets a hard cap on greenhouse gas emissions while giving flexibility to businesses and industry in terms of how they meet their caps.

The program gradually lowers greenhouse gas emissions from our biggest polluters. This gives us cleaner air and helps reduce the devastating impacts of climate change – such as damage to our homes, businesses, crops and forests caused by extreme weather events.

Putting a price on carbon encourages companies and consumers to make better choices for the environment. It gives polluters an incentive to cut emissions – if you pollute less, you pay less.

Key facts:

  • began January 1, 2017
  • caps the amount of greenhouse gas emissions Ontario’s homes and businesses can emit, and lowers that limit over time
  • will cost the average Ontario household about $13 more per month to fuel a car and heat a home in 2017
  • proceeds from cap and trade will be invested into projects to help families lower their energy costs and save money
  • first auction was March 22, 2017
  • auction results were posted April 3, 2017

Cap

The cap limits how many tonnes of greenhouse gas pollution businesses and institutions can emit. The cap drops each year to encourage lower emissions.

Companies must have enough allowances (also known as permits or credits) to cover their emissions if they exceed the cap.

To comply, companies can generally:

  • invest in clean technologies to become more efficient
  • switch to lower carbon fuels
  • purchase additional credits

Trade

Companies can trade (buy or sell) allowances. For example, if a company emits more greenhouse gas emissions than permitted by the cap, it could buy credits in order to comply. Credits would be available for purchase from a company that reduced its greenhouse gas emissions and have surplus credits.

Find out more about the cap and trade regulation.

Greenhouse gases cause climate change and cost consumers

Greenhouse gases cause global warming. In July 2016, global temperatures were the warmest on record. To fight climate change, we must lower our greenhouse gas emissions.

Greenhouse gases are the pollutants, like carbon dioxide, that come from burning fossil fuels. They come from factories, cars, trucks, home furnaces and other sources.

Every year, millions of tonnes of greenhouse gases are pumped into the air with almost no cost to emitters.

Climate change costs everyone. This means:

  • higher food prices
  • more frequent extreme weather events that cause property damage and raises insurance costs
  • melting winter roads in remote northern communities that cuts off access

Greenhouse gases:

  • Ontario is responsible for less than 1% of global emissions but is one of the largest per capita emitters in the world
  • the Climate Change Action Plan will lower Ontario’s emissions by 8 to 10 megatonnes by 2020

Benefits

The proceeds from Ontario’s cap and trade program will benefit homeowners and the economy.

Cap and trade is projected to generate about $1.9 billion per year in proceeds. Ontario will invest this into programs that save homeowners energy and money.

By law, every dollar collected through cap and trade must be invested – in a transparent way – back into projects that reduce greenhouse gas pollution, such as:

  • public transit
  • electric vehicle incentives
  • social housing retrofits

Industries can invest in new clean technologies to reduce their carbon costs. Researchers, entrepreneurs and start-ups will benefit as their new technologies are needed to meet the challenge. This will bring jobs and economic benefits in the growing global market for climate-friendly products.

Ontario has already committed $325 million to the Green Investment Fund for projects that will fight climate change, grow the economy and create jobs. These investments are part of our plan to secure a healthy, clean and prosperous low-carbon future.

How cap and trade affects you

In 2017, cap and trade will cost the average Ontario household about $13 more per month to fuel a car and heat a home.

Home electricity prices

Cap and trade will not make your electricity more expensive. The electricity we consume every day is 90% emissions-free, thanks in part to Ontario’s early action to close coal-fired power generation.

There are programs in place to help you with the cost of electricity:

  • Ontario passed legislation to save families, farms and small businesses 8% on their electricity bills starting January 1, 2017
  • the Ontario Energy Support Program provides a targeted credit based on a household’s size and income
  • the Ontario Energy and Property Tax Credit saves individuals up to $1,008 per year, and up to $1,148 per year for qualifying seniors
  • the Low-Income Energy Assistance Program provides emergency financial support of up to $600 for qualifying consumers
  • the saveONenergy Home Assistance Program helps income-eligible consumers and tenants manage their energy use and costs by providing home energy efficiency assessments and energy saving measures at no cost
  • the Enbridge Home Winterproofing Program and Union Gas Home Weatherization Program helps eligible low-income residential natural gas customers lower their energy costs and make their home healthier, comfortable and energy efficient by offering a home energy assessment and insulation and draft proofing measures at no cost
  • the Northern Ontario Energy Credit helps low-to middle-income families and individuals in Northern Ontario by providing tax credits of up to $146 for individuals and $224 for a family (including single parents) for the 2015 benefit year

Gasoline and diesel

Based on the carbon price forecast of February 2016, the retail price of gasoline was estimated to increase about 4.3 cents a litre and diesel about 5 cents a litre in 2017 as a result of the cap and trade program.

Fuel suppliers must buy greenhouse gas emissions allowances to comply with the cap and trade program. It’s up to each liquid fuel supplier to determine if, how and when to pass on cap and trade compliance costs to their customers.

What Ontario is doing

Under the Climate Change Action Plan, Ontario will use some proceeds of cap and trade to fund programs that:

  • lower the carbon emissions from transportation fuels
  • encourage uptake of electric vehicles
  • expand public transit

Having more choice will lower greenhouse gas emissions from transportation and save consumers and businesses money.

More than one-third of Ontario’s greenhouse gas pollution is caused by the transportation sector, with cars and trucks responsible for more than 70% of the total. About 11 million passenger and commercial vehicles regularly travel Ontario roads.

Natural gas

Based on the carbon price forecast of February 2016, natural gas was expected to see an estimated average monthly increase of $5 in 2017.

To ease that cost, we’re investing cap and trade proceeds to fund retrofit programs to help homeowners use less energy and save more money. Current natural gas conservation programs can help save households $7 to $11 per month.

What Ontario is doing

Under the Climate Change Action Plan, some of the proceeds from cap and trade will be invested in programs to help homeowners and businesses save money by improving energy-efficiency. Actions include to:

  • improve efficiency in multi-residential buildings and public institutions
  • widen low-carbon energy choices for homeowners
  • help consumers manage their energy use
  • establish long-term greenhouse gas reduction targets in the Building Code
  • introduce low-carbon content requirements for natural gas

Learn more about the household and economic impacts of cap and trade.

What you can do

To join the fight against climate change and lower your costs, you can choose to:

  • eat and buy local
  • travel cleanly
  • practise conservation
  • drink tap water

Find out more about what you can do.

Being accountable and transparent

By law, all proceeds from cap and trade must be invested in a transparent way into projects that reduce greenhouse gases, create good jobs in clean tech and construction, generate opportunities in investment in Ontario, and help people and businesses transition to a low-carbon economy.

Ontario has taken strong measures to ensure its cap and trade program is accountable, responsible and transparent.

Cap and trade proceeds will be put into a new dedicated Greenhouse Gas Reduction Account. The funding will be used for projects and priorities identified in Ontario’s five-year Climate Change Action Plan.

Under the Climate Change Mitigation and Low-carbon Economy Act, Ontario must report to the public every year on:

  • the status of the Climate Change Action Plan
  • funds tracking in and out of the Greenhouse Gas Reduction Account including:
    • proceeds from the cap and trade auctions
    • initiatives funded by the account
    • information on the amounts used to administer and enforce the act and regulations
  • the Environment and Climate Change Minister’s evaluation of initiatives before cap and trade proceeds are used to fund them. This review must consider several criteria including:
    • potential greenhouse gas reductions
    • how the initiative will help the province achieve its emissions reduction targets
    • whether the initiative could help low-income households and vulnerable communities transition to a low-carbon economy
Updated: July 12, 2021
Published: September 30, 2016