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Cap and trade’s potential impact on Ontario jobs

September 27, 2016

2-minute read

This spring the Ontario Government introduced legislation that lays the groundwork for a greenhouse gas cap and trade system and is the legislative basis for Ontario joining Quebec and California in the Western Climate Initiative. Setting emission reduction targets and putting a price on carbon are essential to combat climate change. This legislation is a decent start, but there is more that needs to be done on a number of issues: internationally traded goods, use of the funds that are raised, and just transition for workers in carbon-intensive industries.

The government has made only broad statements acknowledging the connection between jobs and the cap and trade legislation, stating: “good environmental policy is good economic policy. Reducing our use of fossil fuels, such as coal, oil and gas, will create jobs now and form a central pillar of our prosperity in the coming years.”

Its focus is frequently on start-ups that may emerge, or on promoting private electric car ownership rather than public investment. The hope seems to lie in incentives for private business to take on large-scale shifts that will be required rather than a focus on the need for large-scale public projects like transit infrastructure.

This sidesteps the issue that government will have to lead the way to protect workers from mass job displacement as a result of this policy.

The steel industry is an example of the kinds of industries and worker that will be affected. According to the Canadian Steel Producers Association, the industry in Canada provides 20,000 direct and 100,000 indirect jobs, many of which are unionized and located in Ontario. As an energy-intensive, trade-exposed industry, GHG emission reduction efforts will have a negative impact on workers in this sector.

The initial four-year exemption for large industrial emitters may be a short-term solution. However, we need a more comprehensive plan to deal with the threats posed by carbon leakage and trade agreements over the longer-term.

The solution to reducing emissions from energy-intensive industries cannot be to offload our emissions to other jurisdictions where emissions standards and wages are lower, while causing the loss of many well-paid jobs in Ontario. Any broad-based climate change strategy must ensure that this type of carbon leakage does not occur.

The steel industry provides an example of the employment and environmental impacts of carbon leakages. Along with low wages for workers and inadequate health and safety standards, steel from places such as China and India has a much larger carbon footprint than the steel made in Ontario. This is a result of production methods, types of electricity used in steel making, and emissions from transportation.

Options to address these leakages include tariffs, taxing imported steel to reflect the environmental cost of production and transportation, and investing in the domestic steel industry to compete with the state subsidies in other jurisdictions.

Ontario, as a sub-national jurisdiction, has somewhat limited options, but that does not mean it has none. It could press the federal government to impose border carbon adjustments to ensure that the true environmental price is reflected in the cost of imported steel.

Along with those efforts, the government must also make concrete plans to address the impact on workers in these industries. That should include utilizing the planned Greenhouse Gas Reduction Account to help displaced workers transition into new areas of work.

There is promise in this account, and it should be used to mitigate some of the economic and social impacts of a shift to a decarbonized economy, and it should be explicitly laid out in the guidelines.

One area for the account to make its mark would be to set up a transition fund for workers who may be displaced by emissions legislation and a shift towards a less carbon-intensive economy. Similarly, marginalized groups who might bear a disproportionate impact of a transition to a lower-carbon economy as a result of higher electricity prices, should also benefit from the fund. These kinds of specifics need to be added to the guidelines on the use of the funds.

Border adjustments, intelligent use of the Greenhouse Gas Reduction Account, and involvement of workers to help determine the best way to shift towards a less carbon-intensive economy are necessary to ensure this legislation is effective.

Meg Gingrich is a researcher with the United Steelworkers’ Canadian national office.

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