Ontario's new green tax

Much to the chagrin of the politically conservative, Ontario’s cap-and-trade regime on carbon has officially taken effect. Hailed as the focal point of Ontario Premier Kathleen Wynne’s grand plan on climate change, the cap-and-trade system aims to slash greenhouse gas emissions by placing limits on the amount of emissions industries and businesses can produce.

Briefly, here’s how the new system works: if a business does not exceed its designated limit on GHG emissions, it’s allowed to sell the difference to another business. If it does go over its limit, it must then purchase “carbon credits.” Here’s what’s important to you and me: The cost of purchasing these “credits” will inevitably be passed down to the consumer, because frankly, very few profit-making entities would absorb a government-imposed tax for the sake of Planet Earth.

Gasoline prices

It is estimated that the price of gasoline will rise by 4.3 cents per litre. That effectively adds up to an average of $8 per month, if you’re not the kind of person who takes frequent road trips. So that’s an extra $96 in a year. The average Canadian household spends approximately $11,891 on transportation annually (2014 numbers), so an additional $96 is a mere 0.8 percent increase in what you spend on getting around. Not substantially significant, especially if you take into account the fact that 34 percent of total Ontario GHG emissions come from transportation.

However, gas prices often react to the expectation of increased costs to the average consumer. GasBuddy.com, a popular website that tracks and attempts to predict gas prices across North America, has estimated that gas prices will rise by 4.4 cents per litre, and by the end of the year, Ontarians could be paying $1.20 per litre of gas, up roughly 20 percent. Keep in mind though, this is just one estimate. Gas prices are mostly driven by the price of crude oil, and other factors like refining costs, geopolitics, and weather.

Heating bills

More than three-quarters of homes in Ontario use natural gas for heating. A study commissioned by the province to analyze the impact of cap-and-trade on the average consumer, has estimated that the average heating bill will go up by about $5 per month, and $156 per year for the average household. If you break this down in percentage terms, the average household spends roughly $4,344 on household operations (water, electricity, gas, etc), so you’re basically going to be spending 3.6 percent more per year on utilities because of the cap-and-trade system.

The Ontario Energy Board has actually come up with quite a nice list of what you’ll pay depending on who your gas provider is. The typical Enbridge customer will see a monthly increase of $6.40. Union Gas customers can expect to pay between $4.65 and $13.54 more a month, depending on the area in which they live, and if you’re an NRG customer, you’ll probably see an increase of $6.98 on your monthly gas bill.

Taxes are often imposed as disincentives to consume a particular good. The reason why Canadians pay more for alcohol, for instance, is because taxes are added to the price, raising it beyond what it is priced at by the manufacturer. That’s exactly what the Ontario government intends to do with this cap-and-trade plan — making you pay more so you change the amount you drive around, or heat your home. So yes, you will definitely see a slight increase in your cost of living per month but that increase is pretty much insignificant if you’re middle-class. The more problematic consequence of this program is financial toll it will take on those who live below the poverty line, who are ironically the demographic of people who contribute least to carbon pollution.

Follow Vanmala on Twitter