The Other Upside of a Price on Carbon

There has been a lot of negative commentary and analysis on Ontario’s recently announced carbon cap-and-trade proposal. The summary would be (1) cap-and-trade programs are overly complex, open to ‘gaming’ of the system, and consequently no global jurisdiction has successfully implemented such a program; and (2) the program is not tax neutral in that it will increase the overall tax base for Ontario businesses at a time when they are struggling with high electricity prices driven by the Green Energy Act. Most experts in the industry prefer a revenue neutral carbon tax, which is easier to implement and has proven effective in a number of jurisdictions, including British Columbia.

Regardless of whether Ontario implements a cap-and-trade system or a carbon tax (my preference), the greatest benefit to the planet may not be the reduction in Ontario’s carbon emissions (as Ontario accounts for just 0.5%of global carbon emissions). The greatest benefit may in fact have a much larger upside.

A price on carbon will drive the need for innovation, creating a market for emerging ‘clean’ technologies. Ontario is a world leader in clean technology. If we combine the right funding programs and policy changes with Ontario’s carbon pricing program we can help our cleantech startups become global powerhouses.

Thus, the greatest benefit of Ontario’s price on carbon and contribution to global climate change may be the opportunity to demonstrate breakthrough technologies — Made in Ontario — that can be commercialized globally to reduce overall carbon emissions much more than a single percent. For example, we at ArcTern Ventures have two portfolio companies in the solar sector, Morgan Solar and Sparq Systems, that will dramatically decrease the cost of solar. If these technologies combined are ‘the drops in the bucket’ that make solar energy more economical than fossil fuels in a large jurisdiction, the carbon reduction impact will far exceed that of Ontario’s local carbon reductions resulting from its price on carbon.

Building global cleantech leaders in Ontario would not only be a meaningful contribution to solving global climate change, it would result in enourmous economic benefits to this province. The global cleantech market will grow to $3 trillion by 2020 (Analytica Advisors). If Canada captures just 2% of the global cleantech market (on par with our share of global GDP), we could build a $50+ billion industry in Canada with more jobs than our oil & gas sector. This economic benefit could far outweigh any lost jobs and revenue in the province associated with the implementation of a carbon pricing program.

Lets make sure we get the programs for cleantech innovation right!

Originally posted May 5, 2015 on the