Ontario's gas utilities cost for complying with the province's carbon goals will heavily depend on whether Ontario links with California and Quebec's cap-and-trade program as planned.

Ontario has said it hopes in 2018 to link its emissions market with the existing one with California and Quebec under the Western Climate Initiative. If the province moves ahead with that plan, the larger marketplace will help keep carbon costs down long-term, relative to a scenario in which Ontario kept its carbon market within its own borders only, according to a report the Ontario Energy Board released May 31.

"The Ontario carbon price would follow an entirely different trajectory for an Ontario-alone market versus a linked WCI [or Western Climate Initiative] market," said the report, produced by ICF Consulting Canada Inc. "This is because Ontario is expected to be short of allowances from early in the program if Ontario emitters are unable to buy emissions units (allowances and offset credits) from WCI partner jurisdictions."

The Ontario Energy Board in September 2016 laid out a regulatory framework for how the gas utilities' cap-and-trade activities will factor into their cost recovery. The trade-able emissions credits will factor into consumer rates, subject to board approval.

ICF said that in an Ontario-only market where demand exceeds supply early on, the government would have to intervene to prevent price shock and market failure, and ICF's carbon price forecast analysis assumed that the provincial government would not let prices skyrocket in the nascent marketplace. Under any scenario, the carbon cost would rise over time to encourage carbon emission reductions.

The report projected a minimum 2018 carbon cost of $17 per tonne of carbon dioxide equivalent, or CO2e, and a maximum of $67, depending on whether Ontario joins the Western Climate Initiative market or not. By 2028, the gap between the two scenario would widen, with a carbon cost of $27 per tonne of CO2e if Ontario links with the initiative or $108 if the province remains isolated, ICF said.

Ontario has set provincial greenhouse gas emissions reduction targets of 15% below 1990 emissions levels in 2020, 37% in 2030, and 80% in 2050. These are intentionally aligned with the goals California and Quebec have set to help facilitate linking the carbon markets.

Ontario's first credit auction was held in March, and the province's deadline for 2016 emissions reporting will be in June, shortly preceding the second auction. Electricity importers, gas utilities emitting at least 25,000 tonnes of greenhouse gases annually, and fuel suppliers that sell more the 200 liters of fuel per year are all required to participate in the province's cap-and-trade program.