It may be the finest addition to the life of the people of Ontario since OHIP, but Cap and Trade leaves many people wondering what it is and how it really works. Cap and trade is described by its advocates as the most economically sensible approach to controlling greenhouse gas emissions, the primary driver of global warming. The “cap” sets a limit on emissions, which is lowered over time to reduce the amount of pollutants released into the atmosphere. The “trade” creates a market for carbon allowances, helping companies innovate in order to meet, or come in under, their allocated limit. The less they emit, the less they pay, so it is in their economic incentive to pollute less. What many fear is that if businesses and corporations are financially punished for their pollution emissions, the costs will eventually be handed over to the consumers. Basic economic principles state that if a good’s price increases, demand usually decreases. However, because energy production is an inelastic good, utility companies can drive up their sale price to cover their rising production costs without seeing a decrease in demand from their customers. All of this becomes all-too-real at Premier Wynne signs an agreement today (Monday, April 13, 2015) with Quebec to create a system of cap and trade.
