The expected impact on Ontario’s economy of the Western Climate Initiative

Competitiveness in the context of carbon pricing is generally narrowly understood as the impacts on emission-intensive and trade-exposed (EITE) industries. A full and informed discussion of the impact of climate policy on competitiveness is needed to give policy-makers a more accurate picture of how to plan and deliver climate policy options.

Considering Ontario as a test case, only about 15% of its total greenhouse gas (GHG) emissions come from sectors that could be considered EITE, representing about 1% of Ontario's GDP, or about 5.9% of goods-producing sectors’ GDP. Only four sectors are likely EITE: iron and steel, basic chemicals, lime and cement. The figure below shows which sectors are exposed when looking solely at EITE factors.

Figure: EITE Exposure as a share of Ontario's GDP: 1% of GDP "Carbon Exposed"

While these sectors do not represent a significant proportion of Ontario’s GDP, they are concentrated in certain locations, playing important roles in the local economy, such as the iron and steel industry in Hamilton.

But the fact is that Ontario’s economy is largely service-based, and these sectors are less carbon-intensive and therefore less exposed to carbon pricing. In addition, Ontario’s economy may be carbon-advantaged when compared to other neighbouring jurisdictions, simply because its electricity sector is already largely decarbonized, as hydro, nuclear and renewables comprise most of the province’s power generation capacity.

When looking at the overall expected effects of the policy, there are few clear overall winners and losers, as the sectors that benefit vary by each factor. There will be some adverse impacts, but there will also be opportunities for many sectors. Competitiveness is a function of many factors, not just the level of emissions-intensity and international trade exposure. For this reason, a broader look at the impacts of WCI on Ontario, as in SP’s new Policy Brief, is warranted.

Related Materials:

Policy Brief: Carbon Exposed or Carbon Advantaged? Thinking About Competitiveness in Carbon-Constrained Markets