Cap-and-trade: The human resource implications

01 May 2015

The Premier of Ontario, Kathleen Wynne, recently announced that Ontario will be joining the Province of Quebec and the State of California with the introduction of a cap-and-trade system to control and reduce carbon emissions. This announcement comes just months before Canada will be participating in the United Nations climate conference (COP21) in Paris. It is anticipated that in Paris, once again, the world community will be asked at a national level to commit to carbon emission cuts. While there is significant media coverage of the political and economic debate about the effectiveness of various carbon emission reduction strategies, such as cap-and-trade, relatively little is being written about their human resource implications.

Human resource managers in Ontario and elsewhere need to understand and address an increasing array of legal compliance issues. Historically, from an employment and labour law perspective, those issues have included matters such as employment standards, labour relations, occupational health, human rights, workers’ compensation, employment benefits and insurance, pay and employment equity, taxation, privacy, and the common law construct of the employment relationship as being contractual in nature. While this list is by no means complete or exhaustive, it illustrates that, from a human resource legal compliance perspective, there is little in the familiar framework for human resource managers that addresses the impact of climate change (and the efforts or lack thereof to limit climate change) on employment relationships.

Increasingly, human resource managers are going to be hearing the term “Just Transition.” The International Trade Union Confederation (ITUC) has submitted an extensive brief for COP21 regarding the notion that workers should not be responsible for bearing the costs of carbon emission reduction initiatives. That is not to say that the trade union movement does not recognize both the impact of climate change on jobs and the necessity for carbon emission reduction. The ITUC describes Just Transition as, “...the transition towards a low-carbon and climate-resilient economy that maximises the benefits of climate action while minimising hardships for workers and their communities.”

Cap-and-trade, as proposed by Premier Wynne for Ontario employers, will set limits for the amount of carbon a given enterprise will be permitted to emit. Those limits will be backed by the issuance of emission permits that allow a business to emit to a stated limit. A business can in-turn sell any excess permits if those available to it exceed what it requires, or it can purchase additional emission permits if needed at auction or from other entities participating in the system who do not require all of their permits. Government revenue is generated by the sale at auction of additional emission permits.

The theory of a cap-and-trade system is that an employer will be economically rewarded or incentivised to keep its emissions below the extent (the “cap”) of its available carbon emission permits by the opportunity to sell (“trade”) its excess permits and/or avoid the necessity of purchasing additional emission permits. In practice, that economic incentive can and will impact employment relationships. That statement is not intended to adopt any particular position regarding the potential for loss of jobs or become embroiled in the arguments that cap-and-trade is a form of taxation that makes for an uncompetitive industrial environment. Rather, if cap-and-trade has its intended effect of changing how employers go about their business in Ontario, this will likely require technological change, which for unionized businesses will often necessitate negotiation and notice. For unionized as well as non-union employment relationships, the effect of cap-and-trade will also cause employers to engage in forms of management analysis that can lead to the reduction of resource utilization and processes that are identified as  sources of carbon emission. For example, an employer might determine that raw material transport generates significant emissions. Depending upon how those emissions are attributed under the capping system, and their cost, this could lead to changes in such things as logistic practises, sub contracting, resource supply and processing plant location. All of those decisions in turn can and will have human resource implications.

Like so many of the current efforts to promote a less carbon reliant economy in Ontario, we are only at the early stages. Human resource managers  will however need to become comfortable with new concepts such as Just Transition and the reality that the two solitudes of environmental and employment & labour law will increasingly have to address a common ground of compliance in addressing climate change.


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