Carbon makes bad bargains

Can it have been just last month that B.C. premier Christy Clark was firmly refusing to raise the provincial carbon tax under her government’s new climate plan? At an August press conference in Richmond, B.C., Clark said she needed to balance leadership on carbon taxes with “the obligation to ensure that family affordability is at the forefront of our minds as well as protecting our economy and job creation.”

But the politics of carbon move swiftly in Canada these days; blink and you might miss a complete policy reversal. This week the federal Liberals announced they were approving the Pacific NorthWest LNG plant that Clark so badly wants. But in addition to the 190 conditions imposed by the Canadian Environmental Assessment Agency, including unexpectedly strict limits on carbon emissions, federal Environment Minister Catherine McKenna announced that B.C. had also agreed to one political condition: “To increase its price on carbon in line with the Pan Canadian Framework.” That’s the name of the national carbon-tax scheme the Trudeau government is trying to drag the provinces into agreeing with — although McKenna has suggested she’ll force any dissenters to comply anyway.

Up until this week, it looked like Clark might become one of those dissenters, alongside Saskatchewan’s Brad Wall and Nova Scotia’s Stephen McNeil, who are both against carbon taxes entirely. Clark has long been clear that she’s hesitant to hike carbon taxes higher than the $30 a tonne they’re at now. In the 2013 election campaign she promised to freeze the tax for five years, until 2018. The fate of that promise is now in the hands of the Trudeau Liberals. It’s certainly plausible they have no plans to force Clark to break her word; B.C. is currently pricing carbon higher than other provinces, so it seems unlikely the Trudeau Liberals would demand an even richer price within just the first couple years of their great national carbon price experiment.

But that’s now up to Ottawa, not Clark. B.C. has now sacrificed its carbon- tax sovereignty to secure federal approval for an LNG plant. The plain implication, of course, is either the federal government gave its blessing in exchange for a tax concession to a project it otherwise wouldn’t have, or it demanded a tax concession for a project it should have approved anyway based strictly on its merits. Either way, this looks like a tawdry bargain that reflects poorly on the Trudeau government’s approach to approving energy infrastructure.

But with the government eager to flaunt its climate bona fides at the upcoming UN climate summit in Morocco in a few weeks, its bigger priority is quickly hammering out a national climate consensus, making carbon measures the new currency of the Confederation.

Provincial and territorial leaders have already indicated that they’ll try leveraging the Trudeau government’s hunger for a carbon-tax plan to extract larger health transfers from Ottawa. On Wednesday, the CBC revealed that provincial and territorial leaders sent a letter to Prime Minister Justin Trudeau linking their climate co-operation with his agreeing to meet over their demands for larger health transfers: “In the spirit of collaboration and to reflect the importance of this (health-care funding) issue, we believe that this meeting should be confirmed prior to the first ministers’ meeting on climate change and clean growth.”

The idea of the provinces and Ottawa swapping carbon credits for health-care dollars already has the support of Chris Ragan, the McGill economist who chairs the carbontax advocacy Ecofiscal Commission. He told The Globe and Mail this week that since Ottawa would probably end up capitulating on more health care funding, it may as well demand climate conformity in return. “The more things you choose to put on the table, of course it becomes more complicated, but it also becomes a lot easier,” he told the Globe. “Because one of the things you bring to the table is a bunch of money.”

Whether it’s the premiers using carbon as a bargaining chip to extract funding concessions from Ottawa, or Ottawa making carbon the ante in its game of granting energy infrastructure approvals, prudent federal-provincial policy-making has clearly taken a backseat to climate bartering. As the old anecdote about the socialite and the million-dollar proposition goes, we’ve established what the first ministers are — now it’s just a matter of haggling over their price.

Already, it’s questionable how much of value Clark actually extracted from her pact with Ottawa. The federal government’s long list of conditions attached to its approval of the Pacific NorthWest LNG project, including a cap on emissions 17 per cent lower than the plant’s proponents required, has already sent Petronas, the Malaysian company leading the plant consortium, into a months-long review over whether to proceed at all. Since the project was proposed, LNG prices have fallen more two-thirds in the Asian market Pacific NorthWest was meant to supply. That has a lot of industry watchers doubting Petronas will deem the B.C. project to be any longer worth so much hassle and expense. There’s a real risk Clark sold out her province’s control over its carbon taxes for a mess of pottage.

It’s a cautionary tale Alberta should keep in mind as it looks to secure Ottawa’s approval for several proposed pipelines. And Saskatchewan and Nova Scotia might also beware before they give up their fight against Ottawa’s carbon-tax incursion for some temporary funding promise. The premiers may ultimately be forced to submit to Ottawa’s carbon demands, but if they resist, they at least make the federal Liberals wear the blame for any future tax increases. Health-care formulas and infrastructure approvals come and go, but carbon taxes are forever.