TRUDEAU GIVES AN INCH ON CARBON-TAX REGIME
Demands for similar exemptions could undermine key Liberal policy
Prime Minister Justin Trudeau and his Liberals just gave an inch on carbon taxes. They may find themselves soon forced to retreat a mile.
The Liberals’ inch of concession isn’t that impressive. Last Wednesday, the government announced that the formula for calculating carbon taxes for export-focused heavy industrial emitters would be changed.
Under the previous formula (a complicated one, even by tax law standards), large industrial emitters — those releasing 50 megatonnes of carbon dioxide annually or more — would have received a subsidy per each unit of production, up to a value of 70 per cent of the average sector-wide cost of that unit. The subsidy, in the form of a tax break, is designed to see that companies exporting steel, iron, lime, nitrogen fertilizers and cement are not at a disadvantage in export markets in competing against producers from countries with no carbon tax (i.e., nearly every other country on earth) or with lower carbon taxes. The sweetener is that if companies can produce with even more efficiency than the industry average, they end up with more money (their excess allowances could be banked for future years or sold to other producers). Less efficient competitors would be given an incentive to improve, in hopes of getting their emissions below the 70-per-cent-average subsidy. Presumably, as companies raced to become more efficient, the average cutoff would drop with time, putting continuous downward pressure on emissions.
That was the plan, at any rate. The Liberals now say they’re increasing the subsidy to at least 80 per cent of the sector average and in some cases they’ll be going as high as 90 per cent. This is not, per se, a cut to the carbon tax, but it’s certainly going to have a similar effect: Under the new plan, large industrial emitters will pay less to emit the same amount of carbon. This is apparently in reaction to strong opposition from large industrial companies that the carbon taxation plan the Liberals had proposed, intended to enter into effect next year, would cripple their operations in a time of increased competition from the United States and already rising trade barriers.
It’s not a huge tweak but it’s significant for its symbolism. The Liberals have certainly never hesitated to hurl an unpopular or surprisingly complicated election promise over the side of the ship of state (electoral reform, anyone?). But even as they’ve abandoned other high-profile promises, they’ve doggedly stuck to their proverbial guns on carbon taxes. The Trudeau government has long claimed, preposterously, that an escalating carbon tax imposed on a cold country that requires goods and people to travel vast distances and relies heavily on resource extraction and energyintensive production would be harmless to the economy. That they seem to be suddenly acknowledging the serious risks they’re inviting roughly a year out from the next election is telling.
But not surprising. As noted recently in this space, the Liberals are facing much stronger opposition to their carbon-tax proposals than even a year ago, and evidently more than they ever had the good sense to anticipate. Last year, only Saskatchewan was vocally opposed to Trudeau’s ultimatum that all provinces must start taxing carbon or he would do it for them, with the province vowing it would see him in court. Ontario’s new Progressive Conservative government has now joined Saskatchewan, with Attorney General Caroline Mulroney announcing Thursday the province’s beginning of a constitutional challenge to the federal intrusion.
Newfoundland and Prince Edward Island also seem ready to join the cause, while New Brunswick is wavering. Manitoba’s government is pro-carbon-tax for now, except it insists on a pricing formula and schedule that does not satisfy Ottawa, and the province says it will brook no federal interference. Should Alberta’s United Conservatives defeat the provincial NDP next year, which is highly possible, a clear majority of provinces will be resisting the federal plan.
Would the Trudeau Liberals care? That’s a political calculation, and it will be up to them to make it in their own interest. Abandoning their increasingly unpopular tax, or even watering it down, will have obvious appeal but potentially huge consequences — Trudeau has already burned the anti-carbon crowd once by purchasing a pipeline that he says he’s committed to getting built. Will his sizable eco-conscious base forgive him if he steps further back from his government’s climate-change obsession? The Liberals’ emission-reduction targets have already been criticized as too modest, being no more ambitious than those of the previous Conservative government (this after years of Liberals accusing the Conservatives of being climate deniers and laggards).
Only time will tell if this is a one-time compromise, or the first crack in the Liberals’ climate plan. Canada’s energy sector was quick to note that giving a break to industrial exporters but not energy exporters is unfair (although, for the time being Alberta companies are subject to the provincial NDP’S plan, not the federal one). And large industrial emitters that qualify for the 80-per-cent subsidy will soon demand to know why 80 per cent is fair for them while others get 90 per cent. And what about other large emitters in other sectors who didn’t qualify for this little favour? And what about medium-sized ones who also have to compete with foreign exporters? And what have the Liberals got against small businesses, anyway? And why are Big Corporations getting a break while Canadian middle-class families and those working hard to join them don’t?
It’s not hard to keep coming up with various questions this move engenders, and the Liberals probably won’t be eager to answer any of them, particularly in an election year.
But asked they will be. Trudeau has invested much of his political capital in the unproven and increasingly unsustainable notion that carbon taxes buy the social licence that get energy projects completed. He can’t relish the idea of explaining to voters that their families will be bearing the full cost of that scheme — with no meaningful impact on global emissions, mind you — while he parcels out breaks to these hand-picked, heavy-emitting corporations. But that’s where his plan stands now. Let’s just see how long it lasts.
Only time will tell if this is a one-time compromise, or the first crack in the Liberals’ climate plan.