Was Trudeau’s ‘Grand Bar­gain’ just a lit­tle too clever?

The Globe and Mail (Prairie Edition) - - OPINION - ANDREW POT­TER CHRISTO­PHER RAGAN

A new pipe­line and a car­bon price to re­duce emis­sions each stand as vi­able, sep­a­rate poli­cies that would please dis­tinct groups; by ty­ing them to­gether, they please no one

Andrew Pot­ter is an as­sis­tant pro­fes­sor at the McGill In­sti­tute for the Study of Canada.

Christo­pher Ragan is an econ­o­mist and di­rec­tor of the Max Bell School of Pub­lic Pol­icy at McGill Univer­sity in Mon­treal.

When the Trudeau Lib­er­als came to power in 2015, they made two seem­ingly con­tra­dic­tory prom­ises: to bring Canada’s re­sources – in­clud­ing land­locked bi­tu­men from Al­berta’s oil sands – to world mar­kets, and to im­ple­ment a na­tional cli­mate-change strat­egy with a car­bon price as its cen­tral el­e­ment. Each prom­ise an­gered dif­fer­ent peo­ple.

Hard-core en­vi­ron­men­tal­ists sup­ported a car­bon price to re­duce green­house gas emis­sions, but ar­gued that ex­panded pipe­line ca­pac­ity would sim­ply lead to more oil pro­duc­tion and more emis­sions. Hard-core busi­ness types favoured a new pipe­line for its eco­nomic ben­e­fits, but feared the dam­age to our com­pet­i­tive­ness caused by a broad-based car­bon price. There was lit­tle or no com­mon ground for th­ese groups.

To re­solve the ap­par­ent con­tra­dic­tion, and to unite the di­vided fac­tions, the Lib­eral plan was – in ef­fect – to pur­chase the new pipe­line with the car­bon price, what many now re­fer toast he“grand bar­gain .” The price on car­bon would help gen­er­ate the“so­cial li­cence” that would al­low a new pipe­line to get built. As Justin Trudeau put it, “gov­ern­ments grant per­mits, but com­mu­ni­ties grant per­mis­sion.”

For a while, it ap­peared that this strat­egy was work­ing to bridge the di­vide. But it has now be­come clear that the re­sult has been an even more po­lar­ized de­bate, with par­ti­sans on each side stack­ing up like sea con­tain­ers in a busy port. No­body likes hav­ing the for­tunes of their po­lit­i­cal hobby horses tied to those of their op­po­nents, but what went largely un­chal­lenged was the un­der­ly­ing logic of the Lib­eral plan: A car­bon price is the tribute that the vice of the oil sands must pay to the virtue of cli­mate-change mit­i­ga­tion. But what if the “grand bar­gain” was a mis­take, not just as a mat­ter of po­lit­i­cal cal­cu­la­tion, but also in terms of eco­nomic co­her­ence? What if new pipe­lines shouldn’t be seen as the vice per­mit­ted with the virtue of car­bon pric­ing? Be­cause as it hap­pens, the eco­nomic arguments for both poli­cies stand on their own mer­its.

The eco­nomic case for build­ing a new pipe­line is straight­for­ward. Crude oil from Al­berta cur­rently sells at a steep dis­count com­pared with the world price, mostly be­cause of the lim­ited pipe­line ca­pac­ity avail­able to move the oil from Al­berta to tide­wa­ter. Much of it ends up get­ting moved out by rail, which raises costs con­sid­er­ably. And so the case for build­ing ad­di­tional pipe­line ca­pac­ity is to bring more Cana­dian oil to the world mar­ket at a bet­ter price. It is about max­i­miz­ing the re­turn to pro­duc­ers for what is a global com­mod­ity that will be in high de­mand for many more years.

The eco­nomic ra­tio­nale for a na­tion­wide car­bon price is sim­i­larly com­pelling. Hu­man-caused cli­mate change is fun­da­men­tally a global col­lec­tive-ac­tion prob­lem. Ab­sent a global govern­ment that could en­force com­pli­ance, the only ef­fec­tive mea­sure in­volves ac­tion at the na­tional level in ac­cor­dance with in­ter­na­tional treaties. The Lib­eral plan to em­pha­size car­bon pric­ing, rather than the use of more in­tru­sive and pre­scrip­tive reg­u­la­tions, should ac­tu­ally ap­peal mostly to those peo­ple – in­clud­ing, or even es­pe­cially, con­ser­va­tives – who rec­og­nize and value the power of mar­kets. Car­bon pric­ing can re­duce green­house gas emis­sions at a far lower eco­nomic cost than can “com­mand and con­trol” reg­u­la­tions.

The key point here is that the ar­gu­ment for a pipe­line is dis­tinct, both log­i­cally and eco­nom­i­cally, from the ar­gu­ment for a na­tion­wide car­bon price, and the co­gency of one does not de­pend on the co­gency of the other. The case for the new pipe­line would be solid even if there were no need for a car­bon price. By the same to­ken, the ar­gu­ment for abroad-based car­bon price would have merit even if Canada pro­duced no oil, or if Al­berta’s oil sands did not ex­ist, or if the oil be­came too ex­pen­sive to bother ex­ploit­ing.

Given the cur­rent mess – with ma­jor ob­sta­cles be­ing thrown in front of new pipe­lines and the fed­eral car­bon-pric­ing plan en­coun­ter­ing se­ri­ous po­lit­i­cal op­po­si­tion – it’s hard not to con­clude that th­ese two things should have been kept po­lit­i­cally dis­tinct as well. The Trans Moun­tain pipe­line, now owned by the peo­ple of Canada, had its con­struc­tion halted by a fed­eral court, which forced the govern­ment into fur­ther con­sul­ta­tions. And the re­cently re­leased de­tails of the fed­eral car­bon-pric­ing plan is run­ning into strong po­lit­i­cal head­winds at both the fed­eral and pro­vin­cial lev­els. Saskatchewan and On­tario are chal­leng­ing the plan in court, and they will likely get en­thu­si­as­tic sup­port from fed­eral Con­ser­va­tives and the govern­ment of Man­i­toba.

In treat­ing th­ese two dis­tinct eco­nomic poli­cies as po­lit­i­cal con­joined twins, the Trudeau govern­ment en­sured that the most ide­o­log­i­cal mem­bers of the elec­torate, on two of the most po­lar­iz­ing poli­cies imag­in­able, would have a stake in both. The prob­lem with this sit­u­a­tion­ist hat for the ide­o­logues there sim­ply is no com­pro­mise pol­icy: Ar dent en­vi­ron­men­tal­ists still want to deny new pipe­lines, and hard-core busi­ness in­ter­ests still want to kill the car­bon price. With this dynamic, fail­ure of the“grand bar­gain” might have been in­evitable.

But it didn’t have to be this way. A re­cent poll by Aba­cus sug­gests that a lot of Cana­di­ans are ac­tu­ally not that worked up about ei­ther the pipe­line or car­bon pric­ing. Ac­cord­ing to the poll, 34 per cent of Cana­di­ans favour the ex­pan­sion of the Trans Moun­tain pipe­line, 20 per cent op­pose it, but 46 per cent sim­ply have no strong views. A sim­i­lar pat­tern emerges with car­bon pric­ing, where 34 per cent sup­port it, 35 per cent op­pose it, and 31 per cent have no strong views one way or the other.

Maybe the peo­ple with “no strong views” are sim­ply puz­zled, un­sure what to think on two is­sues that are com­plex and seem­ingly at odds with one an­other. And given the fed­eral govern­ment’s fail­ure to clearly ex­plain why new pipe­lines and car­bon prices both make sense, maybe we shouldn’t be too sur­prised at th­ese sur­vey results.

But it also sug­gests that the ap­pear­ance of Canada as a coun­try sharply di­vided over pipe­lines and car­bon pric­ing is lit­tle more than an ar­ti­fact of a flawed po­lit­i­cal process. A more sen­si­ble strat­egy might have been to de-link the pipe­line and car­bon pric­ing, pur­su­ing each pol­icy on its own mer­its and qui­etly build­ing a work­able coali­tion for each in turn.

In­stead, Canada is like the prover­bial man who chases two rab­bits and catches none. In­stead of a Pan-Cana­dian Frame­work get­ting us the eco­nomic ben­e­fits of a new pipe­line and a car­bon price to re­duce green­house-gas emis­sions, it’s en­tirely pos­si­ble that we will end up with nei­ther.

CHAD HIPOLITO/THE CANA­DIAN PRESS

Peo­ple protest­ing the Trans Moun­tain pipe­line await the ar­rival of Prime Min­is­ter Justin Trudeau as he vis­its forestry work­ers in Dun­can, B.C., in Au­gust.

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