Provincial carbon tax revolt could be a blessing in disguise for federal Liberals

Posted on July 21, 2018 in Debates – Opinion – Leaving carbon pricing to the provinces never made much sense as policy. Its attraction was purely political — to get them to take the heat for a federal initiative
July 20, 2018.   Andrew Coyne

Going into this year’s meeting of the premiers, in their usual drag as the Council of the Federation, the talk was all about the need for unity.

The country’s economy was under attack from Donald Trump. It was time for premiers to get serious, at long last, about dismantling the barriers to trade between the provinces, 151 years after the Confederation whose explicit purpose was the creation of a single national market.

Conference host Brian Gallant of New Brunswick acknowledged to an interviewer there had been calls “for us to do better when it comes to internal trade because of what’s happening in the U.S.” He may have had in mind a letter he had received from the president of the Canadian Chamber of Commerce, Perrin Beatty. “The competitiveness of Canadian businesses is eroding,” he wrote. “The issue has become even more urgent as a result of U.S. tax and regulatory reforms and of the attack on our trading relationship with our largest customer.”

This might strike some as odd. Hadn’t the premiers fixed this already? Wasn’t it just over a year ago that the provinces were congratulating themselves on the grandly named Canadian Free Trade Agreement, resolving the issue once and for all? Of course, that 329-page document contained 167 pages of exceptions, but still, it was a huge improvement, was it not, on the previous Agreement on Internal Trade, unveiled with no less fanfare in 1995?

Apparently not. A year later, the president of the Canadian Federation of Independent Business tells the CBC that virtually no progress has been made: “I don’t think there’s anything that has changed.” Hence the sense of anticipation before this week’s meeting: this time would be different! “I believe the appetite will be there,” Gallant said. “I sense from my colleagues that there’s a willingness to take concrete action.”

And the result? The premiers — sorry, the Council — agreed to increase, slightly, the amount of beer and wine that could be brought across provincial borders. There was talk the limits might even be doubled — from three cases of beer to six! — but in the end even that commitment was scrubbed as too ambitious.

As for the rest, the premiers agreed to “immediate and meaningful” action on such urgent priorities as harmonizing export rules for abattoirs and setting common standards for First Aid courses.

So, this time was … pretty much the same. But no matter. The premiers will meet again this fall, this time with the prime minister. Surely he can succeed where others have failed. After all, wasn’t it this prime minister who, a little over two years ago, coaxed and cajoled the premiers into signing the “Vancouver Declaration,” committing them all to — or committing them to discussing — a “pan-Canadian framework” for reducing Canada’s greenhouse gas emissions, notably by the use of “carbon pricing mechanisms,” albeit “adapted to each province’s specific circumstances.”

Yeah, about that. It is not happening. Even at the time, it was evident the “consensus” at Vancouver depended on defining carbon pricing to mean almost anything: to Saskatchewan, it meant carbon capture and storage; to Nova Scotia, overpriced hydro-electricity; and so on. The one thing it does not appear to mean to several of the premiers, it is increasingly clear, is pricing carbon.

Two provinces, Saskatchewan and Ontario, are now flatly opposed, Ontario’s incoming Conservatives having scrapped the previous government’s nascent emissions trading system. Two others, Prince Edward Island and New Brunswick, seem equally unwilling to proceed. Alberta, which has a carbon tax, may well eliminate it, should Jason Kenney’s United Conservatives win next spring’s election.

Could others follow, now that the federal plan has lots its air of inevitability? Manitoba was halfway to complying — will it go any further? Has oil-producing Newfoundland ever really been on board?

The provinces are each supposed to have a carbon pricing plan in place by September. In any that have not, the feds have vowed to impose a “backstop” carbon tax — assuming the courts reject the Saskatchewan-Ontario challenge of the tax’s constitutionality. From the size of things, they may have to impose it in at least four and as many as seven provinces (assuming B.C., Quebec and Nova Scotia do not flip).

But wait. Is that necessarily such a bad thing? The idea of leaving carbon pricing to the provinces was always a second-best to a single national carbon pricing regime. Businesses would have to navigate 10 (13, including the territories) different models, with different rules, different exemptions, even different prices.

It never made much sense as policy (adapting to “specific circumstances” is the whole point of carbon pricing). Its attraction was purely political — to get the provinces to take the heat for a federal initiative. With the public increasingly skittish about the idea, so, unsurprisingly, are the provinces.

Fine. If the provinces don’t want to play, Ottawa can and should proceed without them. A federal carbon pricing plan would not only offer the virtues of simplicity. It would also free the feds to tailor it to their own designs, rather than taking on whatever half-baked or watered-down plans the provinces threw at them.

Specifically, it would permit a more aggressive pricing schedule, of a kind that people might believe would actually work — and which would provide the revenues with which to finance equally deep and fast cuts in personal and corporate income taxes. Remember that Trump challenge? Maybe internal free trade is beyond us, but carbon-fuelled tax reform is eminently feasible.

I know what you’re thinking. Didn’t the Liberals try and fail to sell this under Stéphane Dion — the famous Green Shift? Yes, but quite apart from the obvious differences in both plan and salesman, this one would have the signal advantage of being already in effect: not some distant promise, but a concrete reality. If implemented in next year’s budget, the tax cuts could be in place well before the fall election.

That election is already shaping up as a referendum on the carbon tax. The least the Liberals could do is make it a fair fight.

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