Trudeau to Force a Hybrid Carbon Price on Holdout Provinces
by Josh Wingrove
May 18, 2017, 10:00 AM CST
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Canada’s federal government will tax fossil fuels and cap industry emissions in any province that doesn’t bring in its own carbon price.
Prime Minister Justin Trudeau’s government revealed a “backstop” plan Thursday in Ottawa that would essentially force the minimum carbon price he announced last year onto holdouts. He’s also pledged to return any revenue, though has yet to determine whether the funds will go to provincial governments or directly to citizens and businesses.
Saskatchewan, home to mining giants Potash Corp. of Saskatchewan Inc. and Cameco Corp., is the foremost objector and has threatened legal action. The carbon price also comes amid warnings Canada could be at a competitive disadvantage with the U.S. under President Donald Trump’s administration.
The federal plan, detailed by Environment Minister Catherine McKenna’s office, is a mix of a carbon tax for consumers and a cap-and-trade system for major industry. It is akin to the system used in Alberta, Canada’s energy hub and biggest emitter.
Industrial firms emitting over 50 metric kilotons each year would face caps on emissions, paying fines if the cap is exceeded and earning credits, which could be sold to other firms, for staying under. The federal backstop would also include a tax on fossil fuels that amounts to 2.3 Canadian cents per liter of gasoline in 2018, rising to 11.6 cents per liter in 2022 (roughly 32 U.S. cents per gallon).
“Polluters should pay,” McKenna said in an interview. “And if you figure out how to innovate, you will pay less.”
Exemptions and Application
There are a series for exemptions, including for commercial buildings, hospitals and some farming activities. The tax on fuels kicks in next year, while the industrial “output-based pricing” begins Jan. 1, 2019.
The plan would only affect provinces that don’t design their own carbon-pricing regime, or those whose systems fall short of federal standards. Trudeau’s government is “evaluating” if it will send the tax revenue to people and businesses rather than to provincial governments. That gives skeptical premiers a choice: They can impose their own price and manage the revenue from it, or refuse and see the money flow to individuals and firms.
“We feel provinces are best able to determine what system makes sense for them,” McKenna said.
Trudeau announced last year that Canada would set a minimum carbon price of C$10 per metric ton in 2018, rising to C$50 per ton in 2022, and pledged the federal government wouldn’t use any of the revenue. Canada’s four most populous provinces already have some form of carbon price.
Wall and Trump
Saskatchewan Premier Brad Wall, a conservative, has pledged a court battle over the federal plan. McKenna said she’s confident in her government’s legal position and called on the province to implement its own price.
Her chief of staff and parliamentary secretary met with Wall’s representatives early this week to discuss the issue, she said. “Saskatchewan had on the table a proposal that was not all that different to deal with heavy emitters,” she said. “My message is you have an opportunity to design a system that makes sense for you.”
Trudeau’s environment minister brushed aside concerns about the impact on business given the less proactive U.S. stance under Trump, saying industry has been consulted. “This is a system we believe actually does respond to those competitiveness concerns,” McKenna said.
The proposals detailed Thursday are part of what the government calls a technical paper, and it is taking public comments until the end of June before unveiling its final carbon pricing system.