Minority Report: Carbon tax double down, or back down?

Sunday, October 29, 2023

Carbon tax carve-out

For 15 years, Senior Writer Aaron Wherry writes, political parties in Canada have fought over the idea of a carbon tax. Wherry breaks down yet another development in the carbon tax saga, this one with real policy consequences. Plus — what to expect on Rosemary Barton Live today.

In case you missed it:

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ANALYSIS: Did Trudeau just undermine his signature climate policy, or save it?

Aaron Wherry, Senior Writer

While announcing a package of measures to respond to concerns about the cost of energy in Atlantic Canada on Thursday — a package that quickly triggered both supporters of climate action and foes of the Liberal government — Prime Minister Justin Trudeau called it "an important moment where we're adjusting policies so that they have the right outcome."

The best outcome for the planet (and for Trudeau's government) would be a significant reduction in Canada's greenhouse gas emissions. Ideally, that would be achieved quickly, efficiently and fairly, minimizing the cost and disruption to Canadians and the economy.

On paper, economists generally agree that imposing a price on carbon has to be an integral part of any plan to cut emissions. In practice, the Trudeau government's carbon tax was being blamed for significant unhappiness in the Atlantic provinces, where the federal policy was introduced earlier this year to replace a patchwork of inconsistent provincial policies.

When that unhappiness persisted, Liberal MPs from Newfoundland, Prince Edward Island, Nova Scotia and New Brunswick publicly called on the government to do something.

READ: Ottawa exempting home heating oil from carbon tax for 3 years, Trudeau says

And so, on Thursday afternoon, Trudeau stood in front of a dozen of those MPs to announce a series of adjustments. Whether they'll lead to the outcome he wants is both a political and a policy question — one that might not be answered until the next election.

Two of the measures announced the prime minister are hard to argue with. While all Canadians who live in provinces covered by the federal carbon tax receive a rebate, a "top-up" is added to the rebates for residents in rural areas — accounting for the fact that rural residents have less access to things like public transit.

That supplement will now be doubled. Meanwhile, new programs will be launched in Atlantic Canada to make it easier for people to afford the installation of heat pumps.

But the Trudeau government will also be exempting home heating oil — a significant source of energy in Atlantic Canada — from the federal carbon tax for the next three years. It's on this point that questions about the "right outcome" emerge.

The policy and politics of an exemption

The three-year exemption introduces inconsistency to a policy that works best when it's consistent. As Dale Beugin and Christoper Ragan, two proponents of carbon pricing, wrote last week, "the more policy certainty there is regarding the carbon price and its future path, the more effective the carbon price will be at driving the long-term low-carbon investments required for reducing emissions."

The superior alternative, Beugin and Ragan argued, would be to boost rebates and subsidies to alleviate concerns about the cost.

Prime Minister Justin Trudeau heads into the House of Commons for question period on Tuesday, Oct. 24, 2023. (Justin Tang/The Canadian Press)

When the federal government was setting a national price on carbon between 2016 and 2019, it allowed for a certain amount of inconsistency across provincial systems. Heating oil was, for example, exempted from the carbon tax in Newfoundland and P.E.I. Perfection was not allowed to become the enemy of the good.

But the Liberals had been moving to eliminate those imperfections. And this new exemption — although temporary — inevitably will provoke questions about whether other individuals or concerns should be entitled to special treatment.

MORE: Carbon tax exemption on home heating oil sets climate policies back, advocates say

On cue, the premiers of Alberta, Saskatchewan and Ontario — three politicians who have loudly opposed federal climate policy — publicly demanded on Thursday that an exemption be given to those who heat their homes with natural gas.

Conservative Leader Pierre Poilievre — another loud opponent of Liberal climate action — went further, arguing that the government's moves this week were an implicit admission that the carbon tax is a terrible burden on Canadians and that the country would be better off without it.

Trudeau's Liberals need some good answers to these arguments.

How the carbon tax might be saved

Trudeau argued on Thursday that, regardless of the price signal of the carbon tax on heating oil, people were unable to make the move to heat pumps — and a three-year freeze will give people enough time to switch. But Trudeau's decision to risk undermining one of his signature policies — after expending so much effort and political capital to implement a carbon tax and then defend it in two federal elections — can't be understood without considering the political realities of the moment.

Poilievre has been unable or unwilling to explain what he'd do to reduce Canada's greenhouse gas emissions, but he has been unrelenting in his attacks on the federal carbon tax. He's blamed the policy for higher food prices and holds frequent "axe the tax" rallies.

Even though revenue from the federal carbon tax is rebated to households, cost-of-living concerns have become acute because of persistent inflation. And when another federal climate policy — clean fuel regulations — came into effect earlier this year, Atlantic governments and regulators allowed oil companies to pass on the purported cost to consumers.

STORY: Poilievre says Trudeau's carbon tax pause is a 'scam' to win re-election

Liberal support in the four Atlantic provinces — home to 24 of the Liberal party's 158 MPs — slipped precipitously. Those 24 Liberal MPs started to worry about their jobs. And with the Liberals trailing the Conservatives nationally by a significant margin, and with his own numbers sagging, Trudeau is in no position to dismiss their concerns.

"We heard you," Trudeau said on Thursday. "We heard our Atlantic MPs and we heard Atlantic Canadians."

If public opinion helps explain why the Liberals made this move on Thursday, it might also explain why it seemed like a risk worth taking. If current polls were replicated in an election, the likely outcome would be a Conservative majority in the House of Commons. And if that were to happen, the federal carbon tax — and the clean fuel regulations — would be repealed completely.

So if this week's adjustments do anything to improve the Liberal Party's political fortunes — or simply prevent the Conservatives from winning a majority — it might seem to Liberals like a worthwhile short-term sacrifice to preserve a better long-term outcome for the carbon tax.

The Canadian climate debate grinds on

The cost of unmitigated climate change — measured in the material and human impacts of wildfires, floods, storms and heat waves — will always be greater than the cost of acting to limit climate change. And the cost of acting doesn't get smaller the longer you wait.

But the cost of action has always been an obstacle to climate policy — something climate-conscious politicians ignore at their peril. Having the smartest climate policy isn't much of a reward if you can't get enough voters to support it.

"The point of our fight against climate change, the point of our price on pollution and all the measures we put forward, is to get people to change behaviours in ways that are affordable to them," Trudeau said Thursday.

But in attempting to address one acute issue of affordability, Trudeau may have put himself in a spot where he has to defend his signature policy all over again.

For more than 15 years — except for a brief interlude in 2021 — Canadian politicians have been having some version of the same debate, one that pits the imposition of a price on carbon against some never-fully-explained alternative.

Some days it seems like progress is being made. Other days it's harder to discern whether the debate is inching forward or merely spinning in circles.

Federal Conservative Leader Pierre Poilievre, right, speaks at a news conference in St. John's on Friday. (Kyle Mooney/Radio-Canada)

Coming up on Rosemary Barton Live

Rosemary Barton, CBC Chief Political Correspondent

As the Israel-Hamas war enters its fourth week, Israeli Prime Minister Benjamin Netanyahu is warning Israelis to expect a “long” campaign. In fact, it is only now entering what Netanyahu is calling the second phase this weekend.

As this happens, many communications have been cut off entirely in Gaza, making it almost impossible for people to communicate with family or for aid organizations to reach their workers on the ground.

On Rosemary Barton Live today, we will talk about how all of this is affecting people and the complicated geopolitical situation.

Naftali Bennett is the former prime minister of Israel, but he has also served in the Israeli Defence Forces and was minister of defence. Just this week, he published his ideas about how to defeat Hamas in the New York Times. We will talk to him about his ideas and how to prevent further bloodshed.

For his part, Hosam Elsarkai, regional director for the International Federation Red Cross/Crescent, is concerned about his workers in Gaza, and of course the deepening humanitarian crisis leaving thousands deads and many more without enough food or water.

This week, we will also talk a little domestic politics. Alberta is contemplating pulling the province out of the Canada Pension Plan and creating its own. There will be a finance ministers meeting to discuss this after the Ontario finance minister expressed concerns about what would happen to the stability of the plan, something the prime minister has also raised.

But Alberta still wants to discuss it and pitch it to its citizens. We will talk to the province’s finance minister, Nate Horner, about the likelihood of it going forward and the rest of the country’s concerns.

Hope to see you for the full two hours or even part of it if you have the time.

Rosie