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David McLaughlin

David McLaughlin

DAVID MCLAUGHLIN

A provincial patchwork is the worst way to tax carbon Add to ...

David McLaughlin was President and CEO of the National Round Table on the Environment and the Economy and a Conservative chief of staff.

Canadian climate change policy is characterized by inadequacy at the federal level and fragmentation at the provincial level.

Now, two major recent Liberal announcements will exacerbate both these problems.

First, Ontario premier Kathleen Wynne announced her government would implement a provincial carbon pricing policy. Then, federal Liberal leader Justin Trudeau stated that it was up to provincial governments to implement carbon pricing policy, not the federal government. As prime minister, he would “co-ordinate” provincial actions rather than formulate his own.

The politics of this are plain. Mr. Trudeau has deftly but significantly undercut his own previous declarations on carbon pricing in an attempt to shield himself from Conservative party attacks that he favours a carbon tax. In October, 2013, he stated his support for a national energy strategy with carbon pricing. “Part and parcel of that strategy,” he continued, “ought to be a national approach to pipelines and development, within an overall framework that includes a policy that puts a price on carbon pollution.”

No longer.

The policy ramifications are also plain. It is the provinces that are filling the federal policy vacuum on climate change with all its attendant economic and environmental consequences. Ontario will join British Columbia, Quebec, and Alberta with some form of carbon pricing policy (likely cap-and-trade) touching an increasingly vast swath of economic activity.

What does this mean for Canada’s carbon reduction policy path?

We can tell by measuring against five core criteria for assessing carbon pricing policy success.

First, environmental effectiveness: Do we achieve emission-reduction targets? While Ontario policy details are lacking, its own 2020 reduction target of 15 per cent below 1990 levels is insufficient on its own for Canada to achieve its 2020 target of 17 per cent below 2006 levels. With oil sands growth out of Alberta still the single-biggest contributor to GHG growth, Ontario’s actions will be helpful but not determinative in meeting Canada’s target.

Second, economic efficiency: How do we get the most emission reductions at the least economic cost? Fragmentation of policy is more inefficient and expensive. Costs imposed on business but not consumers will require more stringent pricing to make up the difference. Differing abatement costs across the federation will raise costs overall. My former organization, the National Round Table on the Environment and the Economy found the extra cost could be as much as 25 per cent higher under a fragmented approach compared to a unified carbon pricing approach across the country.

Third, distributional effects: How equitable is the policy impact socially and economically? With consumers paying little directly of any carbon pricing, save B.C., the national effects remain positive. Hidden costs passed on to consumers will inevitably creep in though as companies seek to shield their carbon exposure or improve margins. The cost of doing business in one province over another will vary even more.

Fourth, political feasibility: Can the policy actually be passed into law? While B.C.’s carbon tax shows this can be done, former Liberal leader Stephane Dion’s failed Green Shift shows there are limits that resonate today. Ontario cap-and-trade would likely succeed on this measure with only indirect impacts on its voters.

Fifth, administrative feasibility: What is the overall burden on business and government in implementing, reporting, monitoring, and enforcing policy? Every new policy approach requires new bureaucracy to manage it. That is costly.

Add them up and it becomes clear that provincial fragmentation is the least effective way to reduce emissions.

First movers set the pace in carbon reduction policy. If Ottawa did not realize that before, it is about to find out. Once those policies are in place and consumers and business adapts to them, they become that much harder to change. Think of how unsuccessful attempts to forge a common securities regulator for the country or reducing internal trade barriers have been.

Conservatives need to reflect on this. It casts the federal government as a ‘policy-taker’ on climate change. It gives the political initiative to the opposition and provinces. And it hurts Canada’s economy.

With United Nations’ climate change talks on the calendar in Paris late this year, a premiers’ meeting on climate change in Quebec in the spring, and an international Climate of the Americas forum led by Ontario planned for the summer, this election year might be more about climate change than Canadians expect.

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