Christopher Ragan is an economist and director of the Max Bell School of Public Policy at McGill University in Montreal. Andrew Potter is an assistant professor at the McGill Institute for the Study of Canada.
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 to as the “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 a broad-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 situation is that for the ideologues there simply is no compromise policy: Ardent 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.