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Canadian Prime Minister Justin Trudeau addresses world leaders at the COP21, United Nations Climate Change Conference on Nov. 30, 2015. (Michel Euler/AP Photo)
Canadian Prime Minister Justin Trudeau addresses world leaders at the COP21, United Nations Climate Change Conference on Nov. 30, 2015. (Michel Euler/AP Photo)

TRACY SNODDON

It’s inevitable that Ottawa plays a central role in carbon pricing Add to ...

Tracy Snoddon is associate professor of economics at Wilfrid Laurier University and co-organizer of Climate Choices Canada: Economics and Policy, a conference being held Feb. 18 to 20 in Waterloo, Ont.

Paris was the easy part. The real work of meeting Canada’s obligations on climate change begins with next month’s meeting between Prime Minister Justin Trudeau and the premiers to create a national climate-change policy. And despite claims that Mr. Trudeau will have to content himself with acting as a cheerleader to the premiers, it’s inevitable that Ottawa will play a major role in the long run.

What impact will pricing carbon have on Canadians at the pump? (The Globe and Mail)

The provinces have considerable momentum creating policies that put a price on carbon and thus limit Canada’s greenhouse gas emissions. Mr. Trudeau’s election promise to partner with the provinces on a “pan-Canadian framework” has been widely interpreted to mean that any national policy will merely be the aggregation of existing provincial policies. From this perspective, Ottawa’s role will be to tote up provincial achievements for the benefit of international agreements.

But this won’t be enough. Most provinces’ current plans are insufficient to reach their own targets, let alone the national objectives laid out in Paris. Furthermore, as our economy moves toward a carbon price that’s high enough to reach these targets, the potential inefficiencies and obstacles created by interprovincial differences will become substantial.

Stricter emissions standards, rising economic costs and interprovincial tensions will inevitably force Ottawa to the fore on climate-change policy. Canada’s historical record on tax policy provides evidence for this.

Before the Second World War, most provinces levied personal and/or corporate income tax separately from Ottawa. The result was a chaotic and inefficient system, often referred to as a “tax jungle.” Ottawa tamed the jungle in 1941, when the provinces agreed to cede taxing authority in exchange for transfer payments, in order to finance the war. Later, when the provinces reintroduced their own income taxes, most signed agreements with Ottawa to ensure that key aspects of tax co-ordination – a common tax base, rules on allocating taxable income across provinces and centralized administration and collection – were established. These features remain in place today.

While the provinces may claim independence in their personal and corporate rates, no one disputes Ottawa’s dominant position. New Brunswick’s recent recantation on plans to introduce a new high-income tax bracket in light of Ottawa’s similar proposal hints at the power balance.

The same scenario is currently playing out with sales taxes. While progress is slow, sales-tax harmonization has grown inexorably since Ottawa introduced the GST.

The key lessons are that 1) the provinces are unlikely to harmonize on their own, 2) unco-ordinated and chaotic provincial systems create inefficiencies that cannot be ignored and 3) Ottawa can be patient in waiting for an opportunity.

If Canada is to meet its Paris goals and survive the economic challenges this involves, Ottawa must take a leadership role. This doesn’t necessarily mean a single carbon price coast to coast with identical standards, but a high degree of federal co-ordination and administration will be crucial.

This likely comes as no surprise to the premiers. The flurry of provincial activity in the period leading up to the Paris talks should be viewed as positioning in anticipation of the hard bargaining to come. With this in mind, Mr. Trudeau should enter March’s meeting with an appropriate sense of federal inevitability. In particular, he should avoid any agreement that creates unnecessary obstacles to the eventual national administration of a Canada-wide carbon price.

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