The Trudeau government and its apologists tried their best to cast last week’s softening of Ottawa’s carbon-pricing scheme as mere fine-tuning that will have little impact on Canada’s ability to meet its greenhouse gas reduction targets. Nothing to see here, folks, they insisted.
Yet, coming only days after Ontario’s new Progressive Conservative government moved to scrap the province’s cap-and-trade program, and within hours of Ontario’s decision to launch a constitutional challenge to the federal carbon tax, Environment Minister Catherine McKenna’s announcement of less stringent rules for industrial polluters sure looked like a climb-down.
It served to validate the argument of carbon-tax critics who had been warning the federal carbon plan, first unveiled in 2016, would carry a heavy price for Canada’s economy. And it angered environmentalists who think the Liberals are not really serious about cutting carbon emissions.
Coming on the heels of big U.S. corporate tax cuts and punishing U.S. tariffs on Canadian steel, the implementation of Ottawa’s carbon-pricing scheme was set to put Canadian industry at an even greater disadvantage to U.S. competitors had Ms. McKenna stuck to her original plan.
While the technical details are complicated, the net effect of the changes means that producers in four sectors (steel, cement, lime and nitrogen) will receive credits on emissions up to 90 per cent of their industry average, instead of 70 per cent under the original plan. All other industries will get credits up to 80 per cent of their industry average, instead of 70 per cent.
This means that so-called energy intensive trade-exposed emitters (EITE) will pay a carbon tax on only 10 per cent of their emissions, while other industries will pay a tax on 20 per cent of theirs. The tax starts at $20 a tonne next year and rises to $50 in 2022, but Ottawa’s tax will only apply in provinces without an equivalent carbon-pricing scheme of their own.
The Environment Department predicts the less stringent rules will result in Canada’s emissions being only about 10 million tonnes higher in 2022 than they would have been under Ottawa’s original plan. That remains to be seen. Ottawa’s plan is predicated on heavy emitters moving voluntarily to cut their carbon output in order to “monetize” the credits they will get for free. Cement producers that emit less than the industry average, for instance, will be able to sell their credits to polluters who exceed that threshold.
Ottawa had faced intense lobbying by industry to soften the rules. “When governments design carbon pricing systems, they must be attuned to the reality that our competitors in import and export markets don’t have similar pricing systems,” Cement Association of Canada vice-president Adam Auer told a Senate Committee in May. “Failure to consider EITE competitiveness puts Canadian industry on an unlevel playing field and leads to ‘carbon leakage.’”
Indeed, any policy that reduces Canada’s carbon output merely by shifting production to another country could hardly be construed as a success. And while the economic and environmental policies of U.S. President Donald Trump threaten to do long-term damage by plunging the United States deeper into debt and slowing its rate of carbon reduction, their impact on Canada’s short- and medium-term competitiveness cannot be overlooked.
The Trump administration’s announcement last week that it intends to freeze automobile fuel-efficiency standards at 2021 levels, and block states such as California from imposing tougher rules, poses an additional challenge to the federal Liberals. Canada aligned its rules with the United States in 2012 when former president Barack Obama’s administration required automakers to achieve an average fuel efficiency for passenger cars of 54 miles per gallon, or 4.35 litres per 100 kilometres. Mr. Trump announced plans to freeze the goal at 37 mpg.
Ironically, the United States is not the climate laggard it is made out to be by critics. While global carbon emissions rose 1.4 per cent in 2017 – or the equivalent of putting 170 million new cars on the road – U.S. emissions fell by 0.5 per cent or 25 million tonnes amid a strong economy, according to the International Energy Agency. China’s emissions rose by 1.7 per cent, or by about 150 million tonnes, underscoring the far greater challenges that country faces in curbing its carbon footprint.
The United States generated about 4.8 billion tonnes of carbon-dioxide equivalent in 2017, according to the IEA, while China’s carbon output exceeded nine billion tonnes. Canada’s carbon emissions were about 740 million tonnes, accounting for roughly 1.7 per cent of global emissions.
That doesn’t mean Canada should be complacent – we’re still a sizable polluter given our population. But whether climb-down or just fine-tuning, Ottawa’s carbon plan rewrite shows just how hard it is to be green.