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Prime Minister Justin Trudeau speaks with Minister of Environment and Climate Change Steven Guilbeault during the United Nations Secretary General’s Climate Ambition Summit at the United Nations, in New York on Sept. 20.Adrian Wyld/The Canadian Press

Grant Bishop is the Calgary-based founder of KnightFork, which builds data-driven tools for carbon pricing and the energy transition.

Last Thursday, Ottawa announced it would exempt home heating oil from the federal carbon-pricing regime. That came after a growing revolt within the Liberal caucus over the costs of the fuel levy in Atlantic Canada. It was a surprising and shameless reversal.

With this single swipe, Ottawa has cratered its credibility around carbon pricing. Canadians in other provinces should rightly be alarmed by this carve-out for a particular fuel – indeed, for a significantly more carbon-intensive fuel than, say, natural gas – that is disproportionately used in a region where the Liberals need seats to keep governing. Many economists and other scholars who courageously championed carbon pricing and educated the public on its nuances have expressed frustration at this betrayal of sound policy.

Foremost, against the backdrop of sagging polling numbers, this retreat reeks of politics ahead of principle. For investors, this about-face further flags Canada’s risky policy instability. For those in industry contemplating billion-dollar outlays on decarbonization projects, how can proponents count on any long-term carbon price? How can corporate boards justify their exposure with such an exhibition of how easily the federal government can pull the rug out from the business case of a high-fixed-cost investment?

Carbon pricing was always going to face an uphill battle. A government had to explain how imposing costs on Canadian households would gradually shift behaviour, underpin business cases for new investments and efficiently allocate greenhouse-gas reductions across the economy.

As the Liberals under Stéphane Dion learned with their 2008 Green Shift campaign, this was a hard case to make. But alongside a generational consensus on the urgency of addressing climate change, this government benefited from near unanimity among economists, who could marshal theory and evidence for carbon pricing as the best way to reduce emissions at the lowest cost to Canada’s economy. Whatever their source, greenhouse-gas emissions have the same atmospheric effect, and policy to reduce them should minimize costs across the economy – not just pick winners and losers across provinces or industries by regulatory fiat.

Canadian carbon pricing was already straining under Ottawa’s blessing of Quebec’s pricing regime, under which the province has regularly imported roughly 10 megatonnes of credits annually from California to meet its purported provincial “cap” and features carbon prices at a 25-per-cent discount to Ottawa’s supposed “minimum national price.”

But, instead of addressing such inconsistencies, the federal government has caved further.

Rather than plot a path to a uniform, economy-wide carbon price, the government now leans toward sector-specific regulations – such as the proposed cap on oil and gas emissions and the clean electricity standard – that openly impose higher compliance costs on particular sectors and disproportionately affect particular provinces. Such “industrial favouritism” around greenhouse-gas regulation is constitutionally questionable, economically inefficient and dangerous for national unity.

Yet it seems Ottawa prefers confusing, opaque regulations over the transparency of economy-wide carbon pricing, in part because these conceal actual costs for consumers. Such obfuscation of compliance costs is evident in Environment and Climate Change Canada’s duel with the Parliamentary Budget Officer over estimates of gasoline and diesel price effects under the federal Clean Fuel Regulations, for which Ottawa notably has yet to release any statistics on credit prices, trading volumes or renewable fuels’ life-cycle carbon intensities.

This mess underscores the urgency of separating climate policy from politics. Although the reputations of central bankers have been tarnished lately, monetary policy nonetheless provides a relevant analogy. Widespread “stagflation” in the 1970s motivated the insulation of central banks from political pressures. Otherwise, politicians trying to shore up their election prospects by pressing for lower rates would de-anchor the inflation expectations of markets.

Today, we take as given that monetary policy should be conducted by independent institutions with well-defined mandates. Mark Carney and Janet Yellen have proposed just such “carbon councils” on the central bank template to steer policy independently from politics toward a net-zero economy. Indeed, in such a net-zero future, carbon prices will be arguably as important as a central bank’s overnight rate.

Of course, Canada is ultimately a sideshow to climate policy in larger economies. Canada’s greenhouse-gas reductions could well be negated by growing emissions from China or India. But Canadian policy still matters as both part of the global compact for decarbonization and to prove out the model for decarbonizing an emission-intensive, trade-exposed economy for other countries.

Despite Ottawa’s years of self-congratulatory fiddling, recent developments reveal widening cracks in Canada’s climate policy edifice. But rather than sow unity through more principled policy, this federal government has further divided our national house. For a cynical grasp at political gain, it imperils our best hope against the imminent threat of climate change.

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