Ottawa and Saskatchewan are girding for a constitutional battle over the Liberal government's plan to impose carbon levies in provinces that refuse to adopt their own system.
Environment Minister Catherine McKenna released a technical paper on Thursday outlining Ottawa's proposed "backstop," which takes effect next year in provinces with no carbon-pricing system, but would also add a federal price on top of provincial systems that do not meet minimum federal standards.
In an interview, Ms. McKenna said the federal government is on "very strong ground" constitutionally, despite Saskatchewan Premier Brad Wall's argument that its carbon-pricing plan would intrude on provincial jurisdiction, especially as it relates to government-owned SaskPower, which relies heavily on coal for its electricity generation.
"This federal government white paper is frankly more like a ransom note," Mr. Wall told reporters in Regina. "It's the federal government saying here's what you are going to do from a public-policy perspective or this is what will be forced on the economy and the taxpayers of Saskatchewan. And we're going to fight it in court."
Saskatchewan is the only province that refuses to consider a carbon price – whether a tax or cap-and-trade approach – but several others have not committed to meeting Ottawa's minimum pricing standards. Manitoba refused to sign a federal-provincial climate-plan agreement last December. But while Premier Brian Pallister has said his government will move on carbon pricing, he is balking at the federal schedule to raise the price from $10 a tonne next year to $50 in 2022, sources have told The Globe and Mail.
Four provinces representing well over 80 per cent of Canadians – Alberta, British Columbia, Ontario, Quebec – have climate-policy plans that would meet federal requirements while Nova Scotia has an agreement with Ottawa to implement one.
Ms. McKenna said the federal government has clear authority to regulate on cross-border environmental matters in order to reduce pollution. She said all revenue collected by Ottawa would be returned to the province in which it is collected. The federal government is considering issuing direct rebates to households and business to offset the impact of the carbon levy, rather than handing the revenue over to hostile provincial governments.
"This is not a tax; this is a levy and the revenue is going back into the province," the federal minister said. "As the federal government, we need to be taking action to protect the environment and it is well within our jurisdiction to do so. But we hope Saskatchewan will design a system that works best for them."
In a technical briefing Thursday, an official said a tax is defined as a measure aimed at raising revenue and since Ottawa intends to return all money from the carbon levy to the province, the carbon price should not be considered a tax.
Under the federal plan, either Ottawa or provincial governments that currently have no pricing system would introduce the carbon levy next year. A $50-a-tonne carbon price would add 11.6-cents a litre to the cost of gasoline, and would also hit natural gas, and electricity generated from coal or natural gas.
Provinces can also opt to adopt a cap-and-trade plan, which keeps prices lower because companies can purchase cheaper "allowances" from California. Alberta and British Columbia have carbon taxes, while Ontario and Quebec have cap-and-trade systems that require fuel-distribution companies to purchase permits, the cost of which get passed along in the price of gasoline and home-heating fuel.
Ottawa's approach would see fuel distributors collecting the tax from consumers. Farmers would be exempt from paying it on fuel used in farm operations.
While consumers and small businesses will pay the levy on all fuel consumed, Ottawa would only hit a small portion of emissions from large industrial plants that consume a lot of fossil fuels and face global competition. As in Alberta, the amount of the levy would depend on how emissions-intensive a company is compared with others in its sector, with more efficient operators getting a bigger break.
Conservative politicians have attacked the Liberal carbon-price plan as an unwelcome burden that will make the country less competitive, particularly as U.S. President Donald Trump and the Republican-led U.S. Congress promise deregulation and tax cuts in the United States.
Ms. McKenna said carbon pricing is the most economically efficient way to reduce emissions that cause climate change, a view that has been endorsed by some prominent business leaders, including executives from Canada's biggest oil sands producers.
"Everyone realizes you want to put a price on pollution because pollution isn't free," Ms. McKenna said. "We know it's causing droughts, fires and floods, and that our Arctic is melting in our country, and across the world. And also pollution has a very significant impact on our health."