After a few detours, Ottawa’s carbon tax has finally arrived in Nova Scotia, with pump prices in the province surging on July 1. Gasoline taxes rose an eye-popping 16 cents a litre on Canada Day, representing five years’ worth of carbon-tax increases (plus the bonus of added HST).
But how could this happen, one might wonder, when Canada has supposedly had a national price on carbon since April, 2019?
Indeed, that principle is at the heart of the federal Liberals’ climate-change strategy – a continually escalating price for carbon set nationwide. But the existence of the carbon tax east of Ontario has been a polite fiction since 2019. Exemptions, offsetting tax cuts and, in Nova Scotia’s case, a toothless system for trading carbon credits have meant that Atlantic Canadians have not seen taxes on fossil fuels climb as have their fellow citizens from Ontario to Alberta. Quebec’s slightly more robust carbon-credit trading system has increased the cost of fuel in that province, but only by about two-thirds of the cost of the carbon tax under federal rules.
Until last weekend’s bump, gasoline taxes in Newfoundland were actually 2 cents lower than in 2018, the year before carbon pricing came into effect. The province – while Ottawa studiously averted its gaze – cut its own excise taxes to more than offset the added cost of the carbon tax. Home heating oil was simply exempted. The story was much the same in the rest of the Atlantic provinces.
Only now is carbon pricing truly coming into force in Atlantic Canada, starting with the July 1 imposition of a federal carbon tax in place of weaker provincial versions in Newfoundland and Labrador, Prince Edward Island, New Brunswick and Nova Scotia.
Why the delay? The most palatable explanation is that the Liberals wanted to have as many provinces as possible supporting their signature environmental policy, even at the expense of the policy having little discernable effect. A less generous observer might point to the remarkable overlap of a) provinces that cut a sweetheart deal on carbon pricing with b) provinces that were gracious enough to elect an abundant number of Liberal MPs.
Whatever the original motivation, Environment and Climate Change Minister Steven Guilbeault, building on the work of his predecessor Jonathan Wilkinson, has started to end those lopsided arrangements. That’s a long overdue step. If carbon pricing is necessary, then it’s necessary in the entire country.
However, Mr. Guilbeault’s work is not done. For a start, there are the deep reductions to provincial fuel excise taxes that remain in place. Essentially, the provinces are transferring cash to Ottawa by reducing their revenue at the pump as Ottawa increases its carbon tax. Ottawa, rightly, told Saskatchewan that it would not allow the province to neuter the carbon tax in that province by reducing excise taxes. That same principle should be applied within Atlantic Canada.
Then there is the question of carbon pricing in Quebec. The province does not levy a formal carbon tax at the pumps. Instead, it is a part of an emissions-credit trading system with California and Washington state.
In theory, the cost of credits should be in line with the price that Ottawa has placed on a tonne of carbon. In reality, the cost of carbon in Quebec is far lower than under the federal backstop. In the most recent auction, in May, the settlement price for a tonne of carbon credits was just $40.81 – not even two-thirds of the $65 a tonne price under Ottawa’s system.
That discrepancy may not be quite as big as it seems, in part because Quebec uses revenue from the carbon-trading system to fund emissions-reducing projects. To the degree that such projects succeed they reduce the demand for credits within the province and put downward pressure on prices.
More concretely, Quebec households do not receive quarterly payments, as is the case under the federal system. So, Quebec drivers and homeowners face higher net costs than their equivalents in most of the rest of Canada. In addition, total fuel taxes in Quebec are higher than in Ontario through to Alberta, for now.
Still, there’s no doubt that the cost of carbon in Quebec is lower than under the federal system. There is no surer way to undermine support for carbon pricing than to apply it selectively; that’s both unfair and unwise. Mr. Guilbeault seems to have acknowledged this fact by ending Atlantic Canada’s exemptions. His next stop should be Quebec.