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A Canadian flag flies in front of smoke stacks at a steel mill in Hamilton in February of 2007.

J.P. MOCZULSKI

The Liberal government is set to introduce carbon-tax legislation that will give breaks to industrial emitters as Ottawa seeks to limit the economic impact of an ambitious environmental agenda to be enacted this year.

Environment Minister Catherine McKenna and Finance Minister Bill Morneau on Monday released a draft legislative proposal outlining key elements of the "carbon price backstop" that will apply only in provinces that do not have their own levy or have one that fails to meet federal standards.

Legislation will be tabled after the House of Commons resumes work later this month, with the goal of having it passed by the summer recess in June. Ottawa will also be assessing provincial plans over the next eight months and will indicate after Sept. 1 in which provinces it will impose the federal levy, either in whole or in part.

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"Canadians know pollution isn't free and last year we saw that extreme weather events are costing us billions of dollars – trillions if you look at what is happening around the world," Ms. McKenna said in an interview. "And we know a price on pollution is the best way to fight climate change and also get clean innovation. But of course, competitiveness is a key part of it."

Under the plan, the government will set an emissions cap for large industrial plants and they will pay the carbon tax only on greenhouse gases that they emit above that threshold. The cap will be based on an industry average, and the most efficient facilities will pay no tax and may even generate credits.

The system is designed to avoid driving industry out of the country to jurisdictions that have no carbon pricing, which would both cost Canadians jobs and result in no environmental benefit for the planet, the minister said.

Ottawa will set the levy at $10 a tonne this year, and increase it annually in $10 increments until it is $50 a tonne in 2022, a level that would drive up gasoline prices by roughly 11 cents a litre.

The Liberal legislation may have more political ramifications than economic ones. The four largest provinces – Quebec, Ontario, Alberta and British Columbia – have adopted their own carbon levies and will not be impacted by the federal tax.

Prime Minister Justin Trudeau is battling Saskatchewan Premier Brad Wall, who says his province has no intention of adopting the tax and will fight any attempt by Ottawa to impose one. The Liberal government could also find itself in conflict with premiers from Manitoba and Atlantic provinces, who have not committed to meeting federal standards on carbon pricing.

As well, Ontario Premier Kathleen Wynne and Alberta's Rachel Notley face elections in the next 16 months, and both have uphill battles to hold onto government. As a result, the federal carbon tax may become a hot political issue in those provinces, especially in Alberta where United Conservative Party Leader Jason Kenney has vowed to abolish the provincial levy.

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The carbon tax is part of an ambitious environmental agenda to be completed this year as the Liberal government moves in the opposite direction from U.S. President Donald Trump and the Republican-led Congress, who have cut taxes and are slashing regulations in the United States.

Ms. McKenna and her cabinet colleagues plan within the next several weeks to introduce a major overhaul of environmental-assessment legislation, which the Liberals argued was undermined by the former Conservative government that was seeking to fast-track resource-industry projects. As well, the minister is expected to finalize rules that would restrict methane emissions in the oil and gas sector, lay out a plan to protect endangered caribou in the boreal forest, and move forward with proposed clean-fuels regulations.

Conservative opposition MPs and some economists warn that the Liberal government is putting at risk Canada's industrial competitiveness by proceeding with a series of environmental laws and regulations that will impose additional costs.

"In the next few years, Canadian businesses will be facing major competitiveness challenges as the United States moves forward with its plan to reduce regulation, lower taxes and invest in coal-fired electricity to reduce energy costs," Conservative environment critic Ed Fast said in an e-mailed statement. "The Trudeau government appears to be oblivious to these challenges as it layers additional regulations on top of a federal carbon tax which will discourage capital investments in the Canadian economy."

Ms. McKenna insisted the national effort to reduce greenhouse gases will spur the growth of Canadian clean-technology companies that will provide the jobs of the future, while noting the provinces that have introduced carbon taxes have seen solid growth in recent years.

However, New Democratic Party MP Linda Duncan questions the environmental commitment of the Liberal government, saying it has enacted few concrete measures in more than two years in office. She said the government has already "kowtowed to industry" by delaying proposed methane regulations that would force oil and gas companies to adopt better monitoring and reduce emissions of the powerful greenhouse gas.

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As well, some environmentalists question the fairness of providing carbon-tax breaks to corporations, particularly for the oil and gas sector, which accounts for 25 per cent of the country's emissions.

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