Morneau eyes federal tax on carbon

Finance Canada is quietly pushing the idea of a federal carbon tax as the Liberal government looks to set a minimum national price and complement provincial carbon pricing plans, sources say.

Officials at Finance are co-chairing the “carbon pricing” working group, one of four federal-provincial-territorial groups established to fashion a national climate strategy that would put the country on the path toward meeting its international commitments to reduce greenhouse gas emissions.

There have been no decisions made on how Ottawa will intervene on carbon pricing or even if it will do so. However, Prime Minister Justin Trudeau said again last week that the goal is to have a minimum carbon price across the country – whether it is one imposed by Ottawa or adopted by all the provinces.

Several provinces, including Saskatchewan, Nova Scotia and Quebec reject any effort to introduce a federal tax, though they agreed at a first ministers’ conference in Vancouver that governments should adopt some undefined form of carbon pricing. Ontario opposes a federal effort to layer a carbon price on top of its own cap-and-trade system.

Officials are looking at a number of options for a carbon levy that they can present to ministers, including a broad-based excise tax that would be imposed on virtually all oil and natural-gas consumption, or a simple increase in the existing excise tax on gasoline and diesel, several federal and provincial sources involved in the talks said. Ottawa now collects 10 cents a litre on gasoline and 4 cents on diesel, as well as the 5-per-cent goods and services tax.

Finance Minister Bill Morneau sees the carbon tax as the most economically efficient way to drive emissions reductions, as opposed to some form of federal cap-and-trade system or emissions regulations on industry, sources say. However, Saskatchewan Premier Brad Wall is campaigning aggressively against any federal carbon tax.

Department officials would not comment on specific measures or proposals.

“As officials continue their work, the Minister of Finance looks forward to working together with his colleagues and the provinces and territories in developing a pan-Canadian framework for clean growth and climate change that will not only help us meet our international commitments, but ensure a more innovative, low-carbon economy that will serve Canadian families well into the future,” his director of communications, Dan Lauzon, said in an e-mail.

Mr. Trudeau and the premiers agreed in March to produce a joint climate strategy by October that would be in keeping with commitments made at the Paris climate summit, where all nations agreed on the need to limit the increase in global temperatures to less than 2 degrees above preindustrial levels.

Canada faces a significant gap between emissions reductions that would result from current climate policies and what is needed to reduce emissions by 30 per cent below 2005 levels by 2030, as promised in Paris. And Ottawa has pledged under the Paris accord to improve on that target.

Key cabinet ministers, including Mr. Morneau and Environment Minister Catherine McKenna, will attempt to reach agreements this summer with individual provinces and build those bilateral efforts into a national plan. Provincial governments are urging Ottawa to focus its effort on spending in areas that achieve emissions reductions and on regulation, rather than intruding in the carbon-pricing field.

Four provinces representing 80 per cent of Canada’s emissions already have or are introducing carbon-pricing programs, either in the form of a direct tax or cap and trade: British Columbia, Alberta, Ontario and Quebec.

The Prime Minister said last week his government will ensure enough flexibility so that provincial governments can pursue their own approaches. But he added Canada needs to achieve significant GHG emission reductions, and carbon pricing is one of the “tools in the toolkit.”

Ottawa is looking for ways to cajole the provinces to do more, including the possibility of imposing carbon prices on those that don’t have them. The federal government could ease the conflict by guaranteeing that all money raised in a province would be recycled there to cut other taxes or reduce emissions.

Under such a plan, provinces that do impose carbon pricing could opt out of the federal plan as long as they can demonstrate equivalency. However, assessing whether plans are equivalent is fraught with challenges.

The federal government is currently in talks with British Columbia, encouraging Premier Christy Clark to move on her pledge to raise its carbon tax from the current $30 a tonne, where it has remained for five years.

An announcement that B.C. planned to increase its carbon tax would raise the bar for all provinces.

Ontario and Quebec are balking at any federal plan to introduce a carbon levy over and above the level of their own cap-and-trade plan, which would set a minimum price of roughly $20 a tonne by 2020. They argue a federal levy would distort the carbon markets they share with California and add to the burden already being faced by industry and consumers.

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