Why Quebec (and Ontario) will get an unfair break on Trudeau’s carbon tax, while other provinces pay double
Consider it the curious incident of the dog that didn’t bark, federal-provincial edition.
In October, Prime Minister Justin Trudeau announced a new national carbon tax: the most significant federal intrusion into provincial jurisdiction in decades. And Quebec, that ever-vigilant guardian of provincial rights — one that’s never encountered an imposition from Ottawa it didn’t denounce as a grave threat to its right to self-determination — had nothing to say. Well, not exactly. Quebec Premier Phillipe Couillard actually called it a “positive” move.
Ottawa plans to invade a policy area that’s long been the exclusive domain of the provinces. With a new tax. And Quebec is okay with this? What in the name of
maître chez nous is going on here?
The answer to this mystery reveals the inconsistencies, confusions and looming crisis at the heart of Canada’s national carbon tax plan.
Trudeau plans to impose a $10-per-tonne tax on carbon emissions starting in 2018, rising $10 yearly to $50 in 2022, on all provinces not pricing carbon at an equivalent rate. B.C. and Alberta will be exempt if their provincial carbon taxes rise to meet the federal rate.
The same goes for provinces operating cap-and-trade systems. Quebec is already a partner with California in a carbon-trading system called the Western Climate Initiative (WCI) that Ontario will join shortly. Nova Scotia plans to operate its own cap-and-trade plan.
Last summer, Couillard said he had no objections to a federal carbon tax “as long as it does not conflict with our carbon market.” He thus expects Ottawa to leave him alone when it comes to putting a price on carbon. But central to the federal plan is the notion that carbon prices must be consistent across the country. Large deviations between federally mandated tax-rate hikes and cap-and-trade permit prices will inevitably lead to serious economic problems — and political mayhem.
Currently the permit price for carbon emissions in Quebec under the WCI is around $16 per tonne, higher than the federal tax’s introductory level. By 2020, however, the minimum national carbon tax will have risen to $30 while the floor price for permits in Ontario and Quebec is projected at just $19 per tonne. That gap is expected to grow. By 2022, when the national carbon tax hits $50, the WCI permit price is estimated at below $24. People in Alberta and B.C. will thus be taxed twice as much as Ontarians and Quebecers. Differences that large will pose a major threat to constitutional harmony.
What explains this massive price difference? California Scheming.
To smooth over political objections to pricing carbon, California deliberately created a vast oversupply of emissions permits in its electricity sector, pushing down prices and leaving the state awash in excess permits until at least 2026. The opportunity to harvest this crop of cheap permits is what’s driving Quebec and Ontario’s participation in the WCI — and why these permit prices will be substantially below Trudeau’s carbon-tax minimums. Without access to California’s low-cost permits, Ontario’s own research shows its permit prices would rise to a stunning $157 per tonne in just two years, destroying any argument for cap and trade.
Cap and trade thus offers Quebec and Ontario an enormous competitive advantage over provinces subject to Trudeau’s mandatory carbon tax, namely B.C., Alberta, and perhaps Saskatchewan and Newfoundland. How’s that for a national plan?
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Why Quebec (and Ontario) will get an unfair break on Trudeau’s carbon tax, while other provinces pay double | Financial Post