Maclean's Editorial

On carbon, Ottawa must learn to give as much as it takes

A federal-provincial standoff looms over the carbon tax. Could a grand bargain be the way forward?

Minister of Environment and Climate Change Catherine McKenna scrums with media in Ottawa on Tuesday, Sept. 13, 2016. (Matthew Usherwood/CP)

Minister of Environment and Climate Change Catherine McKenna in Ottawa on Sept. 13, 2016. (Matthew Usherwood/CP)

Take a book, leave a book—it’s the slogan printed on the side of those delightful Little Libraries that have sprung up in neighbourhoods across Canada in recent years. It turns out what works well among neighbours is also sage advice in federal politics. If Prime Minister Justin Trudeau hopes to solve a tricky set of issues with the provinces this fall, he’ll have to learn to give as well as take.

Earlier this week federal Environment Minister Catherine McKenna vowed to impose a federal carbon tax on any province that has not yet established its own emissions price. “It’s mandatory that everyone will have to have a price on carbon,” she told CTV’s Question Period. Such an ultimatum marks a sharp turn from the co-operative approach the Trudeau government promised on climate change policy. With the four largest provinces already (or soon to be) pricing carbon—British Columbia and Alberta with a carbon tax, Ontario and Quebec with a cap-and-trade system—Ottawa’s demands are focused on reluctant premiers such as Saskatchewan’s Brad Wall, who has repeatedly threatened to challenge the constitutionality of any federal carbon tax. While a national carbon tax is desirable because it avoids economic damage caused by cross-country carbon-price differentials, the federal Liberals clearly have a fight on their hands.

Unlike previous federal-provincial jurisdictional disputes, however, Ottawa lacks the ability to bribe its way out of this situation. Not only is the federal government under severe budget constraints, but initial expectations are for Ottawa to return any federal carbon tax it collects to the originating provinces; revenue recycling is a key component of carbon-tax theory. Trudeau will have to find a non-pecuniary way to get recalcitrant provinces on board. Which brings us to the “give” side of the give-and-take equation.

The other great bugbear of contemporary Canadian federalism is the pipeline approval process, or lack thereof. Three big projects—Northern Gateway, TransMountain and Energy East—collectively represent over $30 billion in private sector investment ready to be unleashed in our country at a time when infrastructure spending is considered crucial to future economic success. Without the additional capacity and ocean access these new pipelines are meant to provide, domestic producers will continue to swallow a discount of up to 30 per cent on every barrel of oil they sell. According to a recent report from bond-rating agency DBRS: “If pipeline infrastructure is not built, Canada’s energy sector increasingly risks the eventual loss of global market share.” It is, in other words, a looming national economic emergency.

And yet due to the efforts of anti-oil activists, First Nations and municipal politicians, all three projects have been derailed or delayed. Two weeks ago the three-member National Energy Board panel reviewing the Energy East project stepped down following vexatious complaints from pipeline opponents, adjourning the entire approval process. Earlier this year a court overturned conditional approval of Northern Gateway because of complaints about a lack of consultation. The pipeline approval process is just as fraught with controversy, and the pipelines themselves just as necessary, as a national carbon tax.

The solution to both problems lies in dealing with them together, as one issue. Earlier this year Trudeau inserted himself directly into the pipeline process by creating a new political approval mechanism. As such, the possibility exists for a grand bargain on both the pipeline and carbon tax files. In either overt or backroom fashion, Trudeau can engineer a pan-Canadian agreement on carbon pricing by marrying it with expeditious approval of some or all of the contentious pipeline projects, thus mollifying opponents such as Brad Wall.

Combining what may appear to be conflicting objectives—a tax meant to curtail carbon emissions with pipelines meant to facilitate them—is not paradoxical. Rather, it’s entirely practical. Putting a price on carbon is the most efficient way to reduce emissions because it uses the power of the market to achieve an environmental end; the cost of carbon becomes an explicit factor in all goods and services. Providing Canada’s oil with sufficient pipeline capacity to reach tidewater is also a market-oriented solution. Preventing Canadian oil from reaching willing buyers will not reduce worldwide carbon emissions. In a competitive global market, the only result of our lack of pipeline capacity is to lower incomes for Canadian firms and workers. More importantly, allowing our oil and gas industry to earn a world price gives the entire economy the strength to overcome complications created by putting a price on carbon.

An efficient national carbon tax is an appropriate price to pay for an efficient national pipeline infrastructure. And vice versa.