Front Burner - A carbon tax carve-out, or cold feet?

Episode Date: November 8, 2023

Prime Minister Justin Trudeau’s carbon tax exemption for home heating oil has renewed criticism of the entire scheme — a cornerstone of Canada’s plan to curb greenhouse gas emissions and address climate change. CBC’s Aaron Wherry weighs in on how the Liberal government is weathering a storm of its own making. For transcripts of Front Burner, please visit: https://www.cbc.ca/radio/frontburner/transcripts Transcripts of each episode will be made available by the next workday.

In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. This is a CBC Podcast. Hi, I'm Damon Fairless. It's been nearly five years since Canadians started paying the carbon tax, which has been the centerpiece of Justin Trudeau's climate plan. But there's been an unexpected backlash to part of that plan,

triggered by the Liberals' decision to carve out an exemption for one of the highest emitting forms of home heating out there, heating oil. So what's behind Justin Trudeau's carbon tax gambit? CBC's Aaron Weary has been writing about the carbon tax carve-out, and he's here with me now to discuss the political implications for Justin Trudeau's government. Hey, Aaron, thanks again for coming on Frontburns. Great to have you back. Hey, happy to be here. Okay, so Aaron, Justin Trudeau's government has made a three-year exemption

to remove home heating oil from the federal carbon tax. But we have to make sure we're fighting climate change in ways that supports all Canadians. That is why today we are announcing a three-year pause on the federal pollution price on heating oil. Why are they doing it? Why has the federal government said they're doing this now? So the government points to, I guess, a few things. You know, first are the very practical issues. One is that home heating oil is quite expensive as compared to other forms of energy. And the other is that a lot of people who use home heating oil are in sort of low income groups. So it's that much harder for them to afford it. And obviously, the carbon tax adds a little bit to that price. The other piece of this, you know, in addition to the exemption is the program to make it easier

for people to install heat pumps, you know, and that sort of follows from the idea that if people are spending a lot on heating oil, and they're, you know, in a low income group, it's going to be that much harder for them to install a heat pump. So in the government's logic, it makes sense for them to, you know, both pause the carbon tax and then make it easier for people to install heat pumps. Okay. And so, but this exemption came at a point when the federal government was also overhauling the carbon tax system in the Atlantic provinces, right? So can you just kind of quickly walk me through that? Yeah, so there's been kind of a confluence of events, both policy-wise and political here. And so I guess to start, the first part is that when the federal government brought in carbon pricing, when it brought in a federal carbon tax, it allowed provinces a fair bit of

leeway to design things in their own particular you know, particular way and in some cases to grant exemptions. So for instance, heating oil was exempted from the carbon tax in Newfoundland and PEI. And as the federal government sort of moved forward with the carbon tax, it set out to try to kind of iron out these wrinkles to kind of get rid of these inconsistencies. And that meant, you know, asking the provinces to kind of get rid of these inconsistencies. And that meant asking the provinces to kind of eliminate these exemptions to bring their carbon prices up to the national standard. And in the case of the Atlantic provinces, the Atlantic provinces weren't super keen to do that and so the federal government felt it had to bring in the federal

backstop. And so the federal backstop came in in July. So that was the first piece. The second piece was the other thing that came in was the clean fuel regulation, which also added something to the cost of fuel. The clean fuel standard is one of Canada's best tools to reduce emissions and accelerate the development and use of clean technology. It works because it asks everyone to use cleaner, better fuels to power our lives. So those two pieces, sort of practical pieces, were kind of coming into play. And then, of course, there were larger issues, global issues around inflation and the cost of energy.

And that sort of led to a sort of political situation that really kind of set the stage. There is no doubt which part of Canada the pressure was coming from. We heard our Atlantic MPs and we heard Atlantic Canadians. So climate change has started making events like storms, wildfires, droughts, these issues more severe and also just more costly, right? So how critical is the carbon tax for the country's climate change strategy in general? So the carbon tax writ large is a pretty significant piece of the larger climate plan. of the larger climate plan. It's hard to know exactly, to tease it out and give you an exact number of sort of what amount of megatons they expect to get to save as a result of the carbon price.

But John Wilkinson and other ministers have said that the carbon price, which is two parts, which is a consumer price and an industrial price, is going to be responsible for about a third of the emissions cuts that Canada is looking for. So that's not everything, obviously, but that's a significant chunk. And it's the central, I mean, I think the other thing I'm driving is the central policy. It's the major part of the plan for tackling climate change, right? Yeah, I think it's, you know, even beyond kind of the practical baseline impact of it, and it is, it is a significant policy in that regard in terms of trying to account for what they call an externality, the cost of carbon emissions, trying to incorporate that into the cost of the fossil fuels that produce carbon emissions.

It's also just politically, it has become kind of a signature policy of the prime minister. It was a major announcement when he decided to go forward with a national carbon price. The government proposes that the price on carbon pollution should start at a minimum of $10 per ton in 2018, rising by $10 each year to $50 per ton in 2022. He had to fight with the provinces over it. Because pollution crosses borders, all provinces must do their part. He's contended with, you know, sort of relentless opposition attacks, and he sold it as kind of a building block element of a serious climate plan. And, you know, he has some support

for that, right? Economists will say a carbon price is the most efficient way to reduce emissions. It's the political issue, though, on the other hand hand is that it's explicit in its price. And so it's very easy to attack. And so having brought it in was a major step for the Canadian government and having had to defend it and having been reelected twice, you know, despite having that policy has been a kind of major piece of Justin Trudeau's time in office. And I just want to mention too like just in terms of the very basics here, how a carbon tax works. So it's levied on fossil fuels that create greenhouse gas emissions,

but it's also here in Canada, it's also meant to be a revenue neutral tax. Can you explain how that works? Yeah, there's various ways that people have talked about bringing in a carbon price. But when the federal government decided to do their carbon price, they essentially decided to charge the price up front, but then to rebate it back to Canadians, to take the revenue and rebate it directly back to Canadian households.

This policy will be revenue neutral for the federal government. All revenues generated under this system will stay in the province or territory where they are generated. So that does a couple things. You know, one, it should undercut the concerns that people have about this just being a cost, this just being a burden. Politically, it should do that. But practically, it should give people, you know, more money to kind of spend on greener choices. You know, the parliamentary budget officer has looked at this policy a few times, and he's come back and said, you know, most households, excluding those, you know, in the highest income bracket, those who consume the

most energy, you know, most people are going to end up getting more from the carbon price than they actually pay out. And so that, you know, it actually kind of acts as a support program in addition to being a carbon tax. And that was supposed to insulate it from the kind of political pressure we've seen really over the last year. Why don't we let Canadians decide? Why doesn't the Prime Minister pause the tax across the country until canadians go to the polls so we can have a carbon tax election and canadians can choose his plan to quadruple the tax or my plan to axe the tax All right. So heating oil, which is the subject of this exemption, is used in about 3% of Canadian homes. But it's a lot more common in the Atlantic provinces.

So can you tell me how much impact do you think this exemption will make in terms of emissions in general? So it's not on a strictly kind of direct, you know, how much more will people, you know, use heating oil as a result of the carbon tax being taken off? We haven't seen any serious, you know, we haven't seen any kind of detailed estimates of that, but it's probably not going to be huge in particular because there is this push now for people who are on heating oil to get off heat pumps. So the kind of, you know, arithmetic of emissions, the, you know, it's not a huge loss necessarily to take the carbon tax off heating oil. The problem is kind of larger in that, you know, first of all, if you want the policy to be effective, you want to apply it consistently across, you know, all fuel sources. And second of all, once you've granted an exemption, it becomes just that much harder to say no, no to future exemptions, right? And you've seen that

over the last two weeks. People have said, okay, so you took it off heating oil. Why don't you take it off natural gas? Why don't you take it off propane? That's the problem that policy experts, even before the government made their move on exemption, were saying, were pointing out to was, A, you're kind of undermining the policy you have, and B, you're just setting up for future questions about exemptions. And once you start handing out exemptions, if you can't stop yourself, you eventually just end up without having a carbon tax anymore. Right. And I definitely want to get into that a bit. I think that the question that strikes me right now, though, is, you know, there are a lot of questions about why the Trudeau government decided to introduce this particular exemption and why now.

So why do you think the Liberals have introduced something so contentious that really only has an impact on like 3% of the country? Can you help me understand that? Yeah, I think it really does come back to that Atlantic caucus. When Trudeau announced this policy, he had, you know, most of the Atlantic Liberal MPs standing behind him. And he had, he was introduced by an MP from the region. Good afternoon, everyone. Bonjour tout le monde. My name is Cody Blois. I am the Member of Parliament for King's Hands in beautiful Nova Scotia. And I'm proud and privileged to say that I am the chair of the Atlantic Liberal Caucus.

He, you know, he pointed to the Atlantic MPs as being pivotal in raising their constituents' concerns. And I think that as much as the government wants to say this is responding to a real practical policy issue, it's almost impossible to separate it from the politics. And the politics are, you know, first of all, you've got a sizable number of your MPs who are concerned about it. You're also losing support in a region that was previously an electoral strength.

And that is contributing to, you know, the liberals being down 12 points or more in the national polls. You know, if the liberals were up by a dozen points instead of down by a dozen points, it's hard to imagine them making this concession. But it feels like a move where the government felt it needed to do something and it needed to do something significant that was going to, you know, at least put a floor under their support. And that's how they end up making this move. It feels like a government at a particular low point looking for a way to

kind of get itself out of the corner. So the impact of the emissions isn't massive with this exemption, but it feels really counterintuitive to see why a heating source that produces so much emissions would be removed from the climate policy. Can you help me understand the contradiction there? Yeah, I don't know that I can help you understand the contradiction because the contradiction is hard to get over. I mean, I think there really is a pinch point there in terms of customers who use heating oil, who, not able to either afford the cost of heating oil or not able to afford the cost of moving to a heat pump. But it is very difficult. And I think you've seen from the government, it's very hard for them to get past that contradiction that, you know, yes, there are these practical concerns and yes, you wanted to

respond to them, but, you know, why do an exemption? You know, when people were talking about this problem sort of in the last few months, the response from policy experts was like, yes, you know, by all means, if the cost of living, if affordability is a concern, then the government needs to address that. But if it's going to address that, then, you know, design specific subsidy programs for people who need help, you know, top up the rural rebate, which is part of the carbon tax program, which gives extra money to people in rural areas because they don't have, you know, some of the options that people in urban areas may have in terms of public transit and so on, you know, top that up. Do some of these things, which they have done to a certain extent, they did top up the rural rebate, but don't grant this exemption because

the contradiction is going to be hard to get past. And, you know, the policy experts aren't right about everything, but they have kind of predicted how this would play out, which is that once you grant an exemption, you get yourself in this spot where it's hard to explain why one thing gets an exemption and the other one doesn't. I'm going to go. and industry connections. That's not a typo. 50%. That's because money is confusing. In my new book and podcast, Money for Couples, I help you and your partner create a financial vision together. To listen to this podcast, just search for Money for Couples. So Pierre Polyev has, you know, for a long time just wanted to get rid of the carbon tax completely. The conservatives have never been on board with it. There has only been one party that has been consistent throughout and will be consistent forever. We are the only common sense party that will axe the tax for everything, for everybody, for everywhere,

forever. And in fact, they even managed to get the NDP to side with them and vote for a motion which actually failed on Monday to exempt all home heating from the carbon tax. So I guess my question is, has this exemption undermined the liberals whole carbon tax scheme, basically the cornerstone of their climate policy? Yeah, to a certain extent it has, you know, in addition to the contradiction over, you know, why one fuel and not the other, the second argument the Conservatives come back with is, we said to the government, we said to you that this carbon tax was a terrible burden on people and it was making life unaffordable. You said there was nothing to worry about,

but now you've taken it off. And so doesn't that prove our point that it's a huge cost on Canadians? And the government again can go back and say, well, no, there's this rebate. But that also would have applied to people who have home heating oil. So they have seemingly calculated that it's worth taking this risk now. But it has given, no pun intended, fuel to the other side to renew all the arguments they've been making against carbon pricing. So is home heating oil the gateway exemption? Do you think the liberals will yield on other exemptions, carve out other exemptions? Well, I mean, it's hard to speculate. I mean, if you'd asked me three weeks ago, I wouldn't have said they would have made this exemption.

So I hesitate to make another one and make another prediction. But the decision they would face at this point is if they wanted to grant another exemption, at that point, they would probably have to be deciding that they were going to really roll back the carbon tax and really emphasize a bunch of different policies to get to Canada's climate goals. Because if they did go so far as to grant an exemption for natural gas, it would be like pulling things out of a house of cards to a certain extent. And at what point does the whole thing collapse? And at what point is it worth moving on to something else? And I don't know that it would do the government much benefit at this point to go that far.

I assume that they are hoping they can ride this out. You know, there are other proposals on the table in terms of, you know, expanding the heat pump affordability program to include low-income households who are using natural gas and propane. Maybe that would undercut the argument of unfairness to some extent. But the decision they would face really is if they granted another exemption. At that point, they would kind of have to be making a major move to kind of redraw their climate agenda. Will there be a carve-out for other carbon taxes in English?

I know you said in French, but just to clarify. There will absolutely not be any other carve-outs or suspensions of the price on pollution. This is designed to phase out home heating oil the way we made the decision. So the Liberal government's invested a lot in climate change policy, the carbon tax being the keystone policy, as we've talked about. But then you've got decisions like buying the Trans Mountain Pipeline, subsidizing oil and gas industry, and now this home heating tax exemption.

So these are decisions that feel fairly contradictory. What's the calculus on decisions like this? So you're right. The government, the liberal government, Justin Trudeau in particular, has for a long time tried to walk kind of a couple paths at once. And his argument, the liberal argument would be that that's necessary, you know, on something like oil and gas and climate, you have to, you know, the liberal argument has always been, you know, you have to kind of be able to do two things at once. And, you know, they've been reelected twice. And so there's, you know, the public has seen

some logic in it. This though feels a bit, there's, as you say, there's a bit more of a contradiction, a direct contradiction here. And, you know, I'm speculating somewhat again, but I suspect their calculation was, you know, we can cling to the carbon tax entirely and not grant this exemption. And maybe it will make for a more coherent policy and we won't face these arguments of inconsistency. But, you know, the flip side of that is, you know, Pierre Polyev has said he'll repeal the policy entirely. So if he wins a majority in the next election, you know, be that, you know, next year or the year after, then the policy is dead anyway. So, you know, be that, you know, next year or the year after, then the policy is dead anyway. So, you know, from the liberal standpoint, you can see an argument to be made that granting this exemption now as contradictory as it might be is sort of a short-term loss to ensure

kind of a long-term life for the policy. Whereas regardless of what they do, if the Conservatives win the next election, the policy is gone anyway. And you can sort of see the political calculation in that respect. It just remains to be seen, I guess, whether that risk they've taken is going to pay off.

Because, you know, in addition to all of the arguments about consistency and what this says about carbon pricing the pundits and the critics and the opposition politicians are very primed right now to write that you know a desperate flailing justin trudeau is is you know kind of throwing things overboard and and taking you know kind of desperate tactics to try to save himself. And so a policy move like this also risks just kind of giving, you know, more fuel to that argument. So it's, you can sort of see the political calculation, but it's also, I think, unquestionably a big risk they've taken. Okay. Thanks so much, Aaron. I really appreciate it.

Anytime. One more thing before we go. Yesterday, Canada's Environment Commissioner released an audit of the country's progress in meeting the 2030 emissions reduction targets. The goal is to cut carbon emissions by at least 40% below 2005 levels. The report painted a grim picture of Canada's progress. The commissioner said that the most critical measures for reducing emissions, quote, had not been identified or prioritized, and the government is set to miss that 2030 target. That's all for today. I'm Damon Fairless. Thanks for listening to FrontBurner. I'll talk to you tomorrow.