The Decibel - The political fight over the carbon tax

Episode Date: March 22, 2024

The federal price on carbon is set to increase on April 1. This tax is being criticized by many provinces including Saskatchewan. At the end of last year, Premier Scott Moe announced that the province will stop collecting a carbon levy on home heating bills. Then, earlier this year, he said that the province wouldn’t pay part of its carbon bill to the Canada Revenue Agency. Ottawa says this is against the law.The Globe and Mail’s Alberta and energy reporter Kelly Cryderman explains why Saskatchewan made that decision and how the political debate on the carbon tax got so fraught.Questions? Comments? Ideas? Email us at [e-mail]

The price of carbon is set to increase in Canada on April 1st. In most provinces and territories, it's going up by $15 per ton of carbon dioxide. That'll add about another 3.3 cents to the price of a liter of gas. And the increase is happening alongside a political fight over the carbon tax. In one province, Saskatchewan, Premier Scott Moe has taken a drastic step in his fight against the policy. Effective January the 1st, SaskEnergy will stop collecting and submitting the carbon tax on natural gas. As Premier, it's my job to ensure Saskatchewan residents are treated fairly and equally with our fellow Canadians in other parts of the country. And that's what I am doing today.

For years, Saskatchewan and other provinces have been fighting the federal carbon tax in courts. But in 2021, the Supreme Court decided that Ottawa does have the right to set a minimum carbon price across the country. And I remember Scott Moe saying, this ends our legal options to fight this policy move. And I was thinking about that because now Saskatchewan is engaging in illegal moves to fight the carbon price. That is essentially what's happening. Kelly Kreiderman covers politics and the energy sector in Western Canada for The Globe. Today, she'll explain how things have gotten so bad when it comes to the politics of the carbon tax. I'm Mainika Raman

Wilms, and this is The Decibel from The Globe and Mail. Kelly, thank you so much for being here. Good to be here. So we're talking on Thursday morning, and I was hoping we could start with really the shortest of primers on the carbon tax, because there's so much talk about this now, but I think it would be really good to just establish some facts. So how does this actually work? The consumer carbon tax is supposed to be on all of our emissions, you know, whether you're heating your home with natural gas or you're buying gasoline for your vehicle, there is a levy or a tax that is supposed to encourage people to try to make changes that lower their personal emissions. And I think it's important also to

note that when we're talking about a carbon price or a carbon tax in Canada, we're talking about the front-facing consumer carbon tax. There are also industrial carbon taxes that we don't necessarily see on a daily basis that we might pay for as consumers indirectly, but it's not something that is as visible to everybody. Okay, so how exactly does this work? So if like, if you're paying for gas or something, there's a few cents added on, where's that money coming from? Where does that money go? That money is collected by the entities that are dispensing the product, and they must remit that to the federal government. Now, the federal government talks about how most of the carbon levy revenues are returned to the actual consumers and they are

returned to the actual provinces where the money is collected. So about 80% of Canadian households receive a carbon levy rebate and they receive this in payments four times a year. It's per family. And the federal government has long talked about most people get more than they pay in carbon taxes. They get more in payments back. It's meant to be revenue neutral to a certain extent. Okay. And is this effective at reducing emissions? Because that's really the end goal here. That is a good question. You know, it is part of a suite of policies that the federal government has to get Canada to its goals. So it is one part. And I think a lot of economists would point to carbon pricing as being one of the more effective means and fair means for climate policies, for getting those reductions done. It's very visible. If you regulate industries to reduce emissions, people might not be thinking about that on a daily basis, whereas they are when they're filling up their tank or

when they're paying their home heating bill. And therein lies the political problem of a carbon price. Which we're going to start getting into here, because now that we've established the process of how this works, let's talk about Saskatchewan. So Saskatchewan Premier Scott Moe has said basically he's going to disrupt how this carbon tax works. What has he decided to do, Kelly? So to describe what Scott Moe has done, you have to go back to the Supreme Court decision, where I think the provinces that were opposed to carbon pricing, they kind of grudgingly accepted that the Supreme Court made this decision and they would have to live by this. I would argue that acceptance was shattered last October when the federal government made the decision to do a carve out

on home heating oil. Basically, they put a pause on the carbon price for home heating oil for three years. And that move disproportionately benefited Atlantic Canada. And Atlantic Canada is a part of the country that has traditionally given the Liberals a lot of support. And it seems that it happened in large part from pressure from those Liberal MPs in Atlantic Canada who are saying, hey, guys, we're getting hammered on this issue. We need to do something. That immediately started a discussion amongst the premiers who had long opposed carbon pricing in general. Now, of course, home heating oil is more expensive than other types of heating fuels. It's more expensive than natural gas. It's also much more emitting than natural gas. But what the move in

Atlantic Canada did, it set in motion all those concerns that premiers and other provincial leaders had about the carbon pricing came back because they saw it was affected by politics. There was this vein of politics in it that I think really upturned the kind of fragile consensus that existed in this country on carbon pricing. And of course, part of this also wasn't helped by the fact that when the Liberals announced this, like it was first framed as an affordability issue, right? And then later, the wording around it was kind of changed. But this was what premiers have been talking about for years already, right? Right. If you are acknowledging that there is a cost to carbon pricing in Atlantic Canada, wouldn't it go to reason that possibly there is a cost to

carbon pricing in other parts of the country. They undercut their argument that everything is returned back to people. Because if they have to make this concession somewhere, why is this not a concern in the prairie provinces? And I think they undercut their high ground that they had on carbon pricing in a lot of ways with that political decision. So this is what happened in the fall then. So what has Saskatchewan now done in response to that? Right. So in the fall, Scott Moe, the premier of Saskatchewan, said, you know what, there's not going to be a carbon price for home heating in Saskatchewan either. We are going to do unilaterally what the federal government has done for home heating oil. We're going to do that on natural gas and electric heating,

which is natural gas is overwhelmingly the type of fuel used to heat homes in Saskatchewan. It's very cold. What he didn't decide in the fall is whether the provincial government or the Saskatchewan utility would actually remit the carbon levy proceeds still to the federal government. The illegal point happens when you don't pay your taxes. So what he decided in the fall, basically, they're not going to charge consumers on that gas, but that's only the first part of the process. Right. They kind of left open the possibility that the provincial government would pick up the tab

for this, frankly. Then this year, something very important happened. The Canada Revenue Agency allowed the Saskatchewan government's application to transfer responsibility for remitting the tax from the Saskatchewan utility to government officials themselves. So provincial politicians wanted to make sure that SASC energy officials didn't suffer any penalties for not remitting the tax to the federal government. There are fines. There is possible jail time, which nobody says will actually happen. But that is under the letter of the law is a possibility. That would be a bad look, right? If a business person was going to jail for a government decision. Yeah, right. And in all of this, provincial governments don't want to introduce uncertainty

to anyone considering investments in the province. That's still very important for these conservative minded premiers. They never want to introduce a degree of uncertainty that would scare off investment in their province. So I think that's very important, too. What happened this spring is the CRA said those politicians could take responsibility for distribution and ultimately would hold responsibility for remitting the levy. So as Minister Duncan described it, if anybody was going to go to, quote, carbon jail, it would be him.

We should establish here they're able to do this because Sask Energy is a crown corporation, right? So the province has some control here. And you mentioned Minister Duncan, can you just give us who he is here, Kelly? So Dustin Duncan is the minister responsible for crown corporations. He's actually retiring this year from politics after almost 20 years in politics, which is interesting. But he wanted to make sure it went on him if there was any consequences to this. So Kelly, the deadline for provinces to pay their carbon tax bills from January was February 29th.

Do we know what Saskatchewan did? Well, we know that the minister responsible, Minister Duncan, posted a video from Ottawa that day saying the province would not remit that amount to the federal government. So basically, it is an illegal position. You're not paying your taxes. That's an illegal move. We'll be back in a moment. Well, then help me understand this, Kelly.

Like, it seems like Saskatchewan's kind of rewriting the rules here. Why would Ottawa go along with that? That's a good question. You know, there has been a very strong reaction to this. We do have a federal provincial system and federal government has some powers. Provincial governments have some powers. And this is playing out as a fight between those powers, ultimately. Now, I don't think anybody condones the illegal action of the Saskatchewan government, but there is a problem that there is a question of fairness, as I've already laid out. There's a political problem here. There's a problem that the federal liberals are losing support for their key climate

policy and why they might hold the high ground when it comes to the legal question on carbon pricing right now. They've lost some legitimacy in the public eye. We're not only talking conservative premiers that they regularly fight with. We're talking about some of their progressive allies, even like Manitoba Premier Wab Kanu. He's not going to take an illegal action, but he has talked about his concern on carbon pricing and losing working class and middle class people on this. We have Newfoundland and Labrador Premier Fury, who is a liberal, speaking out against the carbon price increase that's coming on April 1st. Canada's been through a hard time in terms of inflation, in terms of housing costs,

and people are getting hammered on costs on all aspects. Like what is a legitimate and supported climate policy in Canada? Well, I guess this is kind of related to all this then, Kelly. Like why now? Why is it that this policy has become such a focus for premiers across the country at this point in time? Well, I think there is an understanding that the federal liberals are low on the polls and politically they're vulnerable to political attacks. I think, you know, when you look at the numbers for Pierre Polyev, that is a function in large part about affordability measures. There's been studies done about the impact of the carbon price on overall inflation and overall costs, and it's very small. But at this point, people are angry about every little thing, right? And this is just one more thing at this point. And as you said, it's a very visible tax as well. It is, it is. I also think that Canada is a really big country with

like a bunch of very regional economies. And the Western premiers like Daniel Smith, like Scott Moe, have been raising concerns about the impact of the suite of climate policies, including, you know, a cap on oil and gas emissions, a clean fuel standard. They've been raising concerns about that and raising concerns about the impact on their specific economies. And those have been ignored, I would argue, by Ottawa to some degree, because, again, they're looking at the broader economy. They also don't have and don't have a good chance of electing liberal MPs in Saskatchewan and Alberta. And I think there is always concern from those provinces that the federal government doesn't necessarily have their economic interests in mind in the same way that they might in Ontario or in Atlantic Canada or in British Columbia. But I mean, I guess this is where a lot of our polluting industries are, though, right? Like

the heart of oil and gas is in the prairie provinces, and we have to do something for climate change. So I mean, isn't that just why doesn't that argument make sense? Absolutely. But you know, I think the path to reducing emissions is very difficult. It's very complicated and it will require a suite of policies. But I also believe you need to bring people with you. If we're talking about a industry in Canada, sector in Canada, that is very significant. We're the world's fourth biggest oil producer. It can't happen overnight and it can't happen with all the decision making taking place far away.

The federal government acknowledges that, too. Like there has to be both. But I think especially on the political concern, there's always the concern that the federal liberals will make sure that there's tens of billions of dollars for EV subsidies to keep the auto sector in Ontario going, even in an energy transition. And Trans Mountain Pipeline expansion, I know people will mention that that is many billions of dollars too. But the larger concern is if it's thought of in the same, with the same concern as regions of the country where the liberals have a chance of getting votes. Okay. Let's let's talk a little bit more about Saskatchewan and the way that things are playing out there. We talked a little bit about Ottawa's reaction, Kelly, but but really, how has the federal government responded to these actions

taken by Premier Mo? We don't know exactly what they're going to do yet. You know, I interviewed Jonathan Wilkinson, the natural resources minister on this, and he did say, you know, I'm not going to put anybody in jail. That would be ridiculous. We're not going to put anyone in jail. But he did talk about some kind of financial consequences, money consequences. And I guess what that means is, you know, it could be penalties under the Act that are laid out in the Act, or it could be, you know, a clawing back of federal transfers to Saskatchewan. I think that's a huge question of

how the federal government reacts. You know, right now we're talking about a war of words. We're talking about Environment Minister Stephen Goldbeau calling Saskatchewan's actions immoral. We're even talking about Minister Wilkinson, who's usually pretty staid, talking about anarchy. Premiers, just like prime ministers, are responsible for passing laws, and they expect their citizens to abide by those laws. If you do not have that expectation, you have anarchy. And for a provincial premier to take the position that they will actually simply ignore a law that was upheld by the Supreme Court of Canada is reckless and irresponsible and almost unheard of in the history of this country. So I think, you know, we have heard some very strong language from prairie premiers on this issue.

And we're starting to hear that really strong pushback from the federal government as well. I'm wondering, too, how this is going to affect people in Saskatchewan. So I guess doesn't Mo's choice not to collect and pay the carbon tax in that province for natural gas specifically, doesn't that affect how much his residents will actually get back in rebates? It absolutely will and could. And it sounds like there's going to be some kind of partial clawing back of the rebates that Saskatchewan residents receive. Of course, they still are paying the carbon tax when they get gasoline. This is a really important point to make, actually, yes, because this is only on natural gas, right? This is only on home heating. Yeah, exactly. So it is only a portion of the carbon levies that Saskatchewan residents pay that is not being paid. So they will get something, we think, but they may not get the full amount because it's

based on how much they pay. Again, lower income Saskatchewan residents could really be hurt by this. At the same time, again, when we're talking about the financial payments to individuals versus the overall economic impact of carbon pricing and climate policies, there's a difference. And Scott Moe is making this argument because he believes overall carbon pricing and climate policies have a big impact on the economy of the province. And the backing for this is a report from the Parliamentary Budget Officer that talks about, yes, 80% of Canadians get more than they pay in carbon rebates back. But there is an overall effect on the economy, especially in provinces like Alberta and Saskatchewan and Ontario, where overall households have a negative impact.

And I think that is what Scott Moe is counting on for the longer term. This is a longer term battle for him against Ottawa focused decision making on environmental and energy policies. And of course, there is a provincial election coming up in Saskatchewan later this year, right? So how does that factor into this too? I think that is definitely part of Scott Moe's political calculation. Like a lot of premiers, he would rather be seen as a fierce defender of provincial rights and have voters thinking about issues about energy and the environment and their beefs with Ottawa, rather than say, you know, the province's performance on healthcare or education, or policies for pronouns. And you know, Scott Moe is facing a very competitive

election against the NDP. I think that politics has to factor into all of this right now. I guess a big question here then, Kelly, is what would a fair carbon price policy look like? If that's the perspective there, what's the solution? That's a really good question, because I think it's a different answer, whether you're looking at it politically or as a pure economist, because the economists love carbon pricing because it is fair, it's transparent, it spurs different behavior. The kind of economic argument has to be balanced with the political argument. And that is difficult at this point. Well, let's touch on this wider political debate now, because obviously, Pierre Polyev

has been campaigning against the carbon tax since he became conservative leader. And this week, he tabled a non-confidence vote about the policy. It is likely to fail. But there's no doubt that this debate is fraught, right? So, Kelly, is there anything that the liberals can do now to redeem how this policy is perceived? That's the political question of this year, whether they stick by their signature climate policy or they give on this. And it's hard to see them giving an inch on this because that's conceding to lawless conservatives on the prairies.

You know, that's conceding to Pierre Polyev in a way. But at the same time, there is a lot of pressure on this. So, again, referring back to the larger picture of affordability and inflation and housing costs, the polling numbers for the federal liberals right now are such that it's hard to see how they get a harness on their political fortunes in general. You know, they have been in office for nine years. At a certain point, it makes it hard to argue that you're going to do better or you're going to fix the concerns that voters have when you've already been in office for this long,

for near a decade. And I think that is the larger problem that the federal liberals have. And carbon pricing is a very visible sign of that. Kelly, thank you so much for taking the time today. Great to be here. Thanks. That's it for today. I'm Maina Karaman-Wilms.

Our intern is Manjot Singh. Our producers are Madeline White, Cheryl Sutherland, and Rachel Levy-McLaughlin. David Crosby edits the show. Adrienne Chung is our senior producer. And Angela Pachenza is our executive editor. Thanks so much for listening, and I'll talk to you next week.