Feds likely to step in, says think-tank that found provincial carbon plan wanting

A national think-tank that supports carbon taxes says New Brunswick's plan doesn't measure up and will likely to lead to a federally imposed price on emissions next year.

Canada's Ecofiscal Commission, a non-partisan organization established in 2014 to support carbon pricing, is releasing a report Wednesday, Clearing the Air, aimed at persuading Canadians that the policy works.

The report says carbon pricing creates a market incentive for people and companies to reduce emissions, from drivers buying more fuel-efficient cars to corporations investing in non-polluting energy.

But the report's lead author said New Brunswick's shifting of part of its existing gasoline tax into a climate fund won't achieve that because it doesn't impose a higher cost on carbon dioxide emissions.

"There's a need to drive incremental, additional emissions reductions above and beyond where emissions are already going," Dale Beugin said.

"I think just repurposing existing taxes doesn't meet that criteria and doesn't drive addition emission reductions."

Gallant argues otherwise

Starting this week, 2.3 cents of the existing 15.5-cent-per-litre gas tax is being diverted into a climate fund, effectively creating a carbon tax that doesn't force drivers to pay more.

The share of the gas tax will rise each year until 2022, when it reaches 11.6 cents out of 15.5.

Premier Brian Gallant has argued a new carbon tax with an additional cost for consumers isn't needed because New Brunswick has already reduced emissions.

But diverting existing tax revenue appears to fall short of the federal government's requirement for a higher price and could trigger Ottawa imposing its own tax in the province, Beugin said.

"The federal government's been pretty clear that where provincial policies aren't consistent with the levels of stringency laid out in the Pan-Canadian Framework, they will step in with federal policies," he said. "That seems to be the path we're on."

Provinces have until Sept. 1 to formally submit their plans to the federal government for approval. That's 23 days before the provincial election.

Provinces that fall short of Ottawa's requirements will see the federal tax imposed Jan. 1, after the election is over.

Progressive Conservative leader Blaine Higgs hasn't said yet what alternative he'll propose in the campaign and how he'd avoid having the federal scheme imposed on the province.

Higgs said rather than making consumers pay, governments should simply bring in regulations to require lower emissions.

Beugin said that's actually a more "inflexible, prescriptive" approach than making emissions more expensive.

If you're spending money on programs, you are leaving something on the table. It means you can't do something else.- Dale Beugin of Canada's Ecofiscal Commission

With a carbon price, "you are giving firms, or individuals, or households the opportunity to respond to that price however they choose," he said. "You let them respond and find their own ways to reduce GHG emissions."

Changing consumer behaviour

The report says making a product more expensive is a proven way to change consumer behaviour.

"If the price of cauliflower increases, many people choose broccoli instead," it says. "If the price of winter beach vacations increases, many people choose instead to have local holidays. An increase in cigarette taxes helped to reduce the number of smokers."

There's growing opposition to carbon pricing in Canada. Ontario's PC party recently replaced a leader who favoured a carbon tax, Patrick Brown, with a new leader who is against the idea, Doug Ford.

Ford is promising to work with Saskatchewan and Alberta's United Conservative Party, if it wins an election there next year, to fight the federal plan in court.

Beugin said the commission released its report now to remind Canadians there's evidence carbon pricing can reduce emissions.

The commission is made up of economists and policy experts, with a politically diverse advisory board that includes former prime minister Paul Martin, former Quebec premier Jean Charest and former Reform party leader Preston Manning.

The commission gets most of its funding from family foundations, with some money coming from corporations including TD Bank and Suncor Energy, one of the largest oil companies operating in Alberta.

Revenue-neutral option

One of the report's key recommendations is that political leaders do a better job communicating that carbon pricing works.

The report says gasoline consumption in British Columbia dropped between 2008 and 2013, when that province's carbon tax was rising. California has also reduced emissions with a cap-and-trade system that requires heavy polluters to buy and trade carbon credits.

British Columbia's carbon tax was revenue-neutral when it was first introduced, meaning the government reduced revenues by the same amount with income tax cuts and rebates.

Gallant has opted to spend the money from the gas-tax shift on climate programs, opening the Liberals to criticism that the policy is just another tax-and-spend initiative.

Beugin said there are "lots of legitimate ways" to spend carbon-tax revenue, but he acknowledged a revenue-neutral system in New Brunswick might win more support from fiscal conservatives.

"There are trade-offs," he said. "If you're spending money on programs, you are leaving something on the table. It means you can't do something else. You can't cut taxes. That may appeal to some part of your constituents and not to others."