Canada's heated political conflict over carbon pricing will continue into 2024

Canada's price on pollution is supposed to help battle global warming, but as it nears its fifth anniversary, nothing in Canadian politics is hotter.

Conservative Leader Pierre Poilievre has so successfully convinced Canadians the carbon price is to blame for inflation that he even earned begrudging respect for his "axe the tax" campaign from Prime Minister Justin Trudeau.

Of course, Trudeau doesn't agree with Poilievre's sentiment.

But he has acknowledged the Tory leader's message is working in an atmosphere where the cost of living is dominating the discussion around most dinner tables, as it has for months, if not years.

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Trudeau was even convinced to upend his signature climate policy in October, removing it from heating oil for three years following relentless pressure from his Atlantic caucus and a nosedive in polling support on the East Cost.

There are some arguments for the move. Heating oil costs four times more than natural gas, so while carbon pricing was designed to create more reasons to switch to greener fuels, the incentive was already there.

But the reaction was swift. Premiers in other provinces immediately demanded the same treatment for natural gas, which is more prominent as a heating source outside of Atlantic Canada.

Saskatchewan Premier Scott Moe is pledging to simply stop collecting the carbon price for the federal government in January.

The new premier of the Northwest Territories demanded a full exemption from carbon pricing for his communities, noting fuel has been so expensive in the North for so long that if there were alternatives, people already would have made the switch.

And First Nations in Ontario launched a lawsuit arguing they're being left out of the carbon price rebate program, because people only get it if they file federal income taxes. Many people working on reserves do not.

Meanwhile, a Conservative private member's bill looking for an exemption for carbon pricing on natural gas and propane used on farms shot into the spotlight, as Poilievre made passing it a priority.

Bill C-234 passed the Senate in mid-December with multiple amendments that require it to go back to the House of Commons for another vote.

The amendments now limit that bill to temporarily exempting propane used for drying grain. If it passes with support from the Conservatives, NDP and Bloc Quebecois, who all voted for the bill the first time, it will mean another exemption.

All of these things make clear that the carbon pricing conflict will continue well into 2024.

Trudeau is firm that he isn't opening the door to any more exemptions.

Liberals are willing to work with First Nations to ensure the rebate system works better for them, or discuss possible tweaks with the Northwest Territories. But the prime minister said there would be absolutely no further carve-outs.

Michael Bernstein, executive director of the advocacy group Clean Prosperity, said he believes Trudeau.

"I don't anticipate that the current federal government is going to further dismantle or ... exempt the program that they have in place," Bernstein said.

If Poilievre does win the next election, the consumer side of carbon pricing will surely disappear as fast as he can put pen to paper.

"It's very clear where Mr. Poilievre stands on this issue," Bernstein said.

But carbon pricing is a complicated policy that isn't just about a fuel levy at the gas pumps or on home heating bills.

Poilievre's "axe the tax" mantra hasn't been clear about exactly how much of the plan he would eliminate. He has signalled an openness to maintaining some form of industrial carbon pricing.

The consumer carbon price, or what Ottawa calls the fuel charge, is applied to fossil fuels people buy to run their cars, heat their homes or keep the lights on.

Big industrial emitters -- more than 560 organizations and companies including oilsands, mines, automakers and natural gas power plants -- don't pay the carbon price on the fuel they buy to operate. Instead, they pay it on a portion of what they actually emit.

The system is similar to one that former Conservative prime minister Stephen Harper planned but didn't implement in 2007.

In both versions, companies that emit more than a set limit pay a price.

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Most economists agree that carbon pricing is the most effective way to reduce emissions, and business leaders generally prefer it.

"From an economist's kind of thinking, it is just the most efficient way to reduce emissions with the least government interference or mandates or regulations," said Heather Exner-Pirot, a special adviser on energy policy at the Business Council of Canada.

"It just focuses on emissions. And if you can reduce emissions, you pay a lower price. So it's very simple. It doesn't pick and choose favourites, doesn't pick and choose sectors. It lets the market do all of the work."

The Liberals have both carbon pricing and regulations in place, and sometimes those policies compete with each other.

Regulations are more prescriptive and usually costlier to implement, Exner-Pirot said, and businesses would generally prefer a carbon price alone.

Climate change carries its own hefty price tag, but any policy to address it will also come at a cost to businesses and families.

Harper himself acknowledged that in 2007, telling the Toronto Star in an interview: "You cannot reduce greenhouse gas -- you cannot mandate it -- without there being some economic cost in the short term."

Consumers currently pay about 14 cents in carbon price for each litre of gasoline, and 12 cents for each cubic metre of natural gas. They get money back through a rebate the Liberals call a "climate action incentive."

Ninety per cent of the revenues from carbon pricing are returned to households this way, with the other 10 per cent going to climate grant programs for small businesses and government organizations like schools and hospitals.

The rebates are intended to keep most families from losing money from carbon pricing, while leaving an incentive to save more by lowering fossil-fuel consumption. People get the same amount no matter how much fuel they use.

The Parliamentary Budget Office says when the carbon price hits $170 per tonne in 2030, the average Canadian household will get $388 more from the rebate than they pay for carbon pricing. Lower-income households that pay less in fuel will benefit even more.

Much of the burden will be on small businesses, which pay the carbon price but don't get rebates, though they can apply for grants to help reduce emissions.

The Canadian Federation of Independent Business estimated in March that small businesses pay almost half the total revenues collected from the carbon price, most of which goes back to consumers.

Getting rid of carbon pricing would leave a majority of families with less money and could have major international implications.

Europe is likely to start imposing border adjustments or import taxes on goods from countries that don't have a minimum carbon price.

"This has to be a consideration," said Bernstein.

"For Canada, maintaining competitiveness internationally for our exports may be partially a function of whether we have an effective carbon pricing program."

But he acknowledged that's a tough sell at home.

A Leger poll for The Canadian Press in September found that while nearly three in four respondents were anxious about climate change, only two in five wanted to change their behaviour if it costs something.

Support tends to be higher when Canadians are asked more specific questions that explain the carbon rebate system, Bernstein said, adding the federal Liberals have been terrible at communicating about it.

At first, the confusing-sounding "climate action incentive" was initially included as a line item on tax returns. Now it comes in as a quarterly direct payment, similar to those for families of young children, seniors and people with disabilities. But many still don't understand what it is.

Exner-Pirot said the constant political battle over whether carbon pricing is going to remain in place is harmful because it reduces predictability.

But even if voters choose a leader who would dismantle the system, businesses will continue with their own climate plans, she said, though timelines could shift if carbon pricing or regulations disappear.

"They have made commitments in their business plans to their shareholders that they will have climate policy," she said, regardless of what the Conservatives do or don't do.

"But they're obviously going to do it in a way that works for their business and keeps them competitive and profitable."

This report by The Canadian Press was first published Dec. 31, 2023.