Canadian Climate Policy could use Mr. Trudeau’s Sunny Ways

There is no doubt that the climate file will be a sticky and messy affair for the new Liberal government. Years of open warfare within Canada between provinces and the federal government coupled with a bureaucracy beaten into submission means dark thoughts now pervade climate policy in this country.

We have an almost unworkable patchwork of provincial policies defined by two extremes.

The first are the provincial laggards who kept their head down as a succession of Conservative climate initiatives faltered. For this crowd, it paid to go slow and wait until regulations were actually gazetted to become law. As a consequence, there is no real policy architecture to speak of in a number of provinces. Absent new federal prompts and threats, this go slow approach will continue.

But for those leading jurisdictions that have implemented or are in the process of implementing economy wide carbon pricing and complementary regulations, there’s not much room for the federal government to move. Our largest economies are now more or less covered by three very different forms of carbon pricing. In British Columbia, there’s the revenue neutral carbon tax, Alberta continues to implement a hybrid system that could very well include a gasoline tax coupled with more stringent Specified Gas Emitter Regulation for large industrial emitters, and Québec and Ontario linking with California on their cap and trade system.

For our largest provincial economies, there is little appetite for a new federal climate change plan to begin mucking about.

Given this mess, what is my advice for Mr. Trudeau?

First, bring your sunny ways to the climate file. Industry, the provinces, the federal bureaucracy and the NGOs all need a hug. Truthfully, this entire crowd is emotionally drained after the train wreck of the last 10 years. And let’s not even get started on the international crowd, where Canada’s myopic positions have left us on the outside looking in, and frankly left our geopolitical and economic interests exposed. Keystone XL is the poster child of this. If workable policy solutions are to emerge, mending fences is job one.

Second, implement the elements of your climate policy. You have provided a workable solution that allows action to get going in this contentious policy space. Getting on a plane to the Paris Climate Summit in December is a good use of your scarce time, as is convening a first ministers meeting to smooth the political waters and inject some sunshine.

Seeking to define a backstop federal policy to bring up the provincial laggards or at least force their hand is a solid strategy moving forward. It accommodates a patchwork while setting a national performance standard. But set this aside for now.

During the campaign you did not talk emission reduction targets, which is very good. Continue to focus on action and not targets, because we know politically set targets are economically infeasible. Was Prime Minister Harper really prepared for a $175 per tonne carbon price to hit his 2030 target?

Your call to modify the Canadian Exploration Expense write-off to only apply to unsuccessful exploration is smart subsidy reform. Modifying this subsidy is simple, can be done within the tax code, and will help Canada’s international reputation significantly. Financially, it is not big, about $250 million per year, and would likely have a minimal impact on oil and gas activity.

Investing in clean technology is something Canada desperately needs. Our biggest emission challenge is large industrial emitters given that innovation signals have been weak. And we can’t expect global technology spillovers to help solve our problem. Working with the provinces and establishing regional R&D priorities is exactly the type of role that we need from the federal government.

Third, use the gas tax to implement a national carbon price with proceeds recycled to provinces to incent change. Given the current fragmented carbon pricing architecture in Canada, there is really not much room for the federal government to pre-empt the existing carbon pricing policies. For now, the simplest move is to increase the gas tax, which would reinforce existing provincial carbon policies and broaden the signal to provincial laggards. It would help many provinces to achieve their reduction targets while not messing with the primary signals provided by current provincial policy.

Proceeds from a 2 cent per liter carbon levy or $20 per tonne carbon fee on all liquid fuels in Canada would average about $3.5 billion annually to 2020 (net of tax interactions), making new infrastructure and innovation spending in the provinces possible.

With a little sunshine, a few simple steps, and a pragmatic and inclusive approach the new Liberal government could move forward fairly rapidly with a credible policy package. This is not transformative change, but rather a badly needed reset of federal climate policy. Then with a bit of breathing room and way less brawling, we Canadians might just turn our attention to how we prosper in a rapidly emerging global low carbon economy.