CALGARY/OTTAWA – In an attempt to boost competitiveness and protect trade-exposed industries, the federal government will dole out more in carbon-tax subsidies to industrial emitters, as new details emerge on the country-wide carbon tax framework.
The Ministry of Environment and Climate Change updated its carbon tax policy framework this week and revealed that subsidy rates for industrial emitters were up across the board but that cement, steel-making, lime and nitrogen fertilizer companies would be entitled to the highest subsidies.
The moves, experts say, will help protect companies that compete directly with products from jurisdictions with no carbon taxes, but it’s unclear on how helpful the subsidies will be.
At the same time, the new framework has pitted industries against each other, with those receiving higher subsidies applauding the changes, and those left out demanding an explanation.
“We’ve been clear since the beginning that we would consult with industry and environmental experts to find the best ways to reduce emissions, improve energy efficiency and stay competitive — and that’s exactly what we’ve done,” Environment and Climate Change Minister Catherine McKenna said in an emailed statement. “We can’t afford to let big polluters off the hook.”
She did not provide an explanation as to why four industries – cement, steel-making, lime and nitrogen fertilizer – are considered “high competitive risk” businesses.
Companies in those sectors will be entitled to a 90 per cent subsidy rate on their carbon tax burden, compared with a previously published subsidy rate of 70 per cent.
“We’re a major trading industry and we’re highly exposed on the trade side of things,” said Clyde Graham, executive vice-president at Fertilizer Canada, which represents the industry, adding that he welcomed the changes that help ease the tax burden on companies.
Nitrogen fertilizer producers export roughly half of their total production, and fertilizer facilities burn natural gas in the manufacturing process, representing most of their carbon emissions.
“Our industry is always concerned with being as competitive as it possibly can,” Graham said.
In May, Cement Association of Canada vice-president Adam Auer urged a senate committee on the carbon tax framework “to be attuned to the reality that our competitors in import and export markets don’t have similar pricing systems.”
He said British Columbian cement plants have been losing market share since the province introduced a carbon tax in 2008, saying imports of cement have climbed from six per cent to 40 per cent.
Other industries that have not been classified as “high competitive risk” are also seeing a higher subsidy rate of 80 per cent, compared with a previous rate of 70 per cent, but some say that isn’t enough.
“I find it problematic that they put out a reference number a few months ago, they’ve now come out and changed that number for some industries and they haven’t given us the rationale,” Canadian Association of Petroleum Producers president and CEO Tim McMillan said.
“That there’s no rationale for it really is a concern. It seems that politics is driving these policies more than the economics and the environmental outcomes that we’re looking to achieve,” McMillan said.
That there’s no rationale for it really is a concern. It seems that politics is driving these policies more than the economics and the environmental outcomes that we’re looking to achieve
CAPP CEO Tim McMillan
Oil and gas production should be “at the top of the list” of trade-exposed industries because oil and gas is Canada’s largest export category, McMillan said. In addition, oil and gas production in the U.S. has increased exponentially in recent years, and American oil and gas now compete against our domestic production.
Calgary-based oil companies currently pay carbon taxes under Alberta’s Climate Leadership Plan but also have assets in other provinces, including refineries in B.C., Ontario and Quebec. In addition, the federal carbon tax is expected to exceed Alberta’s in the coming years, at which point energy companies would pay a provincial and federal portion.
Industries and companies that are still concerned with the framework can now provide the environment ministry with more data on competitiveness as consultations on the carbon tax framework continue.
“We insist that this data be assessed really diligently and that only critical data be admitted for that assessment,” Pembina Institute federal policy director Isabelle Turcotte said of the next round of consultation.
The Pembina Institute is concerned that industry groups will submit irrelevant data on costs in different jurisdictions rather than data specific to carbon pricing in an attempt to lower their overall tax burden, she said.
“Pricing carbon pollution is really essential to cost-effectively and efficiently address the challenge of climate change and to make sure there’s an incentive for Canadian industries to innovate,” she said, adding that Ottawa should stay the course and implement the carbon tax.
The $20 per tonne carbon tax is expected to come into force in January and will apply to all emitters, but is designed to target companies that emit more than two-thirds of their direct competitors.
Those companies that emit more than their competitors will pay the carbon tax but can deduct either 80 or 90 per cent of their carbon tax burden. Companies that emit less than the majority of their peers will effectively pay no carbon tax and, given the subsidies, earn credits for having lower-than-average emissions.
It reduces the carbon tax payment but it doesn’t reduce the price on each tonne of carbon emitted. They’re getting subsidized based on their output
Jennifer Winter, University of Calgary assistant economics professor
“It reduces the carbon tax payment but it doesn’t reduce the price on each tonne of carbon emitted,” University of Calgary assistant economics professor Jennifer Winter said of the system. “They’re getting subsidized based on their output.”
Winter said the subsidies should help protect industries that are at risk of becoming uncompetitive relative to other jurisdictions as a result of carbon taxes, but it’s not clear at this point to what extent the subsidies will help.
“The issue right now is there isn’t a whole lot of research on leakage because it’s a fairy new policy area,” Winter said. Carbon leakage refers to industries relocating to jurisdictions with lower environmental regulations to avoid higher costs.
The NDP framed the new subsidy rates as a dramatic walk-back of the Liberal’s climate change efforts.
“I can’t believe that they’re caving,” said NDP MP Linda Duncan, adding that Ottawa should provide more details around how it is categorizing trade-exposed industries and questioned whether certain industries, such as concrete companies, fit that definition.
The government is accepting comments from industry on the plan, with an aim to finalizing the threshold system this fall, for implementation in 2019.
The revisions come as big industries face competitive threats from south of the border in the form of corporate tax cuts and protectionist tariffs, and as Ottawa prepares to replace Ontario’s cap-and-trade system with its own carbon levy.
The new Progressive Conservative government in Ontario has eliminated the province’s cap-and-trade system and is joining Saskatchewan in a court case challenging the federal government’s jurisdiction to impose a carbon price on provinces.
Alberta, B.C., Manitoba and Quebec all have carbon pricing plans that are expected to meet federal requirements for 2019, meaning the federal system will not be imposed there. Nova Scotia has a cap-and-trade system that will kick in next year that also could meet federal requirements.
Prince Edward Island and New Brunswick both have put forward carbon-reduction plans that don’t include a new price on carbon and are therefore unlikely to meet the federal threshold. Newfoundland hasn’t yet made public its plan.
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— With files from The Canadian Press
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