Trudeau Imposes Carbon Tax, With Rebates, on Four Provinces

(Bloomberg) -- Justin Trudeau is imposing a carbon tax on provinces that have balked at implementing their own, doubling down on what will be a core fight in Canada’s next election.

Trudeau announced a plan Tuesday to tax industrial emitters and fuels in holdout provinces. The fuel surcharge alone will raise about C$2.3 billion ($1.8 billion) in revenue next year, rising to C$5.6 billion by 2022-2023. The baseline price on carbon will be C$20 per metric tonne initially, rising to C$50 by 2022.

Much of the revenue will be sent out as benefits to individuals, and the government projects that the average household will receive more in rebates than it pays in the tax.

The plan will apply to Ontario, Saskatchewan, Manitoba and New Brunswick. The charge on large industrial emitters will begin in January, though revenue details have yet to finalized, while the fuel tax will take effect in April.

“A number of the provinces have refused to do that, so because pollution doesn’t stop at provincial borders, we’re going to move forward with a federal approach,” Trudeau told CBC Radio before the announcement. “People will be better off, families will be better off because of the carbon incentive we’re returning to them.”

Cost to Households

The file will be a central battleground of Canada’s next federal election one year from now. Trudeau faces growing opposition, particularly among the country’s conservative parties, to any carbon tax or cap-and-trade system. He announced the move in a Toronto suburb that is home to Ontario Premier Doug Ford, who scrapped the cap-and-trade system in Canada’s most populous province after being elected earlier this year.

The average household cost of the plan will range from C$202 to C$403 annually starting in 2019, depending on the province, while the average household rebate will range from C$248 to C$598. The C$20 per tonne initial charge is the equivalent of 4.42 Canadian cents per liter on gasoline.

About 90 percent of fuel charge revenue will be returned to individuals, and the rest to cities, small businesses, and institutions like schools. Each industry will have a certain emissions target relative to that sector’s current average -- companies can pay a tax if they go over the level, or they buy credits from others that are above it. The government has proposed targets of 80 percent or 90 percent of current emissions, depending on the sector, but the targets aren’t finalized.

Canada will provide C$1.5 billion over five years in “support” for small and medium-sized businesses as part of the plan, along with C$707 million for universities, hospitals and other institutions.

The plan doesn’t do enough to incentivize businesses to make investments that cut emissions, said Dennis Darby, president of the Canadian Manufacturers and Exporters industry group. “It doesn’t help change the technology, it doesn’t help even change behaviors,” he said. Canada already has a problem attracting foreign and domestic investment, and the carbon plan further exacerbates that, he said.

‘Massive Tax Hike’

All four provinces where the plan is to be imposed are either governed by conservatives, or may soon be. Other provinces, such as British Columbia, have introduced their own plans that meet the federal standard.

“This massive tax hike from the federal government will jack up the cost-of-living for each and every Ontario family and business,” Ford said in a written statement. “We will take this fight all the way to the Supreme Court if necessary -- but more importantly, we will take this fight to the people.”

Trudeau’s top rival in next year’s vote also blasted the carbon plan. Federal Conservative Leader Andrew Scheer, who has regularly pledged to kill the “backstop” if he becomes prime minister, criticized the fuel surtax and said he’d rather see the focus put on industrial emitters, pledging to release his own plan soon.

“Canadians won’t be tricked by this. They know an election gimmick when they see one,” Scheer told reporters in Ottawa. “Life is going to get a lot more expensive for hard-working Canadians and families.”

Environmental Praise

Trudeau struck a political tone Tuesday in the radio interview. “We are not going to allow pollution to be free, even if conservatives want to make pollution free again,” the prime minister said.

Environmental groups and advocates applauded him. “This move makes it clear that no one gets to sit out the fight against climate change,” said Keith Stewart, a senior energy strategist at Greenpeace Canada.

Green Party Leader Elizabeth May also praised the federal plan but warned it won’t be enough. “What the prime minister must do is improve Canada’s target” for reducing emissions, she said. “You can’t sell mediocrity; mediocrity doesn’t inspire people.”

(A previous version of this story corrected the thresholds for industrial emitters in eighth paragraph.)

©2018 Bloomberg L.P.