Ontario: The Next Battleground for Carbon Taxation?

Laurent Crépeau is a second-year law student at McGill University and a Senior Editor for the McGill Journal of Sustainable Development Law. He is interested in the role of various public and private law instruments in implementing sustainable development. Before attending law school, Laurent completed a Diploma of Collegial Studies in Liberal Arts.

Recently, Progressive Conservative leadership candidate Caroline Mulroney expressed her reticence to enacting a new provincial carbon tax. She said she would consider taking the federal government to court over whether it is competent to enforce a Canada-wide climate plan that includes carbon-pricing. She was echoed by her fellow contenders, Doug Ford and Christine Elliot, who both reiterated their opposition to carbon pricing, asserting the policy was economically unviable. These positions constitute a break from the Progressive Conservative platform, which included the policy. This addition came under former leader Patrick Brown, however, who relied on estimated revenue from carbon pricing to finance new spending initiatives – it was claimed that these revenues would amount to $4 billion. The carbon tax would replace the provincial cap-and-trade system put in place by the  current liberal government.

With the federal government working on a national carbon policy, it is appropriate to look at the main options in consideration. In addition to a carbon tax, a cap-and-trade regime is being considered at the federal level. This piece gives a brief outline of the two frameworks, showcasing their pros and cons, and evaluates the traction of any eventual legal claims by Mulroney. It concludes by proposing that, Ontario being one of Canada’s major economic centres as well as Canada’s most populous province, should be seen as the most important battleground for carbon taxation and cap-and-trade advocates. The viability of any national carbon plan depends on convincing the province’s economic actors that their businesses will not be endangered by it and convincing its population of the policy’s desirability.

Cap-and-trade and Carbon Taxation – What’s the Difference?

Cap-and-trade is a framework that puts a progressively-decreasing yearly ceiling on carbon emissions for a given industry. Pollution quotas are then distributed to high-polluting corporations via auction. Hence, the market ends up determining the price of carbon, which creates incentives for corporations to invest in sustainable solutions and clean energy.

Carbon taxation simply imposes a tax on the volume of carbon produced by a given corporation. This regime allows for less customization than cap-and-trade, but it arguably gives more flexibility to corporations, which can decide to simply externalize the additional costs related to paying the tax.

When announcing her campaign for the Progressive Conservative leadership, Caroline Mulroney originally pledged to repeal the Ontario Liberals’ cap-and-trade program and defend the Progressive Conservatives’ carbon tax plan. She defended her shift in position by claiming that she was sticking to the party line at the time and is now advancing her own positions. At the time of writing this piece, we do not know whether this affects her stance on cap-and-trade as well. The point commonly raised by Conservatives to oppose carbon taxation is that it would target specific industries and stifle their economic development in Canada, a position Caroline Mulroney seems to agree with. If that is indeed her position, one might wonder whether she might be partial to cap-and-trade, which has the benefit of being readily calculable and forcing innovation, which effectively limits the waste of resources. Cap-and-trade has existed in the European Union since 2005, with the effect of drastically reducing carbon emissions. Though the system does not lack criticism, it is, in fact, achieving its objectives.

The Constitutional Equation

In the event that provinces decide not to implement a carbon plan, could the federal government come in and impose its own system? In all probability, yes. According to a 64-page legal analysis prepared by Manitoba law professor Bryan Schwartz at Premier Brian Pallister’s request, the federal government could legislate under its taxation powers as well as other heads of powers under s. 91 of the Constitution Act, 1867. If Professor Schwartz’s analysis is correct, this would bode ill for Mulroney’s promise to contest the federal climate plan’s constitutionality. The proposed federal framework, in fact, as noted in the analysis, is flexible and opens the door to “cooperative federalism”, leaving space for provinces to enact their own carbon regulations in addition to the federal structure. Moreover, this framework contains a “backstop” feature, which means the federal legislation would not apply to provinces having already enacted provincial carbon plans satisfying the federal benchmark.

All of this should incentivize provincial parties to put in place their own carbon plans in order to retain control over what could well function as a field of provincial legislation. Even if the federal policy retains its backstop feature, the federal government could end up suffering from continuous efforts to implement its own climate policy on top of the provinces’. This could have political consequences for the federal Liberals, since they will need every constituency they can get in the notoriously swing-happy Ontario during the 2019 federal election.

Ontario as the Major Battleground for Climate Action

Ontario is Canada’s most populous province and home to its greatest economic centre. If Canada is to achieve any significant progress with regards to carbon emissions, it is necessary for Ontario to chime in. If a provincial climate plan can be implemented, it will pave the way for a more serious transition towards a green economy and will serve as an example to other provinces. Knowledge accrued from implementing the climate plan in practice could later be used to further climate action not only in Canada, but in large economic centres around the world. Hopefully, Mulroney or whoever is elected leader of the Progressive Conservatives will prepare a climate plan and, in the event that they form the future provincial government, work with federal lawmakers to comply with Canada’s obligations under the United Nations Framework Convention on Climate Change.

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