Ottawa not happy with Higgs government's carbon-tax strategy

The federal government is bringing in tougher carbon-pricing rules to prevent provincial governments from imitating New Brunswick's 2020 gas-tax cut, which softened the carbon tax impact on consumers.

But the federal environment minister won't say yet if he'll require the Higgs government to scrap the four-cent-per-litre cut.

Jonathan Wilkinson says the tax cut goes against the logic of carbon pricing.

"We are certainly of the view that instant rebates are not in accord with what the whole purpose of the price of pollution is," Wilkinson said in an interview.

"If you put a price on pollution [at the pump] and then you take it off immediately, you don't have any effect on emissions." 

But the minister said the ball is in the province's court, and he'll wait before deciding whether to force New Brunswick to roll it back.

"I don't want to get too far ahead of myself because we haven't had the opportunity to have that conversation with New Brunswick about what they plan to do in 2023." 

Ottawa has the power to impose its own carbon tax on any province that refuses to comply with its climate plan, including the new, more stringent benchmarks unveiled Monday.

Wilkinson sent a draft of the new rules to provincial environment ministers, saying they must not "weaken the price signal" that carbon taxes send to reduce fossil fuel consumption.

The Higgs government reluctantly adopted a provincial carbon price last year, including a 6.6-cents-per-litre tax on gasoline. But it simultaneously cut the provincial gas excise tax by four cents to soften the blow.

This year the province opted not to cut the gas tax further to offset the federally required increase in the carbon tax. Instead it cut income tax rates.

But last year's cut remains in place, meaning the net carbon-tax cost to drivers in the province is 4.2 cents per litre instead of 8.8 cents.

"That is something that we wouldn't see being in accord with where the benchmark is going in 2023 and beyond," Wilkinson said.

But he repeatedly refused to say whether he will force the province to reverse the gas tax cut.

New Brunswick Environment Minister Gary Crossman said in a written statement that his department would review Wilkinson's letter in the coming days.

"With respect to the revised benchmark, New Brunswick has put in place a carbon pricing system for consumers and large industry that is fair and delivers incremental greenhouse gas emissions reductions," Crossman said.

"We will continue to advocate for the best interests of our province and maximum flexibility to continue to implement our made-in New Brunswick system."

Saskatchewan Premier Scott Moe suggested earlier this year he may adopt a New Brunswick-style "immediate rebate right at the pump" if his government sets up its own provincial carbon price.  

The federal carbon pricing benchmark will rise every year through to 2030, when New Brunswick officials estimate it will reach 37 cents on a litre of unleaded gas. 

Higgs said in May he may cut income taxes further each year to match those carbon price hikes.

The opposition Liberals have criticized Higgs for the income tax cut, saying the $28 million in lost revenue would be better spent on government climate projects.

But Wilkinson said the federal Liberal government's position is that income tax cuts are a legitimate way to help consumers, because they make the carbon tax affordable without undermining the price signal at the pumps.

"You should certainly consider affordability in the context of the decisions being made in the distribution of funds," he said. "Our view is that affordability is a critical issue that has to be considered."

The new rules unveiled Monday could also force New Brunswick to increase its carbon price on heavy industry.

The provincial system requires industrial plants to pay if they fail to reduce emissions intensity by one per cent, a target that will increase to 10 per cent in 2030.

The federal requirement is 20 per cent, and Wilkinson said province will have to match that starting in 2023. 

"The focus is on ensuring that there is similar coverage, at least in terms of percentage," he said.

New Brunswick's weaker industrial carbon price is based on the government's belief that export-driven industries are vulnerable to competition from U.S. producers not subject to any carbon tax.

The new benchmark rules released Monday are part of Canada's official submission of its emissions reductions target to the United Nations. The national goal is to reductions of 40 to 45 per cent below 2005 levels by 2030.

New Brunswick emitted 12 megatonnes of greenhouse gases in 2019, which was 38 per cent below 2005 levels, exceeding reductions called for in the Paris climate agreement.

But the province's official reduction target in its climate change law is to reach 10.7 megatonnes by 2030. 

That's 47 per cent below 2005 levels, which Crossman noted would surpass the revised national target.