Carrot or stick? Frugal Higgs is a fan of Ottawa's big spending on clean-energy projects.

The federal government's shift to massive spending on clean-energy projects has attracted an unlikely fan: Premier Blaine Higgs, a longtime opponent of swollen budgets, high taxes and lavish subsidies.

The day after Finance Minister Chrystia Freeland's March budget, with its $21 billion for clean-energy infrastructure over five years, Higgs voiced approval for the approach. 

"I guess it shows kind of a shift in philosophy," Higgs said, sounding almost relieved.

The money should make it more feasible to build the Atlantic Loop, a series of transmission links that would allow the Atlantic provinces and Quebec to share more clean hydroelectricity and burn less coal.

Federal policy will allow the estimated $6 billion cost to be spread out over decades, reducing the impact on power rates.

There are also tax credits for clean hydrogen projects that could help a proposed export terminal in Belledune.

Higgs likes that Ottawa is no longer basing its climate policy solely on carbon taxes, a measure he reluctantly accepted in 2019 but continues to gripe about.

"The policies in New Brunswick and Canada penalize people by higher costs to consumers, and that's not what the U.S. policy is," Higgs told reporters.

'Shift to tax credits'

Carbon taxes are a political non-starter in the United States, one reason the Biden administration's Inflation Reduction Act authorizes spending an eye-watering $370 billion on clean-energy subsidies.

Higgs told reporters the Trudeau government seems to be following suit, adding a carrot to its carbon-tax stick.

"I think what we're seeing here is a little shift to tax credits, in the increase of money available to the [Atlantic Loop] and other green projects," he said.

"I think we're seeing a shift there in that reality, that you can't keep downloading that cost on consumers." 

The premier's stance is curious for two reasons. First, as Higgs acknowledged when he adopted the federal pricing system this year, New Brunswick consumers will get back almost everything they pay in carbon taxes in the form of rebates starting this summer.

Second, Higgs's embrace of massive federal subsidies contradicts his long-held philosophy that governments should not finance major business projects when private sources of capital are available.

"We must not continue to be the Bank of New Brunswick," Higgs said in his first speech as finance minister in 2011.

"Financial institutions need to step up to the plate. In addition, responsible corporations and citizens should not consider taxpayer dollars as a source of easy money."

The Trudeau government in Ottawa is also undergoing a climate policy conversion.

It has long argued that carbon pricing — not subsidies — is the most efficient, least expensive way to drive emissions down.

And many experts agree.

With a tax in effect, "you leave it to the marketplace to sort out themselves," says Marisa Beck, the clean growth director at the Canadian Climate Institute.

The idea is that as the cost of emissions rise, industry will choose for themselves the best way to reduce them. Consumers as well can decide how to scale back, with electric vehicles and other options becoming increasingly cost competitive.

"They know their own business, they know their own costs, they know where to cut emissions." 

But Canada can't ignore that the much larger and lucrative U.S. market is going the spending route, Beck says. 

'Not a level playing field'

Carbon taxes are designed to fix what's called a "market failure" — the long-term cost of greenhouse gases and the impact of climate change.

But other market failures, like a history of subsidies, tax credits and policies favouring oil and gas, can only be corrected with subsidies, she says — especially because new clean energy technologies, like hydrogen plants, will cost a lot of money up front.

"The market is not a level playing field for these new cleaner technologies to come in," she says.

"These new innovative low carbon technologies can be really risky. They are unknown, no one has done it before, we don't really know how they work at scale. … [but] as soon as one company invests in them and shows that it's working, it will be easier for other companies to do the same."

Still, University of British Columbia economist Kevin Milligan says it's strange to see conservative-leaning politicians endorsing big spending on subsidies.

That option doesn't hit consumer wallets as directly but it's just as costly, he says.

"First you have to raise taxes or cut other programs in order to fund it. So that's where I see a bit of a hole in some of the rhetoric I've seen in Canada.

"If you're going to diminish the importance of the carbon price and try to replace that with spending-side measures like the U.S. [Inflation Reduction Act], you're going to have to spend a whole bunch of money.

"So if your goal is to shrink government, and lower taxes, and do an IRA, it doesn't all fit together."