Higgs facing carbon-tax squeeze from Ottawa

Premier Blaine Higgs is facing a carbon-tax squeeze by Ottawa as the federal government ramps up the pricing requirement that provinces, including New Brunswick, will be required to follow in the coming decade.

The Trudeau Liberals will require fossil fuel consumption to be taxed at $170 a tonne by 2030, a rate that provinces with their own carbon taxes will be expected to follow. 

New Brunswick's carbon-tax plan, designed to negate most of the impact on consumers, won't be able to keep up with that increase. 

"There isn't an offset here on provincial tax. It's new and additional cost that every consumer is going to pay," Higgs told reporters.

If the premier refuses to go along with it, the federal carbon tax could be re-imposed on New Brunswick, depriving the provincial government of revenue.

But it would also mean rebates for New Brunswickers that could reach $2,000 or more.

"He would lose the revenue, but New Brunswick would not lose the revenue," said Nic Rivers, a University of Ottawa economist who studies carbon pricing.

"When the federal backstop applies, the revenue does not come out of the province. The revenue is all returned to households in the province in which it was raised."

Higgs model in peril 

The Higgs government's carbon-tax model cuts the excise tax on gasoline by a similar amount as it applies a carbon tax, leaving customers paying just two cents more per litre than they would otherwise. 

But Higgs said the new price thresholds from 2023 to 2030, announced last Friday, will make that impossible. 

"We wouldn't be able to do that, nor is that the intention of the federal government. Their proposal is that basically you just add this on."

Ottawa's goal is to gradually increase the price of fossil fuel consumption over time to give consumers incentives to consume less, by switching to electric cars or public transit, for example. 

Combined with new funding for energy efficiency retrofits and electric car purchases, the federal government says it should allow Canada to meet its 2030 goal of getting to 30 per cent below 2005 emissions levels.

But it also presents a challenge for Higgs, who promised to use revenue from his provincial carbon tax to pay for environmental initiatives.

The Progressive Conservatives refused to implement their own carbon tax at first, but Higgs relented after the federal Liberals were re-elected in 2019 with a majority of federal seats in New Brunswick. 

His tax, which took effect in April, is $30 per tonne of carbon dioxide, which translates to 6.6 cents per litre of unleaded gasoline. But the PCs reduced the provincial excise tax by 4.6 cents, leaving New Brunswickers paying a net cost two-cent per litre tax.

And they plan to cut the excise tax further next year so the two-cent tax remains steady.

But the gas excise tax was only 15.5 cents a litre to begin with. The federally required tax rate will surpass that long before 2030, so there'll be no excise tax left to cut and Higgs will have to start charging New Brunswickers more. 

"You're going to run out of room," said Rivers.

"So I think eventually that the price of gasoline and other fuels in New Brunswick will have to follow in line with the increases in this carbon price."

Federal tax reimposed?

If Higgs refuses, Ottawa could re-impose its own federal version on the province. 

The premier said "it's early to tell" which option he'll choose.

"We'll look at and get some idea of what it means in terms of dollars to citizens but how it fits in to what we have today -- it will be imposed on us if we don't." 

If Ottawa reimposed its model, Higgs would lose a large amount of revenue. This year, the province expects to collect $116 million, of which $80 million will be used to make up for lost revenue due to the gas excise tax cut. 

Another $9 million is to offset the carbon tax on natural gas for home heating, another federal requirement. The remainder is to fund climate initiatives. 

The province is not rebating any of the money, though last year then-PC Environment Minister Jeff Carr said the reduction in the gas excise tax was the equivalent of a rebate. 

But a federal rebate would be more visible because Ottawa plans to start sending it out in the form of quarterly cheques.

There's no figure for what a New Brunswick rebate would be, and the amount varies depending on a province's fossil fuel consumption.

Last week officials said the average family of four in Ontario will collect roughly $2,018 a year in climate rebates by 2030, while a similar family in Saskatchewan would collect $3,829.