A made-in-New Brunswick carbon tax is here, but will it actually curb consumption?

After more than two years of angry debate, New Brunswick's carbon tax has arrived, not with a bang but a whimper.

The provincial version of the tax was set to take effect at midnight on Wednesday, the moment the federal government withdraws its imposition of its carbon tax, known as the "backstop."

But you may be forgiven for not noticing: with gas prices plummeting to astonishingly low levels in recent weeks, a couple of cents shaved off your carbon tax may be hard to see.

Even so, it's the quiet end of a long and boisterous political fight, one that Ottawa approved during negotiations with the Higgs government last fall.

It's a ceasefire that could come with a real downside for efforts to fight climate change, according to Nicholas Rivers, the Canada Research Chair in Climate and Energy Policy at the University of Ottawa.

Rivers said federal approval of the New Brunswick legislation sets a dangerous precedent because it gave the green light to two loopholes that lighten the burden on consumers and run counter to the whole premise of the policy.

"It does officially comply, but it kind of undermines the spirit of the federal benchmark and it does undermine this uniform carbon pricing that is supposed to be across the country," Rivers said.

"If it becomes understood that provinces can basically undermine this federal carbon price by workarounds, by changing other policies … then it becomes a much more substantial thing, a much more influential thing." 

How it works

The federal climate plan requires provinces to tax fossil fuel emissions at a set level. For the 2020-21 fiscal year, it's $30 per tonne, which translates into 6.6 cents per litre of unleaded gas.

Ottawa's backstop, in place in five provinces, would have risen to that level Wednesday if New Brunswick's Progressive Conservative government hadn't agreed to establish its own tax at the same amount. 

The PC legislation passed last month lets New Brunswick exit the federal backstop but also reduces the provincial excise tax by 4.6 cents. That means the net cost to consumers is now two cents, not the 4.4 charged in 2019-20 or the 6.6 cents for 2020-21.

What's more, the PCs say they'll continue to lower the excise tax every year by the same amount the carbon tax rises — meaning the net impact will remain two cents per litre indefinitely.

A key element of the federal plan is a carbon tax that gradually increases each year so that it gives consumers a bigger and bigger incentive to burn less fuel. 

Rivers said the PC plan eliminates that. 

"While they've complied with the letter of the federal policy, they've clearly enacted other policies that are directly against the spirit of the federal policy," he said.

Taxing natural gas

Another PC loophole will eliminate the effect of the carbon tax on natural gas.

The federal plan requires the taxing of natural gas for home heating, but the province will hand $9 million — all of the revenue from that part of the tax — back to Liberty Utilities to ensure customers don't pay anything more. 

Rivers said several provinces have worked outside deals with the federal government, but "I would say that New Brunswick is the only one that has sought to substantially eliminate the carbon price and received assent for doing so." 

A spokesperson for federal Environment Minister Jonathan Wilkinson said last month that Ottawa was being "flexible" with provinces. Moira Kelly did not respond to a request for comment Tuesday about Rivers' concerns.

The PC decision to comply with the federal plan after the Trudeau government was re-elected last October was a political breakthrough for the Liberals' national climate effort. It was the first PC government to go along with the requirements.

But provincial Environment Minister Jeff Carr said last month that didn't mean he accepts the idea that higher gas prices would lead to lower consumption.

"It's just money in and money out," he said.

Rivers said decades worth of economic studies show that price increases will affect consumption. He said generally a two per cent increase in the price of gas translates into a one per cent reduction in consumption.

"Consumers consistently respond to changes in gasoline prices," he said. 

He added that's the case whether gas is $1.40 a litre or way down to the 75-cent range, where they've been recently due to geopolitical price wars and COVID-19. 

Rivers said emissions from consumers heating their homes or driving cars are lower than those from heavy industry, so he doesn't expect the New Brunswick loopholes to dramatically alter the province's emissions trajectory.

He said the risk will be if other provinces use this to win carbon-price exemptions from Ottawa that might have a larger impact. 

Carr could not be reached for comment Tuesday.

Most of New Brunswick's carbon tax revenue, $83 million, will be used to make up the amount the province is giving up by cutting the excise tax on gasoline. Of the rest, $9 million is for the natural gas offset and $36 million goes into a fund for climate projects. 

The province is still waiting to find out whether Ottawa will approve its pricing system for large industries.