Higgs may create his own carbon tax. Here are his options

Stop for a minute and let this sink in: Premier Blaine Higgs, fiscal conservative, former oil executive and arch-foe of carbon taxes, is now saying he'll look at creating a carbon tax of his own.

Following Monday's election, which saw the federal Liberals hold on to power and win the popular vote in New Brunswick, Higgs acknowledged that Justin Trudeau's climate plan, and the obligations it imposes on provinces, will remain in place. 

So now that the premier is looking at crafting a made-in-New Brunswick carbon price that would comply with Ottawa's requirements, what options does he have?

"I think the province has a lot of choices," said Louise Comeau, a climate-policy researcher at the University of New Brunswick.

Copy the Trudeau plan

Higgs's Progressive Conservative government could simply copy the federal backstop, which was imposed April 1 after the province refused to adopt its own carbon price.

The backstop adds 4.4 cents per litre plus HST at gas pumps. That amount will rise each year until it reaches 11 cents per litre in 2022. 

It also includes a rebate of $256 for a New Brunswick family of four, which will also rise proportionately with the tax.

But adopting an identical formula and calling it a provincial plan would contradict previous comments by Higgs and his environment minister that many New Brunswickers, including rural residents, can't afford it, even with the rebate.

In April, Jeff Carr described an elderly resident of his riding who "right now cannot afford her power bill." If she has to drive to Fredericton twice a week for medical appointments and has to pay the carbon tax, "she is not going to be able to survive for another year." 

Try a shell game

Another option would be to put a provincial tax in place as required by Ottawa, then reduce the provincial gas tax by the same amount, meaning there'd be no net change to what consumers pay.

The problem with that model is it's precisely what former Liberal premier Brian Gallant did — and his federal allies rejected it last year because it didn't add any new cost to the consumption of fossil fuels, a key requirement. 

Follow P.E.I.'s lead

Comeau said Higgs should "look east" for a carbon tax that can work for him.

Prince Edward Island's previous Liberal government did something similar to Gallant but with one seemingly minor but important twist.

It reduced its gas tax by three cents, less than the 4.4-cent carbon tax, leaving consumers with a net increase of slightly more than one cent per litre at the pumps.

That extra penny was enough to satisfy Ottawa that consumers were paying more, creating an incentive to reduce consumption. 

It was a creative way of interpreting the federal requirement, but it allowed Ottawa to bring the province on board.

"They said, 'What do we have to do to get them in? And then we'll fix things as we go,'" Comeau said.

As the federal backstop increases, however, P.E.I.'s three-cent tax reduction will no longer be enough to negate its impact. And the arrangement is a temporary two-year deal that Ottawa may not be willing to extend, or to offer to New Brunswick. 

"The feds showed flexibility, but I think it gets harder as you get further into the regime," Comeau said.

Implement a carbon tax, cut income taxes

The purest form of a carbon tax, according to economists, includes a corresponding reduction in government revenue through income tax cuts. There's still an incentive at the pumps to consume less gas, but citizens have more money in their pockets.

British Columbia used that model when it first introduced its carbon tax in 2008, and University of British Columbia economist Kevin Milligan said that by going his own way, Higgs is giving himself "a huge opportunity."

New Brunswick's aging population and high tax rate present "a real big challenge to New Brunswick," Milligan said, including the attraction of skilled workers and professionals such as doctors.

He said a Higgs-crafted carbon tax would allow the province "to ease back somewhat" on income taxes rather than sending out rebates. That would make the province a more attractive place to live, work and invest — something Ottawa's backstop doesn't do. 

"You can imagine the provincial government being able to do a bit more of a fine-tuning that fits the needs of New Brunswick," he said. 

Cap and trade

Another option for Higgs is to jettison the idea of a tax at the pumps and adopt a cap-and-trade system for emissions.

In such a regime, emitters earn credits if they stay below a government-established cap and can sell those credits to emitters exceeding the cap. 

Quebec has such a system, and the Trudeau Liberals approved it as fulfilling their climate plan requirements — meaning no federal backstop in that province. 

Glen Murray, the former Liberal environment minister in Ontario who helped design that province's cap-and-trade system, said he offered the Gallant government "all of the technical expertise and resources" his department had on cap-and-trade.

But Gallant's government ultimately rejected the option.

Murray said cap-and-trade's advantage is that emissions reductions are clearly measured and easy to see.

"What you get with cap-and-trade is reduction certainty. You'll be sure that you get your reductions." 

And he said NB Power could earn credits for eliminating coal at the Belledune generating station, thus avoiding too much of an impact on power rates. 

Join the Quebec system

Cap-and-trade systems are complex to administer, but New Brunswick wouldn't have to draft a plan from scratch. 

It could join the existing credit market established between Quebec and California.

"I don't think there's any hurdle at all," Murray said. "I think it's fairly easy to do because you won't be the first to join." 

But given Higgs's dim view of Quebec on environmental issues, including its opposition to oil pipelines through the province, he may not be keen to link his policies to that province's.

The Quebec-California emissions credit market, which Ontario withdrew from last year, is attracting new interest while also facing opposition in the U.S. The state of Oregon is looking at joining it, but the Trump administration is challenging its legality in court. 

Higgs could also look into joining Nova Scotia's stand-alone cap-and-trade market, though that province has already said no to letting other provinces sign on. 

Cap-and-trade would replace PC plan

Any cap-and-trade model would require Higgs to abandon the output-based pricing system he unveiled in the spring.

It taxes only 0.84 per cent of major industrial emission in New Brunswick and creates a special break for NB Power so it can avoid big power rate increases. The province is still waiting to see if Ottawa will approve it. 

Comeau said the model is similar to Saskatchewan's system for industry, "the weakest thing the feds agreed to," she added. 

The Tories opted for it, they said at the time, to protect major industries that might lose out to competitors in jurisdictions with no carbon tax.

Not just a price on carbon

Comeau said any provincial climate plan has to go beyond a carbon price and also do more to get to the goal of zero emissions by 2050. That means pushing harder on energy efficiency, renewable sources of electricity and the adoption of electric cars.

The entire discussion about which carbon price Higgs should adopt, unimaginable just days ago, could also prove short-lived. 

Ontario Premier Doug Ford said in August he'd respect the election results when it came to fighting Ottawa on the carbon tax. The Trudeau Liberals won the most seats and the most votes in his province, but on Wednesday, Ford said he would keep fighting after all.

For the time being though, Higgs is open to the idea of a conservative-crafted carbon tax, which will make his deliberations worth watching.