Why feds should consider a carbon tariff

Ottawa recently unveiled climate rebates for residents of provinces subject to the federal carbon tax. The government should fund larger rebates and better protect industrial jobs by extending the federal levy to the carbon content of imports from countries that don’t price emissions. As long as emissions are free in the U.S. and many other countries, a Canadian carbon price could prompt industry to relocate to jurisdictions with weaker environmental standards. Such relocation would eliminate Canadian jobs and increase global emissions. To safeguard jobs and ensure that our carbon pricing helps to reduce global emissions, we should adjust the carbon levy at the border. A tariff on imports would ensure that the federal carbon price applies to products consumed in Canada, whether they are produced at home or abroad. For example, making a tonne of steel in China and shipping it here emits five times as much carbon as manufacturing it at Regina’s steel mill. A federal carbon tax without border adjustments would increase the cost of Regina steel, providing a perverse incentive for Canadian consumers to instead import dirtier steel from China. By contrast, a Canadian carbon tax with a corresponding carbon tariff would increase the price of Chinese steel more than the price of Regina steel, creating an environmentally appropriate incentive for Canadian consumers to buy local. Regina’s steel mill would have an incentive to minimize its emissions in order to maximize this competitive advantage. Border adjustments would also rebate the federal carbon price on Canadian-made exports, providing a level playing field for industries selling their products abroad. For a quarter-century, Canada has applied the GST to imports and rebated it on exports. These border adjustments are consistent with international trade agreements and keep Canada competitive with the U.S., which does not charge a value-added tax like the GST. However, it was provincial governments that began pricing carbon. They do not have the constitutional authority to levy import tariffs or issue export rebates. Provinces have, instead, tried to maintain competitiveness by subsidizing their carbon-intensive, trade-exposed industries. Provincial cap-and-trade systems gave free emission permits to these industries, while provincial carbon taxes gave them exemptions based on output. The federal government’s “backstop” carbon tax for provinces without their own carbon pricing was modelled on Alberta’s existing carbon tax and exemptions. This past summer, Ottawa announced that it would exempt 90 per cent of emissions for producers of cement, steel, lime, and nitrogen fertilizer, and 80 per cent of emissions for other industries. Such large exemptions should keep carbon-intensive industry from relocating abroad, but substantially reduce the federal carbon revenues available to fund consumer rebates. Ottawa unveiled rebates for next year, ranging from $609 in Saskatchewan to only $307 in Ontario or $256 in New Brunswick, for a family of four. Alberta’s output-based exemptions may have seemed like an appropriate model for a federal “backstop” that would apply only to Saskatchewan. It now appears that the federal carbon tax will apply to at least half of Canada’s economy and population. Ottawa should consider using its constitutional jurisdiction over international trade to implement carbon-border adjustments. Because Canadian industry exports much of its output, the fiscal cost of export rebates would be similar to output-based exemptions. But that cost would be offset by the revenues from a carbon import tariff, enabling larger rebates to consumers. Even making the cautious assumption that production processes abroad are the same as in Canada, Statistics Canada estimates that the carbon content of our annual imports exceeds 200 megatonnes. A carbon tariff of $20 per tonne next year would collect $4-billion, which could fund a rebate of $110 for every single Canadian, in addition to what was already announced. In reality, production is much more carbon-intensive in China and many other countries than in Canada. Developing the capacity to properly assess the carbon content of imports would boost carbon-tariff revenues. The federal government is providing industry exemptions and consumer rebates in an effort to reduce emissions, safeguard jobs, and compensate consumers. A carbon tariff would help to achieve these goals by encouraging the use of Canadian-made products instead of more carbon-intensive imports, and by collecting revenue that could fund larger rebates for all Canadians. Erin Weir is the Co-operative Commonwealth Federation MP for Regina–Lewvan, Sask. The Hill Times

Why feds should consider a carbon tariff

To safeguard jobs and ensure that our carbon pricing helps to reduce global emissions, we should adjust the carbon levy at the border, writes Saskatchewan MP Erin Weir.

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