With the court case settled, what should Ontario do about carbon pricing?

OPINION: The Supreme Court has ruled, and a carbon tax could be settled law. Here are the choices Doug Ford is facing now
By John Michael McGrath - Published on Mar 30, 2021
Premier Doug Ford speaks at an anti-carbon-tax rally in Calgary on October 5, 2018. (Jeff McIntosh/CP)

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The Supreme Court has settled the constitutional question. Ottawa has the power to force a minimum national level of carbon pricing on the provinces and, if they don’t levy it themselves, to impose a carbon tax of its own to fill the gap. Having spent millions of dollars and years of time fighting the carbon tax and losing, the Ontario government and Premier Doug Ford face a pretty simple question: What now? The answers, however, aren’t nearly so obvious.

The first option is to do nothing, to change not a single piece of provincial policy or law. The federal carbon tax would continue to operate in the province, and Ontarians would continue to receive a tax rebate returning (in most households) more money than they pay in carbon levies every year, according to the Parliamentary Budget Officer. That’s not a terribly inspiring policy. But it would, in one sense, show the federal carbon price working exactly as it’s supposed to.

But there’s a ton of money at stake — billions-with-a-B dollars every year — and, all things being equal, Ontario would probably like to have some say in how those dollars are taxed and spent here. So the province has two options: it could ask Prime Minister Justin Trudeau to hand over the carbon-tax revenues to the province instead of distributing them as rebates (something that’s allowed in current law) or implement its own carbon price, either through a carbon tax like Ottawa’s or a cap-and-trade system like the one Ford abolished shortly after winning the 2018 election.

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The simplest policy would be for Ottawa to continue to collect the tax but then to hand the money over to Queen’s Park — indeed, this was the explicit policy of the PCs when Ford won the party’s leadership. It was a sensible policy then, and it makes sense now. The most amusing course would be for the Ford government to rebuild the cap-and-trade system it spent so much energy dismantling back in the middle of 2018, but because it would be so funny, it’s also unlikely.

So if the Tories can’t bear to simply take Ottawa’s money, they’ll likely go with an Ontario-made carbon tax of some kind. Again, one option is to keep it simple and just dump the money in the treasury, which would effectively mean that the federal carbon tax would help shrink Ontario’s budget deficits over the next decade. But they could be more creative: Ken Boessenkool, a long-time adviser and strategist for the Conservative party under Stephen Harper, argues that the Tories should adopt a carbon tax but tweak it so that rural and suburban residents of Ontario bear less of a burden than they do under the current tax.

One possible hitch is that any provincial tweaks to a carbon tax would need to meet Ottawa’s criteria for stringency, and that would involve a political rather than a technical calculation: Would the federal government be willing to pick a brand-new fight with provinces if Ontario tried to adopt a carbon price substantially less stringent than what Ottawa wanted? Last week’s Supreme Court decision explicitly left open the possibility of future court cases on the federal government’s execution of its powers, even as it confirmed their basic constitutionality.

There is one option that would fit in with previous Tory policy priorities and also arguably conform to the federal government’s desire to drive Canada to a cleaner economy: use the proceeds of the carbon tax to subsidize Ontario’s electricity system. The Tories are already subsidizing electricity bills for consumers, to the tune of billions of dollars each year. (The Financial Accountability Officer recently reported that just one of these subsidies will cost $15.2 billion over the next two decades or so.) Ontario’s efforts to work greenhouse-gas emissions out of its power system are legitimately one of the country’s biggest decarbonization success stories — but they’ve also come at the cost of higher electricity costs for consumers. There’d be some symmetry to using a carbon price to offset those higher costs.

Normally, policymakers warn that, when goods are subsidized, people consume more of them than they otherwise would, distorting the market. But Ontario’s electricity system is extremely low-carbon-dioxide, by Canadian standards, and we want consumers to shift their consumption away from things like oil and gas and toward electricity. In this case, distorting the market is the outcome we want. It would also let the Tories crow about doing what they said the Liberals would never be able to do — getting Ontario’s electricity prices under control.

The real question for the premier’s office is timing. The Tories very likely want to wait until the results of the next federal election, expected sometime this year, to see whether the federal carbon price will survive or whether Conservative leader Erin O’Toole will be the next Prime Minister — and follow up on his promise to repeal the carbon tax. But the paradox of the current moment is that it would be much easier for O’Toole to get to the prime minister’s office if a national carbon tax were no longer such a hot-button issue, and one way for that to happen would be for the largest provinces to adopt their own carbon prices. At least, for now. They can always change their minds later.

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