One of Mark Carney’s first acts as Prime Minister was to eliminate the federal carbon fuel charge, with the flourish of a sharpie marker and widespread media coverage.
Getting far less attention, however, is the Liberal Leader’s proposal to introduce a new layer of carbon tax on heavy industry that, if implemented, will drive up costs for those businesses and render them increasingly uncompetitive if they are not able to pass those expenses on to Canadian consumers. Mr. Carney’s replacement tax, despite being described as a way to make “big polluters” pay for subsidies for such things as EVs and heat pumps, could end up being a carbon levy on Canadian households to some degree. The only question is how much.
That was the first, next carbon tax from the Liberals. Buried in the party’s fiscal costing released over the weekend was another one: a carbon tariff. Technically speaking, the Liberals are proposing a “carbon border adjustment,” but it functions just like a tariff. Goods from countries without a sufficiently rigorous carbon pricing regime – like, say, the United States, Mexico and China – would be hit by a carbon levy, which would start in the 2027-28 fiscal year. (The Liberal campaign did not provide further details.)
The amount of revenue forecast in the Liberal fiscal framework is relatively modest, at first: just $100-million in fiscal 2028, rising to $400-million the next year. But that amount could rise very quickly if the carbon costs that Ottawa imposes on industry ramp up and Canada’s trading partners don’t follow suit. However small the initial amounts, the impact is clear: the cost of imports would be higher – just as is the case with the retaliatory tariffs that Ottawa has put in place to respond to U.S. President Donald Trump’s trade war.
But there is one big difference. Those retaliatory tariffs are intended to be temporary, winding down if and when the United States scales back its own levies. The carbon tariffs are permanent. And no points for guessing what the U.S. response would be to a new tariff two years hence.
Some have argued that such a measure might be needed to harmonize with the European Union, which is already implementing a carbon border adjustment. That’s not true; Canada need only have carbon pricing compatible with the EU to avoid exports being penalized.
The real reason for implementing a carbon tariff is industrial carbon pricing and the competitive disadvantage it represents for Canadian producers. Foreign competitors won’t face the same costs, meaning their goods will become relatively cheaper as carbon costs rise.
Those pressures exist in any type of industrial carbon pricing. At the moment, that risk is minimized by most of the revenue from industrial carbon pricing being recycled within industry. Some laggard firms are placed at a disadvantage, to be sure. But the plan that the Liberals propose heightens the risk, since it would siphon off the revenue to pay for consumer subsidies, maximizing the cost gap between domestic and foreign producers.
Mr. Carney would like voters to believe that his next carbon tax will be a free-lunch substitute for the hated carbon fuel charge at the pumps. The reality – as made clear by his (other) next carbon tax – is that Canadians will still end up paying.