Feds mull further changes to carbon tax plan amid U.S. tax changes and tariffs

OTTAWA – The federal carbon pricing system for heavy emitters, softened last week to ease the impact on Canadian industry, could be amended even further this fall as Ottawa looks to address competitiveness fears in corporate Canada fuelled by U.S. tax cuts, tariffs and environmental policy roll backs.

Environment Canada also now has to consult on the proposed plan with more than a dozen industrial sectors specific to Ontario that weren’t originally expected to be affected by the federal carbon pricing program because Ontario had its own system — now scrapped by Doug Ford’s new provincial government.

That includes the auto sector, which is the next possible target for President Donald Trump’s tariffs, and breweries, who are paying more for their cans from the aluminum tariffs Trump has already imposed.

Steel, which also had tariffs imposed by the U.S. in June, was one of the industries given the biggest break by Ottawa last week when Environment Minister Catherine McKenna increased the amount of emissions companies can produce before they have to start paying the carbon price. Those changes came after six months of consultations with affected industries who warned the government the proposed system was too onerous and could compel some of them to consider leaving Canada altogether.

Manufacturers of steel, iron, lime, cement and nitrogen fertilizer will now have to pay the carbon price only on emissions that exceed 90 per cent of the average emissions in their sector. Other companies that produce more than 50,000 tonnes of greenhouse gases a year, will pay the carbon price on anything over 80 per cent.

The original proposal McKenna made in January was to set that cap at 70 per cent for all industry.

John Moffet, the associate assistant deputy minister at Environment and Climate Change Canada, said Thursday those changes may not be the last, and that economic pressures facing companies from things like U.S. tariffs are among the factors being looked at.

“I would say the government is open to further changes across the board,” said Moffet.

Environment Canada officials met with representatives from more than a dozen Ontario industries, including auto and auto parts manufacturers, pharmaceutical companies and a number of chemical firms, last week to begin the process of assessing how their competitiveness might be affected by the carbon price. The federal system will only be applicable in provinces without a federally approved carbon price system of their own.

Although Ottawa won’t be assessing which provinces have such plans until September, Moffet said when the original consultations took place, the federal government analysed and consulted industries only in provinces that were expected to use the federal pricing program.

The changes to the system have become political fodder for carbon price opponents — particularly the federal Conservatives and their provincial counterparts in Ontario, Saskatchewan and Alberta — who argue that scaling back the program to reduce the impact on business is an admission the carbon pricing system is bad for the economy. They want Ottawa to scrap the entire carbon pricing plan.

The government says the plan all along was to set an initial target and then amend it after more specific review, and that the changes made will not have a material impact on the amount of greenhouse gases that will be cut from Canada’s total annual emissions. Moffet said the incentives to reduce emissions remain, even with a higher cap.

Corporate Canada may also get help this fall from Finance Minister Bill Morneau, who is spending the summer listening to a wide range of perspectives on Canada’s competitiveness challenges. For months now Canadian businesses have been firing off warnings that Canada is at a deep disadvantage after recent changes like U.S. corporate tax reforms.

Business associations want Ottawa to cut corporate taxes in Canada, arguing the U.S. tax changes could end up inflicting more damage on the Canadian economy than the possible termination of the North American Free Trade Agreement.

A spokeswoman for Morneau said if he is to make any adjustments, they would be announced in his fall economic statement.

The draft regulations finalizing the industrial component of Canada’s carbon pricing scheme are also expected this fall, with the final regulations not expected until the summer of 2019.