Federal approval of New Brunswick carbon tax for heavy emitters comes with warning

New Brunswick's carbon price on heavy industry has won federal approval, but that approval comes with a warning that the decision is just a truce, not a lasting peace in the federal-provincial battle over climate policy.

Jonathan Wilkinson, the federal minister of environment and climate change, said in a letter obtained by CBC News that the New Brunswick model meets the minimum requirements, but it is "significantly weaker" than the federal system.

"It will result in fewer emissions reductions," Wilkinson said in the Sept. 20 letter to provincial Environment and Local Government Minister Jeff Carr, adding that Ottawa will be pushing the province to adopt a tougher system in two years.

The provincial system, called an output-based pricing system, applies to only a fraction of the industrial emissions now subject to the federal model.

The approval means Ottawa will withdraw its system and allow New Brunswick to put its regime in place, though there's no date yet for when that will happen.

Carr said in an interview that he's "very happy that positive response, for the most part, came from Minister Wilkinson."

Wilkinson said in the letter he'll be looking for provinces, including New Brunswick, to ratchet up that standard when the national climate plan is up for review in two years.

"I am of the view that an important step will be to strengthen the benchmark stringency criteria for the post-2022 period in order to continue to provide a meaningful price signal to industry and to spur innovation and clean growth," the letter said.

Depending on those negotiations, New Brunswick could be subject to the stricter federal system again if it refuses to go along with tougher standards.

"Most recently in the last number of months, Premier Higgs and our government have been open to having positive discussions with the federal government, so we'll have to see what 2022 brings," Carr said.

Decision criticized

In a statement, Louise Comeau of the Conservation Council of New Brunswick, a Green Party candidate in the recent election, criticized the federal decision.

"The Government of Canada has let New Brunswickers down by approving weak regulations that let Irving Oil, NB Power and the province's other heavy industrial polluters off the hook for taking serious climate action," she said.

Ottawa decided the provincial plan met its requirements because it applies to the same industrial sectors as the federal version, applies to the same gases and applies the same price scale of $20 per tonne this year, rising to $50 per tonne in 2022.

The key difference is that the provincial levy applies only a much tinier fraction of emissions than the federal system.

Last year, provincial officials said the price would tax only 0.84 per cent of emissions in 2019, rising to 10 per cent by 2030.

The federal price applied to 20 per cent of emissions last year.

Formula weak

Another difference is that Ottawa's standard is set by measuring emissions from other plants in the same industrial sector. The New Brunswick standard will compare an individual plant's current emissions to those in its past.

In both cases, plants that exceed the standard will have to pay while those that stay below it will earn credits they can sell to higher emitters.

Ottawa says the New Brunswick formula is so weak that 100 percent of last year's emissions will be exempt from the price, and 90 percent of them will still be exempt by 2030.

"Environment and Climate Change Canada's modelling shows that New Brunswick's system will achieve fewer reductions than the federal system, making it much more challenging to reach Canada's 2030 target," Wilkinson says in his letter.

"This is concerning to me, and likely also concerning to many New Brunswickers who support strong action to fight climate change."

Carr insisted last year that the weaker system would still provide emitters with an incentive to reduce their greenhouse gas emissions.

Industry can't afford extra cost: Higgs

The Higgs government has argued that large exporters that sell into the U.S. market, such as the Irving Oil refinery in Saint John and several large forestry mills, can't afford to pass on to customers the extra cost of a big carbon tax.

With no firm date for the switch from the federal to the provincial system in New Brunswick, industrial emitters could be hit with the higher federal tax this year before the transition takes place.

Carr said the deadline for emitters to report their 2019 numbers has been extended until October and their payments will only be due in early 2021.

"I think there is some time to make those adjustments," he said.

Ontario also learned Monday that its provincial system had won federal approval.

The two notifications came a day before the Supreme Court of Canada is set to open two days of hearings on whether the federal carbon tax regime is constitutional.

Appeal courts in Ontario and Saskatchewan both ruled that it is, but both those provinces have appealed that to the Supreme Court. New Brunswick is intervening in the appeals to argue it's unconstitutional.

New Brunswick consumers have been paying a provincial carbon tax on gas since April 1 of this year.

The 6.6-cent-per-litre tax replaced the federal "backstop" tax that had been applied at the pumps.

PC legislation passed earlier this year to implement the tax also reduced the provincial excise tax on gasoline by 4.6 cents, meaning the net cost of the tax to consumers is two cents.

The government's plan is to continue lowering the excise tax every year by the same amount the carbon tax rises — meaning the net impact will remain two cents per litre indefinitely. That weaker model also won federal approval.